Larry King, a legendary TV and radio host, passed away at Cedars-Sinai Medical Center, Los Angeles, on January 23, 2021, at 87. Larry had been hospitalized in December for COVID-19. However, he’d just been transferred from an ICU to a regular room in the hospital after recovering from the virus. The broadcaster died from sepsis, which was unrelated to his other conditions.
In part one of this series, we discussed Larry’s decision not to consult legal counsel to update his divorce plan. This led to a long court battle between Larry’s seventh spouse, Shawn Southwick King, and his surviving children. In this second part of the series, we will examine how a lifetime trust could have benefited Larry’s children. We’ll then discuss the complications that resulted from Larry’s two children dying before he could update his plan. And the planning lessons that we can learn from this.
Lesson 1
Lifetime trusts: Airtight Protection For Your Child’s Inheritance
A lifetime trust, an estate planning tool that protects your children’s inheritance against unfortunate life events such as divorce, illness, or accidents, is unique. The trust allows your children to access their inheritance and make investments while maintaining asset protection throughout their lives.
A lifetime trust built into a living trust would have been a great way to pass on Larry’s wealth to his heirs. Let’s see how these trusts work.
Most lawyers will recommend that you place the assets you are leaving to your children in a revocable trust. This will avoid probate, which is a common problem with will-based plans. Living trusts can be set up to distribute assets to your children at specific ages. For example, one-third at 25 and a half at 30. The rest is at 35. This puts trust assets at risk of being lost or stolen by giving outright ownership.
A living trust can protect your loved one’s inheritance if trust assets hold it. However, once assets are transferred to beneficiaries, all protection provided by your trust ceases. Take, for example, Larry’s 21-year-old son Chance and Cannon (20 years old), who both had serious college debts. If they received one-third of their inheritance by age 25, creditors could seize their money if it was paid to them in an unrestricted distribution.
Larry Jr., Larry’s oldest child, would have the same situation. However, Larry Jr. would soon be divorced from his ex-wife and claim the funds in the divorce settlement.
On the other hand, a lifetime trust gives you full control over whether or not to distribute assets. The Trustee can decide when and how the assets should be distributed based on the beneficiaries’ needs and current circumstances. You can also make your beneficiary the Trustee in their own trust, but with some restrictions. This will give you more control and flexibility.
The Trustee has full access to the inheritance, so these assets are protected not only from creditors and ex-spouses but also from poor judgment by your child. The Trustee can withhold distributions to Chance if he develops a gambling or substance abuse problem.
You can also provide guidelines to the Trustee that outlines how trust assets should be used to benefit your beneficiaries. This will ensure that the Trustee knows your values and wishes instead of guessing what you’d like.
A lifetime trust is not only a great way to protect your assets, but it can also give your child practical experience in managing financial matters such as investing, starting a business, or giving back to charity. While a lifetime trust would have been an excellent way for Larry to pass his assets on to his children, trusts like this are not for everyone. However, lifetime trusts don’t just belong to the super-wealthy.
These trusts can be even more helpful if you leave a small inheritance. The less the inheritance, the greater the chance it will be wiped out by an unfortunate event such as a lawsuit or medical emergency. Trusts are not recommended if your children spend most of their inheritance on consumables and everyday expenses.
Contact Fleurinord law, PLLC, to learn how you can set up your lifetime trust.
Lesson 2
Larry Is Predeceased By Two of His Five Children
Larry’s estate was further complicated by the deaths of two of his adult children just months before him. His 65-year-old son Andy King died unexpectedly in July from a heart attack. Chaia King, 51 years old, succumbed to lung cancer three weeks later. Larry had both children from his marriage to Alene Akins in 1961.
Although Andy and Chaia were predeceased by their father, Larry didn’t seem to update his estate plan to account for them. Larry’s October 2019 handwritten will states that, in the event of his passing, “I would like 100% of my assets to be divided equally between my children Andy, Chaia and Larry Jr., Chance and Cannon.”
Larry would have worked with estate planning attorneys to keep his plan current instead of creating a handwritten will. His legal team would have ensured that his will and any other planning documents were updated immediately to account for the death of survivors. Larry would have had his plan amended by lawyers if he had worked with them. His documents would have included provisions to address the possibility that one or more of his beneficiaries might pre-decease Larry. This would ensure that Larry’s assets, even if the plan were not updated, would be passed to the right person.
California law states that the portion of Larry’s assets, which would have been passed on to Andy and Chaia by his handwritten will, is likely to go to their children (Larry’s grandchildren) if they have them. Larry’s will should have been modified to reflect Andy’s and Chaias death. We have now reached our final lesson in estate planning.
Lesson 3
Check Your Plan Every Year To Ensure It Is Up-To-Date. You Can Also Modify It Immediately Following Events Such As Births, Deaths, Divorces, and Inheritances
Larry’s example shows that a plan is useless if it isn’t regularly updated. Estate planning isn’t a one-and-done deal. Your plan should be constantly updated to reflect changes in your family, legal landscape, assets, and life goals.
This happens all the time. We are often called by loved ones who have lost their loved one or become incapacitated and need to update an estate plan. This is a common mistake. It’s often too late by the time they call us.
You should review your plan at least once a year to ensure it remains current. We recommend updating it immediately following major life events such as divorces, births, or inheritances. You won’t have to worry about losing anything because we have integrated systems and processes to keep your plan current.
We can help you if you haven’t yet created a plan, are unsure about DIY documents, or have made a plan with the assistance of another lawyer that hasn’t been reviewed for more than one year. We’ll be glad to help you with your documents.