You do your loved ones no favors by leaving all to chance and expecting the survivor to magically and psychically KNOW the RIGHT thing.
If there are adequate assets, some could even be shared now rather than waiting for some indeterminate future date when the funds may not help the beneficiaries as much.
It can be touchy, but think of the extra burdens you are sparing your loved ones by airing these issues and trying to make the best choices you and your partner can now, while both of you are fully lucid. Cognitive abilities are known to decline as we all age.
@1214mom, money is a touchy subject, but far better for you and your DH to discuss it, to explore what it would look like to the kids at different ages in different scenarios. Then try to decide what feels right and maybe explore why.
I am not sure to what level the exes get a say? I do know one couple where the Dad dis-owned the son and Mom (ex wife) said, “fine, I’ll take care of son, you take care of DD” in terms of wills.
I also know a couple who had significant assets, he brought the business into the marriage, but they built it together, then they spent most of it, but along the way, they always agreed to split everything between their kids. I do think they would have had a conundrum if they had had different numbers of kids or grandkids on one side or the other, they definitely kept things ‘fair’ in terms of each side of the family.
I know a non-step family who helped one kid way more than the others, bought that one a house etc, the will splits their home between the remaining kids, not her. Of course, the way it’s going with people living so long, they may use their house to pay for care and the finances would never balance as planned.
You can read a lot of ideas and potential pitfalls of settlement options in some of the books mentioned or on the Bogle Head forum (can I mention that here?) The biggest advantage to that sort of reading is discovering ways things could go wrong that you had never thought of. I have read many stories of woman and man marry; one dies, the money goes to the other. That one remarries, dies, money goes to new spouse & then to the kids of that new spouse, all the kids of the original relationship are SOL and it’s legal, because no one thought it would go down that way or they thought the new spouse would protect them, but the new spouse sees that money as his/hers, or could be old and frail and unable to think it through.
Each state has its own residency rules and requirements. You have to live physically in the state xxx number of days and other things. I’d research the matter and/or ask a CPA and/or tax attorney if you don’t want to end up with expensive surprise extra taxes.
As far as I know, you cannot be a resident of two different states. You are probably stuck with where you are registered to vote. You cannot pick and choose. Whether you can have a trust to control things in a state where you are a non-resident is way outside my expertise and not something I would try to answer here.
Definitely read each states rules, as the primary rule is that your home is where you intend to domicile. Some states go by days spent, others do not. You might be at risk if you live and spend most of your time in a state which is pushy about claiming your money for taxes, like NY or CA and try to assert you are a resident of the state where you spend less time.
Let me amend my question;If you live in a state with inheritance tax or estate tax, does it help to set up a trust in a state that doesn’t have either? Does it matter where an heir lives?
Interesting question @Iglooo, let’s assume you set up your living trust when you were a resident of a state with no inheritance/estate tax, then later you move to a state with the tax. I think your taxing state will want a share of your house, even if it’s in the out of state trust, as the house is in that state. But will the taxing state try to claim a share of other trust assets? Maybe you now have a vacation home in the other state or life insurance policies or investment accounts which are all titled in the trust.
How would OR know about your CA trust and your CA titled assets? Well, WA asks!
I found the WA estate tax return, it specifically asks:
Was there any insurance on the decedent’s life that is not included on the return as part as the gross estate?
Did the decedent own any insurance on the life of another that is not included in the gross estate?
Were there in existence at the time of the decedent’s death any trusts created by the decedent during his or her
lifetime? If “Yes,” attach a copy or copies of trust(s)
Funny, I always thought the information inside a trust is confidential, you generally have to provide an abstract to show who has the power over the trust assets, but I thought trust details are private. Guess I was wrong!
If you have a life insurance policy in a CA trust, but WA asks about it, then how does the trust protect it? If you have RE in a CA trust, but WA asks about, how does the trust protect it?
Is there a way to have a trust created in another state, when you were a resident of that state, and have the trust assets not count as part of your personal estate for estate tax purposes?
@Iglooo
I’d absolutely talk to tax advisor, but MIL lived in OR, property in Trust. Youngest of 3 sisters lived with MIL and stayed in house after MIL’s death. 3 sisters were beneficiaries of Trust. Because of a drafting oversight in Trust, when youngest sister died, it required deceased sister to have a full blown Probate. W (a CA resident) was successor trustee and court appointed personal rep of Probate. Neither Estate was large enough to owe fed or Oregon estate taxes. When it came time for final distributions from both Estates, W was instructed to write checks to herself and her sister from both Estate accounts. W (and I assume her sister) were not required to report or pay any taxes on distributions. In fact the K-1s that were issued from both Trust and Probate Estates by CPA reflected excess deductions from both Estates. We reported the K-1 info on our returns, including the excess Trust and Estate deductions on our tax returns.
Folks, these are questions for an estate tax professional. Insurance is tricky. Was the insurance trust an ILIT or did the decedent have any (any!) interest in the insurance policy? Those kinds of things will be treated differently. When was the insurance policy transferred out of the estate? Who paid the premiums? Who is the beneficiary? Any Goodman triangle issues (and I have no idea if this is still good law)? Consult a pro!
“Is there a way to have a trust created in another state, when you were a resident of that state, and have the trust assets not count as part of your personal estate for estate tax purposes?”
If you owned it, it is in your estate. If you did not, it is not. There are rules that determine what is and what is not in the estate. Avoidance of probate and avoidance of estate tax are not the same. Probate is all about who gets what, not how much the IRS or the state will get in taxes.
So how much do you share with your young adult children about your financial position and net worth? Do you not share, share the big picture or on a need to know basis, or are you an open book about it all? What do you perceive to be the risks and downsides to too much sharing or not enough?
I would say it really depends on the relationship you have with your kids. Mine are 28 and 30 and basically they know they will not have to help us at all financially. We have never shared much more than that and honestly don’t know S’s salary! It seems to be working out OK for us and them so far.
We and the kids are in pretty good health at this point and there are no loans or huge debts at this point. One downside to sharing too much could be having the young adults expect funds that may or may not be remaining after possible future long term care and other expenses. Not sharing enough could have them fretting they may have to help support us in our old age.
We haven’t decided when we want to share more info with our kids. It hasn’t really come up. Maybe we will ask our estate attorney or CPA if either has some guidance.
@doschicos, our kids don’t know how much we make, and certainly don’t know how much we have invested.
Once they are fully launched, I may share more with them.
I don’t want the kids to depend on anything from us, but of course it would be nice to live a good life and have plenty left for the kids.
My youngest is 22, and I may share everything with him at some point, because he would probably not mind being executor or at least helping if we pick someone else.
I wish that my ex-husband’s parents (specifically, his dad) had shared more details of their estate planning with their children approximately 10 years ago, when they did some very misguided things with their money.