Estate Planning & Trusts, Anyone?

Parent Cafe
1

<p>We’re in the process of seriously getting our assets organized and contemplating the pros and cons of a revocable living trust and/or other methods of minimizing probate, while getting assets to our S & D. This is the only marriage for me and H and we have no other dependents. My family is in pretty good shape professionally and financially. Our kids are now young adults at 23 and 25; both seem very responsible with money so far. S has a great job and job skills and D is hopefully in her last term in cinema.</p>

<p>Anyone with experience with revocable living trusts who can discuss the pros & cons of having them, initially and after one or both grantors die? Would love thoughts and feedback. Thanks! I still remember back in law school where BOTH of my trusts and estates professors admitted that they gave their property to their spouses outright with NO trust. The estate planning attorney is STRONGLY recommending revocable living trusts for us. We do have significant assets–some liquid and some real estate.</p>

2

<p>We did do a revocable living trust. My concern was to protect the kids in case something were to happen to both of us. With everything in both of our names, one of us dying isn’t so problematic, but what if we had a tragic car accident or plane crash? Then the kids would have to deal with probate. Other than the bother of doing it, and the bit of expense, I can see no downside to the revocable living trust.</p>

3

<p>We had a revokable living trust prepared to make things easier on our daughter should something happen to both of us. We designated a bank and trust company as the successor trustee to manage finances and pay taxes. Once we got to the step of funding the trust, I was surprised at how few assets actually need to be held in trust to avoid probate. All retirement accounts are held outside of trust, and bank accounts or anything else with a payable on death option can go directly to the beneficiaries. For us the trust was mostly about peace of mind, knowing our daughter would have access to competent guidance when she needed it.</p>

4

<p>Thanks for these perspectives. When my SIL died, nearly all her liquid assets passed directly from the institutions because many of the accounts were “payable on death,” and the IRAs and life insurance had beneficiaries named. I think the trust was mainly for the real estate assets. We did get my brother (who is great with finances and close to my kids) to agree to be the executor and my niece to be seconary executor after we both die. </p>

<p>Is it correct that no tax return needs to be filed for the trust until and unless the trust earns annual income of $10,000 or more? Our CPA says he will NOT do trust returns.</p>

5

<p>A trust has a filing requirement if gross income is more than $600. </p>

<p>I personally don’t have a revocable living trust for probate purposes, because all of my assets are either JTWROS, POD, or have a named beneficiary. Oh, plus a car, but the tag agencies here will retitle without probate; you just need an affidavit.</p>

<p>If both of us die in some horrible accident while D is a minor, everything will go outright to her the day she turns 18. Which is fine with me - I’d much rather she blow all the money before she hits 25, then have 40-50 good earning years still ahead of her, than that she spend 20 years with the trust paying for her health, education, maintenance, and support, blow all the money by 40, and have to start from scratch at that point. No point in paying for years of trust administration and creating a lifestyle of dependency.</p>

6

<p>Yes, H & I are JTWROS. Our kids are adults, but it saves a lot in probate if real estate is put in a revocable trust instead of having to go through probate, at least that’s my understanding.</p>

<p>I don’t think you need to KEEP anything in trust–it can easily be terminated by distributing the assets after the person who held them dies (and/or the beneficiaries are all adults or whatever age the person who made the trust has set out in the trust). The trust can solely be administered by capable friends/family and distributed (with a bit of guidance from attorneys if needed). That is what is happening with my SIL’s considerable estate. Many accounts passed by POD or to beneficiaries. The real estate is in the trust and will be disbursed. At that point, I believe it will be terminated. There are no minors or trust companies involved.</p>

7

<p>My late husband and I had all our assets in a revocable living trust and it did make processing the estate much easier than going through probate. Tax returns are filed yearly for the trust. </p>

<p>Helpful hint: joint accounts aren’t. In case of death of one spouse on a joint account will freeze that account with the idea the proceeds of the account can’t be touched until probate is complete. Flashing trust papers unfroze the accounts. If you have enough fluid money in your accounts, a way around that is to pull the money and put it into a new account only in your name before informing the bank of your spouses death. I’d suggest doing it fast, as they do get reports somewhat periodically.</p>

8

<p>It does look like trusts who have gross income over $600/year must file taxes. Guess the $10K income figure may have been for a different year or something else.</p>

9

<p>We have revocable living trusts with many of the normal provisions, but with a few twists. They have been written so that the split between the A/B trusts adjusts for changes in the federal lifetime credit. Using the trusts we have also delayed the payout to our children to ages a third of the funds at 25, half of the remainder at 30 and the balance at 35. </p>

