<p>Thanks, scualum. We’re still familiarizing ourselves with all the terminology-- bypass trust, age terminating trust, etc. Don’t want to overthink this but we’re still uncomfortable with the idea of removing our joint ownership from all of our assets. Wouldn’t want the surviving spouse to be put in a position of having to ask a trustee for spending money. Can anyone clarify for me?</p>
<p>^ww - I don’t know if my experience will clarify, but here goes anyway …</p>
<p>My father’s Bypass Trust was set up as a “Simple Trust” where ALL income (less expenses of course) had to be distributed to the Benefiary (my mother) annually. This proved unwieldy, so after a couple years we converted to a “Complex Trust” which allowed us to retain income inside the Trust. My mother neither needed nor wanted the income (long story). There was language in the Bypass Trust which permitted my mother to re-absorb the trust assets back into her own name if she wanted.</p>
<p>Bottom Line: There’s no need for the Widow/Widower to “go begging” for spending money. YMMV.</p>
<p>Just got back from a meeting with an attorney. We are going to have wills drawn up. If we both go together a trust will be created for the adult children (2 boys). Living wills and a couple of other documents that will make things easier in case 1 of us is incapacitated. No revocable trusts. Inheritance tax will most likely (not 100% sure yet, laws need to be passed) not start until estates of $3.5mm, and we are not even close, so no fancy probate avoidance trusts are needed. In NC the house and retirement funds pass outside of probate anyway.</p>
<p>I just returned from a ‘family meeting’ and this is a brief explanation of what my parents did for us kids.<br>
In 1992, when their youngest was 24 and out of college; my parents created a Revocable Living Trust and put all their assets in their trust - this means they can change the terms of the trust at any time.
They were the Grantors, Trustees and Beneficiary and it was owned jointly.
My mother died a year and a half ago and now my father is the Grantor, Trustee and Beneficiary. My father summoned all 5 of his children to a meeting with the lawyer over the weekend. (to make it worth our while he paid our travel expenses and $500 ;)).
When my father dies the Trust becomes a Non Revocable trust (meaning we can’t change it) with one child named as trustee and the 5 children named as beneficiaries. </p>
<p>This is truly a gift he has given us. The lawyer explained to us all how the trust works now and how it will work when he deceases. One major benefit is that it avoids probate. If anyone has ever gone to probate you understand how awful and lengthy it can be. When my MIL died, she had a will and her only asset was a bank account -when she went to the nursing home at 98 we liquidated all her assets. It took an entire YEAR before her assets could be distributed through probate and this was done quickly. Anyone who is relying on a will needs to know this.<br>
As far as estate taxes go - right now, given the state and federal laws there won’t be any. Of course the laws could change in the future - who knows?</p>
<p>While a Trust can be expensive, if you have a lot of children and significant assets - setting up a trust can be a great gift to leave to your children.</p>
<p>My parents created a trust last year, Dad died this year. I am the trustee. While it is not critical with my mother alive, I can see as I process all the forms, how simple this is going to be in the future when it is done through a trust not a will & probate.</p>
<p>We created a trust last summer and I’ve felt tremendous relief ever since. I still don’t claim to understand the finer points but at least I know that we’ve spelled out our wishes for our heirs and have minimized Uncle Sam’s share of our assets.</p>
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For 2010 there is no Federal estate tax, however there is no step-up in basis either. Whether this is better or not depends on your circumstances. Next year it all reverts back to how it was 10 years ago or so, unless Congress takes action, so I think estate tax will start at $1 mil or so.</p>
<p>State estate taxes vary a lot by state and many (most?) are not tied to the Federal rules. Many states also have inheritance taxes.</p>
<p>We just went through all this recently as well.</p>
<p>We set up trusts but the trusts are not funded until death, in order to give maximum flexibility for taxes. Trustees and executrixes are the same people, and I expect my sister to be the primary, because she (and her husband) are both lawyers (although they don’t specialize in estate planning).</p>
<p>The trusts can pay out for living and educational expenses for the kids at the discretion of the trustee. Payout occurs in increments at ages 25, 30, and 35. In addition, if the kids are incarcerated, addicted to drugs, alcohol, or gambling, or are mentally incompetent, trustee is instructed not to pay out.</p>
<p>Didn’t really think about the prenup or divorce issue for the kids. Hmm.</p>
<p>We have some rental properties which we put in some special language about, because we didn’t want the trustee to just sell them (they will be significant cash cows after the mortgages are paid off, and the future revenue stream is worth far more right now than what the properties would net after selling).</p>
<p>Also, since my youngest is under 18, and all our relatives live out of state, there is language that if possible (and she desires) she can stay with a friend’s family until HS graduation and the summer after, with a specific reimbursement above expenses to the host family (not huge, but non-trivial).</p>
<p>And the kids are allowed to live rent-free in the family house (and the trustee is not to sell it) until they are 24, if they desire.</p>
<p>POAs and Health Care Proxies were done as well. Living Wills are not legally binding in our state so we didn’t do those.</p>
<p>Our lawyer wants us to change the secondary beneficiaries on our life insurance and IRAs/401Ks to be the trusts, rather than go directly to the kids.</p>
<p>I think that’s the highlights.</p>
<p>Total cost for the trusts, wills, POAs, and HCPs was $1800.</p>
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<p>You got a steal IMO. As for the prenup, our attorney said that an inheritance belongs to an individual and is not community property unless the heir retitles it as such or deposits it into a joint account. Therefore, if your DS or DD were experiencing marital woes, they could keep their inheritance separately.</p>
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Well - a lot of it was boilerplate.
