Jerry Reiss Actuary

Jerry Reiss Actuary Jerry Reiss Actuary Jerry Reiss Actuary

Jerry Reiss Actuary

Jerry Reiss Actuary Jerry Reiss Actuary Jerry Reiss Actuary
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    • ACTUARIAL SERVICES
      • ACTUARIAL SERVICES
      • BENEFIT DISPUTES
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      • CRAFT & ROGERS
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      • START HERE
      • BENEFIT VALUATIONS
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  • HOME
  • ABOUT US
  • BLOG
  • ACTUARIAL SERVICES
    • ACTUARIAL SERVICES
    • BENEFIT DISPUTES
    • ESTATE LIQUIDATION
    • CRAFT & ROGERS
  • FAMILY LAW
    • START HERE
    • BENEFIT VALUATIONS
    • NON-MARITAL TO MARITAL?
    • QDRO'S
    • LEGAL MALPRACTICE
  • EMPLOYMENT LAW
    • CONTRACT LAW
    • DISCRIMINATION AT WORK
  • LAWYER TESTIMONIALS
    • Lawyer Testimonials
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  • CONTACT US

THE INCOME TRUST

  

An income trust automatically pays income to current named beneficiaries  on specific sums of money or share interests bequeathed to them. The trustees have discretion to pay principal from those specific sums or share interest bequeathed to them and such payment is conditioned on specific  need.There are often successor beneficiaries who obtain the rights to automatic income and discretionary principal upon the death of the current beneficiary. The current and successor beneficiaries may receive their interest individually or jointly with the rights of survivorship. Upon the deaths of all beneficiaries to each specific sum or share interest bequeathed, the balance can sometimes go to named charities. These are also among the most complicated trusts to terminate and  should never be undertaken without the assistance of an actuary. Terminating  these trusts can be done without costly litigation only with the consent of all current, successor and residual beneficiaries, -- as well as  the trustees. Because  consent of all interested parties is functionally required, a proposal setting forth methodology and assumptions should be performed before doing the major work. This determines whether such consent can be obtained before the trustees commit to spending the bulk of the money. 


No methodology should be arrived at before understanding the financial circumstances of the current beneficiaries. This allows one to subgroup these individuals by their future needs for discretionary principal. 


Financial needs are frequently associated with age. The less affluent aged will have greater needs related to health issues particularly as they advance in age. The  probability of becoming frail increases with age and this increases the likelihood of requiring long-term nursing care or residing in an  assisted living facility.  Middle class beneficiaries who did not purchase long-term nursing care insurance, and very few did, will not be able to afford long-term medical care without Medicaid assistance and this will not be possible  with their current beneficiary status in this income trust.  (This is because the 1986 Medicaid Act limits the amount of assets that the ill-spouse has to a few thousand dollars and it also limits what the healthy spouse can have to a very modest amount.) The Society of Actuaries has a twenty-year study on nursing care facilities showing probabilities based on attained age, which can be of great assistance in  establishing discretionary principal assumptions based on the likely future need for this care.


The right to future income is better valued implicitly ("a backdoor approach").  This means that no one assumption need be realistic or justified.  Instead, the assumptions, as a whole, must be reasonable.This avoids the need to justify assumptions on future income and it also avoids a host of other problems, including rewarding future risk that was never undertaken with a terminated trust. Whatever the future income will be is uncertain.  But it doesn’t matter because it will be paid, and as the trust will be liquidated there will be no principal remaining. Thus distributions can be determined without respect to what portion represents a right to lifetime of future income or discretionary future principal, simply by valuing the discretionary principal paid using zero  percent interest. 


Complications  arise at the intermediate stages with successor beneficiaries who  inherit a principal balance. That balance obviously was not used  implicitly to recognize a lifetime right to future earning with the  previous beneficiary. This error  of "the implicit methodology approach" can be corrected by adjusting and  increasing the payout to the prior beneficiary to implicitly recognize  earnings on the leftover balance, and proceeding to the next level of  beneficiary after making that adjustment.      


For  a comprehensive analysis, see Jerry Reiss, Terminating the income  Trust:  A Suggested Approach, ABA Bankers Journal (Dec. 2010). 

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