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Perpetual Trust May Benefit Lawyers, Administrators More Than Recipients

August 20, 2000|LIZ PULLIAM WESTON

Q: I've done considerable research on living trusts in the last few months, but every example I've found contemplates the trust ending with a distribution to children or grandchildren. Is it possible to structure a trust that continues indefinitely, with periodic changes of trustees and beneficiaries? It seems to me this would be a good way to preserve and grow an estate for future generations, who could tap it for emergencies (with the trustee's consent) and allow continued growth in years when trust income isn't needed.

A: A few states, including Delaware and Alaska, have made such perpetual trusts possible. But you have to ask yourself why you'd want to do this.

Consider all the costs and hassles involved. Even the most carefully selected trustees can get into fights with beneficiaries that drain the trust. Imagine a few generations from now when you'd have little or no control over who the trustee turns out to be.

Which leads to another issue: You won't know who's getting the money years down the road, because you'll be dead and many of your future beneficiaries won't have been born until after you're gone. Although they will be your descendants, they will also be the descendants of a lot of other people as well. Most parents who want to leave inheritances would prefer that the money go to people they know.

Then there's the question of how you would define "emergencies." Would one family's refusal to set aside money for a rainy day give them priority over another family's inability to pay for a child's college education? If you make the definition too narrow, you could be cutting out people you would want to benefit. If you make the definition too broad, the money would soon be spread so thin it would be of little use.

A perpetual trust might sound like a grand idea, but most likely it would be an ego trip for you, a limited benefit for your descendants and a huge cash cow for trust companies and lawyers. Given the costs involved, you probably shouldn't even think of it if your estate is worth less than $5 million.

If you're set on creating one, contact an experienced estate-planning attorney. This, like most estate planning, is no place for do-it-yourselfers.

Social Security Record Missing

Q: Like a good citizen, I contacted the Social Security Administration to verify that their records match my own for my "deposits" into the system. Unfortunately, the year 1983 shows no contributions from me. I no longer have the tax returns from that year and the company I worked for is no longer in business (at least that I can find). I don't know how to correct the government's records or if it is important to do so. I have paid into Social Security since 1971, when I was in high school.

A: The tax preparers I contacted about your problem said that although it is possible to get copies of recent tax returns from the IRS, it's unlikely the agency would be able to dig up your 1983 return. Still, you can contact the IRS at (800) 829-1040 and ask for help.

Whether it's really important depends on your work history. Social Security uses your 35 highest earning years to calculate your benefit, and a missing year would be entered as a zero. If you got your first job at age 16, are 45 now and plan to retire at 65, you probably don't need to worry, because your 35 highest-earning years would probably all come after 1983. If you plan to retire early, however, that zero in your earnings column could have a small impact on your benefits.

This does point up the importance of hanging on to tax returns. And if tax preparers or others have tackled this problem, I'd love to hear from them.

Employer Controls 401(k) Account

Q My wife works for a bank and changed her work status from full time to part time. Now the bank says that as a part-time employee, she can no longer contribute to the 401(k) plan. However, when she wanted to close her 401(k) account and roll her vested assets into an IRA, the bank said that she could only do so when she quit. Is that legal? Can a person neither quit the plan nor have its benefit?

A: Well, she still has the benefit of the plan, because her balance continues to grow tax-deferred. But yes, the bank can legally keep her from contributing and from moving the balance.

Many people don't know that they don't have an automatic right to their 401(k) balance even if they leave their job. Legally, their employer can hang on to the account until the worker turns 65. Most companies are happy to terminate the relationship much sooner than that, of course, and the exact methods and requirements they impose can be found in the plan summary. Your wife can ask for a copy from the bank's human resources office.

For the Record: Last week's column erroneously said Los Angeles County required seismic gas shut-off valves. It's the city of Los Angeles that requires the devices.

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Liz Pulliam Weston is a personal finance writer for The Times and a graduate of the personal financial planning certificate program at UC Irvine. Questions can be sent to her at liz.pulliam@latimes.com or mailed to her in care of Money Talk, Business Section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012. She regrets that she cannot respond personally to queries.

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