Wills, Trusts & Taxes

Parent Cafe
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<p>I have painfully first-hand knowledge in what, i.m.o., is the most important element of this entire issue, or elements, plural:</p>

<p>(1) The administrator of the vehicle – whatever vehicle is chosen. I am begging anybody who has not yet chosen an administrator, and particularlly if this is going to be a trust which includes vulnerable, powerless beneificiaries, to choose an Independent Trustee. Please people. You will not know how important this will be after you die, but know it now.</p>

<p>When my husband was alive, his parents approached us with advice on an Executor (later, Trustee). They wanted to appoint either him or his sister, who had had a major falling out with us, had already demonstrated ill-will and a tendency toward vengeance and silence. We begged them repeatedly not to appoint either my husband or his sister. Then they suggested dual-appointment. We still begged them. No, we said: appoint someone outside of the family. Being paranoid about that, they refused. We said, OK, then appoint one of the following first or second cousins younger than you two. These cousins are less enmeshed with the rest of the family, and care about all three minor beneficiaries (who will have a part in the trust) equally. There is no favoritism that we can see. They ignored our advice (making me wonder why they asked for it).</p>

<p>My husband died shortly thereafter, and guess who had been appointed Successor Trustee? You guessed it: my sister-in-law. It has been a nightmare from Day One. She has treated the trust income of the minor grandchildren as if it were her personal money, has often refused to let go of it when legally indicated, has required us to enjoin attorneys which we have not been able to afford to do (we still owe money to two of them, and now cannot afford any more representation), and is sitting herself on far more than $1.5M in assets from her parents, which can be liquidated with not much effort. </p>

<p>She is sticking it to three virtually powerless and penniless college students. You heard me right. For example (among a much longer laundry list of offenses) she failed to file proper County paperwork in time 4 years ago, regarding her mother’s death. The county only recently realized the transfer, so now only the three college students (who do not qualify for grandparent transfer exemption, since they are not orphaned) owe 4 years of “back property taxes,” immediately. There’s no reasoning with her. We have tried that.</p>

<p>(2) The Estate Attorney. My parents-in-law received horrible advice. He was not really a specialist at all in this field. The document itself was amateurish i.m.o. (compared to other trust documents I have seen and been part of). There was no foresight about things like reassessments upon the death of a property owner, and how uneven new property taxes would be. (The tax liability of the three college students is equal to the three wealthy adult owners, who own and enjoy 77% of the commercial property. And this will continue.) </p>

<p>Yes, the vehicle is important, and Thumper is correct: even an asset that is not yet yielding cash income is still an asset, and yes, that can eliminate qualification for financial aid if one is not careful. But without an impartial administrator, or at least one who is not malevolent, nothing else matters.
:(</p>

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<p>epiphany, that is just horrible. And criminal. I can’t believe someone could get away with that, I am sorry for your misery.</p>

<p>Which makes me consider, does anyone know, if both me and my husband die, can we make dual trustees out of our children? Right now they’re only 16 and 20, but I trust them implicitly. All the money is going to them anyways, so nothing to fight about.</p>

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<p>Contact a lawyer who specializes in trusts. We know a family where an irrevocable trust was set up and there are five trustees and eleven beneficiaries of the trust. Believe me…it’s a HUGE headache for all involved. Trustees have to agree on capital improvements and any other changes to the trust property. They do NOT always agree. </p>

<p>Personally I think trusts involving multiple people are a headache. If you really want to protect your assets and make sure they are given to the folks you WANT them given to…do it now…while you are alive.</p>

<p>We plan to deed our home to our kids sometime in the next few years. We’ll then be the tenants. The house will be theirs. They can sell it if they choose when we die. We have already started to give them things they want from our home. Our accounts are all joint ownership accounts…so when one of us goes, the money is theirs. We did the same with my mom and this avoided a probate mess.</p>

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<p>Hopefully, thumper, you have something in the agreement that they can’t sell the house while you still live there! I have heard horror stories. In fact, I can tell you one big mistake my husband’s parents made. They gave a lake house to one of his siblings (he has 5, but only one said they’d want the house). The others have designated specific land/properties in the will. The parents are still alive, thankfully. But now, the sibling wants to sell the property…but can’t, because the parents gave it to her to “keep it in the family” as she said she’d fix it up and use it. Now it’s just a long distance mess, with the sibling paying property taxes and nobody using it. The situation doesn’t work for anyone.</p>

<p>As far as trusts with multiple people, I agree, messy. But if it’s only two people, and all assets are going equally to those two (who get along quite well), shouldn’t that work out decently?</p>

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<p>Yes, I do know. It’s entirely possible, and if you’re convinced that there will be compatibility as well as equal division, I don’t see a problem using your discretion to make that decision, particularly if there is no one you know outside of your children whom you trust as, or even more, than them (if that’s possible ;)). </p>

<p>In our case, there was neither compatibility nor equal division. For example, my husband’s descendants (our two children) received 21% of his parent’s estate value, compared to 78% received by his sister and her one descendant. Several attorneys I have spoken with believe this was engineered by her (the sister, the successor trustee), as the grandparents had no history of such unequal divisions, and if anything, the son, not the daughter, was the favored child.</p>