What about in community property states? I don’t live in one now, but you never know where the kids will wind up.</p>
<p>As long as we’re talking about depressing topics: who has your medical care power of attorney? Who makes the decision whether to pull the plug if you’re comatose? What about your parents? And more depressingly, what about your kids?</p>
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<p>I don’t believe that it matters but do consult a professional.</p>
<p>dmd77, my husband and I are the primary healthcare POA for one another. Our eldest DS is his backup; my dearest friend is mine.</p>
<p>notrichenough, DH & I bought a very cheap boilerplate trust almost two decades ago using a coupon from the Pennysaver. (Really!) It’s been revisited a handful of times since. He has a generous “estate planning” perk at work so we’ve hired the best in the business. Ends up some things have been tweaked and additions have been included as our assets increased and laws changed, but the original paperwork is still the bones of our trust.</p>
<p>“Who makes the decision whether to pull the plug if you’re comatose?”</p>
<p>We just went through this. Mom, coming from a long line of mistrustful people, refused to sign POA for anything. Finally, towards the end, she did agree to sign a medical POA. (A nun at the hospital accomplished this beautifully, with exquisite skill; I’m still in awe. All her kids were POA with the most trusted listed first). A few weeks later, when she was incompetent, the Dr. authorized the POA (kid) to sign a DNR, so at the end no plugs had to be pulled, because we were empowered to refuse extreme measures. Not what she said she wanted when she thought she might rally, but what we thought she would want once all hope was gone but before artificial ‘plugs’ were used.</p>
<p>Just thought I’d post this because we really had no idea what would happen.</p>
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<p>Other than by giving to charity, how do you legally minimize estate taxes?</p>
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One way is to use trusts so that both you and your spouse can take advantage of the maximum exemptions.</p>
<p>For example: Your and your spouse have $2 million in assets.</p>
<p>In 2011, after the estate tax resets to a $1 million exemption, you die. Everything goes to your wife. When she dies, your $2 mil estate gets a $1 mil exemption, your heirs owe estate taxes on $1 million.</p>
<p>Or - you die, and your share ($1 mil) goes into a trust. No estate tax due because of the $1 mil exemption. The income from the trust goes to your wife during her lifetime. She dies, and her share ($1 mil) goes into another trust. No estate tax is due because of the $1 mil exemption. The assets are then distributed to your heirs.</p>
<p>In this way your family has saved the estate tax on $1 million, which would be around $345,000. Not a bad return on a thousand dollar investment.</p>
<p>If your estate was worth $3 million, you would save almost $1 million in estate tax.</p>
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<p>I got the giggles and couldn’t read any farther with a straight face.</p>
<p>Obviously, no estate planning necessary for me! :)</p>
<p>One way to legally minimize estate taxes is to use a bypass trust, which some people have mentioned. A bypass trust is created by will when the first spouse dies, so that the estate won’t face large estate taxes when the surviving spouse dies. (It isn’t needed at the time of the first death, because assets can pass free of estate tax to a surviving spouse.) The surviving spouse then disclaims a portion of the assets, and the disclaimed assets are used to fund the trust. The trust can provide that the surviving spouse is a beneficiary, along with children of the marriage, so the surviving spouse would be taken care of if the assets he or she retained are not sufficient.</p>
<p>Of course, one doesn’t know which spouse will die first, so both execute wills with bypass trust provisions.</p>
<p>I’m glad someone mentioned that the assets of a person who die this year do not receive stepped-up basis this year. As the basis then remains the same as that of the deceased, it seems there could be serious documentation problems with assets that have been held for a long time. On the other hand, the change in basis to current market value could also be stepped-down basis in this economy.</p>
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There are other benefits to estate planning than just minimizing estate tax. And, you never know where you might wind up - $2 million ain’t what it used to be. ;)</p>
<p>Plus, tax law can change. In the future the exempt amounts could be much smaller, there’s no predicting.</p>
<p>Another way to minimize estate tax is to use generation-skipping trusts. This divides your estate into further chunks for the grandkids that take advantage of the maximum exemptions.</p>
<p>Something else you can do is use some assets to buy a single-premium life insurance policy with the kids as beneficiary. This will move money out of your estate (essentially discounting the cost of the insurance by up to 55%) and the death benefit will give your kids tax-free money, (2-4X what the premium was, hopefully) to pay any estate taxes.</p>
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<p>Stop, stop–you’re killing me!</p>
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When our kids were younger, my wife and I took out fairly substantial long-term term life insurance policies, as income replacement (we both worked full time) and to provide for their college educations. When you add in what I get from work, between the two of us we have well in excess of $1.5 million dollars in life insurance. (We are worth more dead than alive, from a financial perspective.)</p>
<p>Add in our house, retirement savings, some other investments… it starts to add up. If we both die in a car crash tomorrow, because of insurance we might come close to or actually be over the $2 million amount you find so amusing. If you are properly insured, it really isn’t that hard to get that high.</p>