<p>The biggest difference is that we also have designated that our kids will not inherit the funds directly, but rather through their own continuing irrevocable trusts that will come into existence after both our deaths. These trusts will provide them with extremely strong asset protection, since the funds came from a third party (us) who established the spendthrift restrictions on the trust. While our kids can have the income and principal as they need it, the trusts also contain “trust protector” provisions that can be invoked in the event of creditor attack or to change the terms of the trust to conform to changes in the law etc. While this is obviously not something they need today, it doesn’t cost much more to give the gift of asset protection in the future.</p>

10

<p>Here are some of the traditional reasons for a trust:</p>

<ol>
<li>Save on taxes. If you have more than the exclusion level, you can set up a trust that takes this exclusion amount and sets it aside. The surviving spouse tries not to touch it - maybe can’t if that’s what’s written - and then it goes without further taxation. </li>
<li>Planning. Someone is sick and there are worries about care and control of assets. Or more commonly, you worry the survivor will remarry and your kids will lose out. You can lock in their inheritance easily with a trust. You can also more easily lock that money away in case of a worry about remarriage and divorce. Though really anyone marrying again at an older age should have a simple pre-nup that says yours is yours and mine is mine, you can control what the shared amount may be and can isolate some or even all of the principal. I’d say this is a main worry.</li>
<li>To express wishes. Say you have a screwed up kid. You can leave that kid out of the disposition and let the survivor write the kid in. You can give the survivor the right to include or exclude any of the kids, so you can try to reward or punish future behavior. This is a limited power of appointment and it can be given over assets that aren’t taxed to the survivor - meaning to the amount up to the exclusion from taxes that is set aside. A variety is if you have a kid who has died and left kids behind and you want to make sure they get the proper share. </li>
</ol>

<p>So you can see there are real reasons. The way to identify them is to have an honest discussion about what you want and worry about. One of my favorite examples is the Getty Trust. You see in there an express limiting of what the funds could be invested in - government bonds of some specifically listed countries - because the trust said in fairly blunt terms that JP Getty takes a lot of risks and we don’t want him to blow the money. (This was taken to court and eliminated after JP’s death.) You also see a classic mistake: they excluded one kid because that kid married into a wealthy family and the presumption was the kid wouldn’t need money. Well, they didn’t think the trust would grow to be such a huge amount and they certainly didn’t intend to exclude a kid from that.</p>

11

<p>My folks put their assets in revocable trusts when the estate tax levels were much lower (i.e., it’s not so much $$ that there’s a tax advantage). They split their assets and put half in his trust and half in her trust. He died first; the trust was then Irrevocable (that happens on death). We had to get a new tax ID for that new trust. Upon death when the trust is now irrevocable it had to do a tax return. So the year dad died they had a joint return plus his trust return. (No return is required while it’s still revocable - if I understand it correctly that income flows to the living person whose tax return handles it.)</p>

<p>My sister and I each are trustees now as we were benficiaries 50/50. We are now in the process of “unwinding the trusts” which means figuring out where we want the assets to land in each of our financial lives. I am SO grateful my folks trusted us enough to NOT put a banker in charge of our affairs. </p>

<p>This year when my mom died her trust became irrevocable. My sister and I are 50/50 trustees now. This year my folks (so my sister and I for them) have to file mom’s return and each trust return. So three returns. A bit pricey but oh well.</p>

<p>There was one outlying property that wasn’t in the trusts (phooey) and had to go through probate. That took about 6 months and a lawyer’s fees and some paper signing. </p>

<p>The non trust way: My husband’s dad put nothing in trust but he DID (at his sons’ strong request) put the boys as co owners onto all of his accounts. This was done about a year before he died when it was clear he was starting to lose his faculties physically and mentally. This took two days of intense visiting to banks and investment houses and notaries by sons and dad. When he died everything belonged to the sons 50/50 immediately.j</p>

<p>None of this is to say we inherited tons and tons of moolah. But in both cases - trusts vs. signed onto accounts - we had immediate access to necessary funds, as opposed to the case where if nothing had been done and probate were required it might take a few months.</p>

<p>It might also be the case that with a simple will (no trusts, not signed onto accounts) that after death the beneficiaries on an account fax a copy of the death certificate to the banks and they become the owners.</p>

<p>So. To me there’s not that much difference between trust and not trust if you don’t have tons of $$ to protect or if you don’t have special instructions for inheritors. </p>

<p>However: having the house in the trust made us able to immediately show ownership and put the house on the market. As in, the first question the real estate agent asked was, “Is the house in trust?” If it had not been in trust I suppose we would have had to show the death cert. and will. Then the house would have to go through probate if I understand it correctly and you can’t take the proceeds of that sale until probate is settled to make sure there are no liens on the estate. Not sure about this last bit tho.</p>

