In January, one of our clients passed away with an estate worth about $2 million and substantial funds invested in the stock market. Based upon his revocable trust, those monies were to be divided between relatives.
When we met with the trustee to ready the account to be transferred to the successor trustee’s name, we discussed the benefit of pulling funds out of the stock market. We explained that because the decedent had recently passed, there were no capital gains to be reported and, in fact, there was a slight loss from the date of death until the liquidation occurred.
This real-life scenario reflects one of the benefits of using a revocable trust. Under the same scenario, had the client used a will and experienced some of the typical delays in the probate processes, it probably would have taken another four to six weeks just to get the estate opened.
While probate delays are considered minimal by our terms, the loss of control of assets are due to courts being behind in processing applications to admit wills and appoint executors. There can be other costs as well.
In unstable markets such as we have now, or in depreciating markets, market losses can be significant. At Isaac Wiles, we have experienced large fluctuations in the stock market in 1987, 1991, 1997 and 2007. In each of those years, clients who have utilized trusts were able to manage their portfolios more efficiently and, with their brokers, avoid more painful losses.
The trustee took our advice. In March, the stock and brokerage accounts were liquidated. When we met with that same client again in May, the trustee noted that had they left the money in the market, there would have been an additional $200,000 in losses.
Written by Isaac Wiles partners William Browning and John Lucas.