Case Studies

Below are case studies illustrating different ways First Covenant Trust helps guide people through trust and estate related situations. The examples are based on actual scenarios, but names and some facts have been altered in order to preserve client privacy.

 

Professional Athlete

Xavier Williams was drafted out of college to play baseball for the San Francisco Giants. He rose quickly through the ranks of the minor leagues and soon became a mainstay in the starting line-up. After contributing several solid seasons in the big leagues his notoriety and his income both began to increase.

Xavier is a thoughtful, grounded person. He grew more and more concerned that his high profile, combined with the public nature of his 7 figure income could lead to problems. Xavier came to First Covenant for guidance. Xavier already had a good financial advisor in place to help him with investing, and, unlike many professional athletes, his lifestyle was not overly extravagant. His major concerns were:

  • Relative to most professions, I will have a short career. Since I’m saving the majority of my take-home pay, my savings don’t all fit into retirement accounts that are protected. My investment accounts are quickly getting large.
    • How can I protect this money so it will be around once my playing days are over? I’m worried an ordinary accident, like a fender-bender in the car, could cost me a lot because people know who I am and that I have a big income.
    • Is there a way to minimize taxes on this investment income I won’t need while I’m still playing?
  • I’m often approached by relatives asking for money or a loan. How can I say “no” without alienating people?
  • Sometimes friends or family will want me to invest in a new business project. How do I decide which of these investments, if any, are worth doing?

First Covenant worked with Xavier and his other advisors to set up and move assets into a structure utilizing asset protection, charitable and ING[1] trusts. This set-up addresses Xavier’s worries and provides additional benefits.

  • Assets are protected from unknown future creditors, increasing the odds that Xavier’s savings will benefit him throughout retirement.
  • Federal income taxes are eliminated or deferred on investment income he isn’t using during his playing career. When taxes are eventually paid, it will likely be at a reduced rate because they will be paid after Xavier’s retirement from baseball and his overall income will be lower.
  • High state and local taxes in San Francisco are eliminated on investment income.
  • Xavier has a thoughtfully engage with giving to the causes he is passionate about, and an earmarked pool of funds to use.
  • Xavier can use First Covenant as a shield for friends and relatives looking for funding. Covenant can be the “bad guy,” explaining to would-be recipients that “Mr. Williams’ funds are tied up and can’t be used for certain purposes.”
  • Xavier can direct anyone looking for investment funds to First Covenant. As trustee, Covenant can perform due diligence on potential investments. Those not meeting high standards can be gracefully declined.

After working with First Covenant, Xavier’s mind was eased that he was doing the best he could to protect what he was earning and saving. The season after implementing the above, Xavier had his best season—he was voted an all-star and was in the conversation for the league MVP. At First Covenant, we like to think it was because his mind was freed from all the other worries besides hitting baseballs.  

Surviving Spouse

Frank and Thelma Brown were high school sweethearts in the 50s. They married in 1958, shortly after Frank received his engineering degree. Frank advanced in his career and Thelma stayed home to raise their two children, Jeff and Kelly. Jeff eventually graduated from medical school and Kelly became a pharmacist. They each took jobs in different cities a long drive away from their parents.

By the time Frank retired from a successful career, Frank and Thelma had both become comfortable in their respective roles—Thelma managed the household, and Frank handled the business. Their comfort began to erode as Frank’s health began to fail. Frank and Thelma had worked hard to ensure their assets would last the rest of their days. Frank wanted to be certain that following his passing Thelma would not be burdened with paying the bills, learning to oversee investments, deciding which account(s) to use to pay living expenses, making good tax decisions and ensuring she paid all the right taxes at the right times (without over-paying), and similar issues that Frank had always taken care of during their long marriage. Frank and Thelma worked together with First Covenant, their estate planning attorney and financial advisor to create and fund a revocable living trust. Frank remained in control while he was competent, but he and Thelma had the peace of knowing that when he was no longer able to manage things a whole team of professionals at First Covenant was ready and waiting to take over without skipping a beat.

Sadly, Frank passed away in 2018 shortly after he celebrated 60 years of marriage with Thelma. Since then, First Covenant has been helping Thelma by handling the business that Frank used to handle—paying bills, working with their financial advisor to keep investments on track, and keeping an eye on taxes, among other things. This has freed Thelma from that responsibility and allowed her more time to do the things that she enjoys—things like evenings at the theatre or symphony, traveling, and of course spending time with her grandchildren and great-grandchildren.

Second Marriage

Roger and Patricia Howard met on a travel tour for seniors and married later in life, each after losing their first spouse to illness. Roger has three adult children from his first marriage, Patricia has two, all of whom are doing well in their various stations in life. Everyone in the family gets along fine, but Roger’s and Patricia’s children, who met when they were all grown, are not especially close to one another. Patricia’s net worth is a good deal higher than Roger’s, and other than a small joint checking account they use to share household expenses, they have kept their assets separate. Both came to First Covenant with the same goals:

We want to ensure that whichever of us is the surviving spouse is well cared for with all of our combined assets. The survivor should be able to continue to live the lifestyle we have together as long as health allows.

Upon the second death, we each want our own children to inherit our assets—Roger’s children getting his assets and Patricia’s children inheriting her portion. We want to ensure that the order we die doesn’t impact which spouse’s family inherits everything. We especially want to make sure that if the survivor remarries again, that the family of that unknown future spouse doesn’t inherit from us.

Both spouses named First Covenant Trust as their Agent under Power of Attorney. They also each named First Covenant as successor trustee of their respective revocable living trusts, both of which provide that a surviving spouse benefit from the trust as long as he or she lives. In this way, First Covenant is in position to ensure that the survivor has enough to continue the manner of living he or she is used to, but not so much that the either spouse’s children are left without an inheritance. Roger and Patricia are comfortable that this plan, administered without bias by First Covenant, will best balance their desires to care for their surviving spouse, while also ensuring each spouse’s children eventually receive an inheritance from their parent.  

[1] Incomplete gift non-grantor trust