<p>One more thing: really the most helpful thing my folks did that I need to start to replicate is they gathered the all their investments into two investment houses - his trust was in one account and hers in another. The only really PITA parts of the estate were the little bits here and there outside of those two main accounts.</p>

12

<p>I thought the title of the thread was “Estate Planning & Trysts”. That would make for a more interesting discussion ;). Good luck with your planning, HImom. My only advice is to revisit the overall situation every year or so to make sure there is nothing you need to change.</p>

13

<p>Just a planning note: one of my great-uncles rewrote his trust at the request of his 2nd wife (no problem with that), the terms are odd…my cousin is to sell a specific piece of property and divide a specific sum of money among specific great-grandchildren. The problems: the property is no longer worth anywhere near that amount, and additional great-grandchildren have been born. Different wording (sell property X, proceeds to be divided among all living great grandchildren for their education) would have saved a lot of stress. I know the great uncle just thought real estate would continue to rise in value, but this is a lesson learned!</p>

14

<p>Yes, a prudent attorney could have helped your relative use language that would have covered fluctuating property values and numbers of living great grandchildren or explained that it would be complicated if it remained the way he wrote it.</p>

<p>Regarding tax returns–do they only need to be filed for the trust in the year of the person’s death and then it gets dissolved? I’m trying to wrap my head around how much complication we are adding to the lives of our loved ones by doing this.</p>

<p>I can see how a lot can be done with other assets via titling, but also want to avoid probate if possible.</p>

15

<p>I am an attorney who has done literally thousands of revocable living trusts.</p>

<p>One issue you want to address is the issue of what happens if you die. I like to say that your husband cannot devise the assets to a new spouse.</p>

<p>Another issue is whether your husband can change the percentages after you die. For example, if you are leaving your assets in three equal shares to your three kids, can your husband make it 50-30-20 instead of 33-33-33.</p>

16

<p>OK, we have both decided we do NOT plan to remarry, even if we want to have relationships with new people in our lives (after our beloved dies). </p>

<p>I guess we could have a prenuptual agreement that assets are left to descendants of original marriage if either of us decides to remarry?</p>

<p>Both of us want to leave the assets evenly between our kids and their decendants (if they have any). We still haven’t resolved what we would want in the unlikely event that our kids (and any decendants predecease us). H wants to leave assets to his brother, whom he feels is financially struggling more than my sibs and family. I’m not sure I want to do this, but will mull it over.</p>

<p>Can see the value in saying that the estates will be divided 50% and 50% between the two kids and their descendants, and that the % can’t be changed. So far, H & I have always been in pretty close agreement about all monetary and family issues.</p>

17

<p>What do people think of Irrevocable Life Insurance Trusts? Our attorney recommended it for our whole life policies but it seems like a lot of expense to set up and then a real PITA to maintain, with Crummey notices, paying premiums from special accts etc Especially since the insurance amount isn’t that large. We’d be doing this to limit state inheritance tax, since we won’t reach the federal threshold</p>

18

<p>At H’s age, getting life insurance is quite expensive for whatever coverage he can get. It’s pretty difficult for me to get ANY significant life insurance because of some serious health conditions. This is not a route we have explored at all. </p>

<p>I believe my dad bought a significant life insurance policy with a one-time large premium and will use that to help settle his estate after he dies. Don’t know any details beyond that. He did recommend that we speak and work with a life insurance agent, but the most we were offered without a physical exam was double the face value of H’s existing policy and that we would no longer receive the annual dividend checks of $2500+ we had been receiving. When we spoke with our CPA tax preparer, he didn’t think that sounded very good for us, so we opted not to get it. H does have another policy at work, for which we will pay premiums. It is a term policy but premiums are fixed and guaranteed not to increase in his lifetime. The two policies would help me adjust to a reduction by 40-45% in the annual pension annuity after H dies.</p>

19

<p>

</p>

<p>There is another issue to consider when thinking of different possible scenarios down the line. What if you die, then one of your children dies before your husband. (horrible thought, but this is what this stuff is about.) Would you still want the assets divided 50-50 between the two families? If the living child has three kids and the one who died had one, should the family with three children receive only 50%, and the other 50% go to the one grandchild of the deceased sibling? There might be other good reasons not to put a clause in the trust that makes changes impossible.</p>

20

<p>My trust has my assets going 1/3 each to my 3 kids - per stirpes.
If any of my children predecease me, their children (not spouse) would share the 1/3 which would have gone to their parent who was my child.</p>