<p>As a matter of principle, when possible, I still believe myself in naming non-beneficiaries as trustees, because unforeseen competition or residual family “issues” can surprisingly surface. But to each her own. If you’re going to use an insider, just make sure you are extremely careful about divisions and language, and personally I would still name a third person as a resort to turn to if help is needed resolving unforeseeable disagreements. (For example, with personal possessions: my own family was extremely lucky with this, with both our parents at death; we divided and bartered with each other & were generous with each other. But I have heard of people practically becoming irrational over personal possessions, and the “symbols” of attachment/“preference” those can carry.)</p>

<p>Btw, I was very close to my mother-in-law (another source of extreme jealousy with my sister-in-law). I once said to my MIL: “I ask only one thing when you die: that you will me your irreplaceable old clothes iron, and a few of the small photographs from the war era, some that are mere duplicates of others you have.”) I asked my SIL about that after the death, and she refused to respond to me. Just amazing. Oh and another thing: she actually refused to tell my children and me about the death of their grandmother. That happened, embarrassingly, through a Facebook communication from one of the cousins. Neither my children nor I were invited to the funeral. Then finally, four months after her mother’s death, my SIL informed my children that they were beneficiaries. And as I say, it has been like moving mountains for them ever to receive their annual distributions, etc. She has played games with this from the beginning.</p>

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<p>Thank you. And you’re right. Or at least I think you’re right. I.m.o. it is criminal. Trusts can become abusive in the extreme, as has been true for us, and we are certainly not alone. I think trust law needs a major overhauling, because as it stands, a penniless beneficiary of a manipulative trustee has zero rights. Zero. She has absolute power, unless we had money for a defense or an actual lawsuit. Even accused criminals in our judicial system get a Public Defender if they are insolvent. Not so with insolvent beneficiaries, including children. You are simply out of your constitutional rights.</p>

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<p>Oy.
We own, with my H’s brother and his wife, a family property. The next generation numbers 4: 3 on brother’s side and 1 on ours. So our son would control half the property and each of the brother’s sons would control 1/6. This sounds like a giant mess to me. It is my considered opinion that we should sell the property now. I am very much in the minority.</p>

<p>My mother died intestate. I have seen what a mess probate can be and how difficult and divisive the process can be (my sibling’s understanding of 50% was unusual) I so want to avoid that for the next generation.</p>

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<p>Yes, our home will deed will have a clause that we can reside in it until we die.</p>

<p>Two kids who get along NOW are fine…but what if they have a tiff? What happens when those two kids want to will their share of the trust or property to THEIR multiple kids…and spouses? </p>

<p>I personally think it’s easier to liquidate these assets than to leave them as a albratross around the necks of others for future generations.</p>

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<p>epiphany - I’m very sorry to hear of your fate. Cautionary tale indeed. It does highlight an important point … the risk when beneficiaries have widely varying wealth/income. When I was growing up, I asked my father why the old guy across the street … who was decidely NOT wealthy … why he didn’t sell some of the land around his house and retire. My father explained that the land was left an undivided whole, and the youngest heir, a lawyer, refused to permit sale of the land. The siblings paid taxes on the land for more than thirty years, and died without it ever being sold.</p>

30

<p>“… can we make dual trustees out of our children?”</p>

<p>Yes … in CT at least. This works in most situations. Just be aware that many banks won’t deal with dual Trustees (ie, Daughter X and Son Y) which theoretically require signature of both. Fortunately, our family was fine with joint Trustees (ie, Daughter X or Son Y), and that’s the way we set up the accounts. (Before going the dual Trustee route, please consider the logistics of getting signature of both on the Trust’s state and federal tax returns … especially if Son Y gets transferred to Mexico City!)</p>

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<p>You don’t have to be wealthy. I was advised to set up a trust – I’m a homeowner with modest income and assets. If the expense & time involved in probate is an issue, then I would think it could be potentially a bigger problem for a modest estate than for a large one – simply because of the court fees involved, delays in getting access to assets needed to pay for other expenses. </p>

<p>I do think that there needs to be a distinction between a revocable trust set up for estate management purposes, and irrevocable trusts set up to control distribution of funds after death. The revocable trust I have names my kids as successor trustees and also specifies how funds are distributed when I die – it does not place any long term limits on the trust. It is different from the type of situation where a person sets up a long-term trust to provide for the needs of their children, that ties up money for specific conditions or until the child reaches a certain age.</p>

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<p>If your kids have an inheritance through a generation-skipping trust, is there a need for a pre-nup if she/he gets married? Is the inheritance already protected in the trust if they don’t co-mingle that money with future joint money?</p>

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<p>Thumper, I’m not sure you understand how a revocable trust works. It does not tie up money in trust after death, beyond the period of time that the successor trustees (and beneficiaries) want it. The idea is that the successor trustee is supposed to follow the instructions as to distribution of assets – its like a will, the trustee can designate specific distributions to specific people – and then assets can be distributed & the trust dissolved whenever the trustees feel appropriate. For example, I would assume that my kids, who live in two separate states, will want my house sold – logically it would make sense for them keep the property in trust, hire a local real estate agent to take care of the sale, pay for whatever expenses are needed to prepare the house for sale out of the estate, and then after sale, distributed the proceeds to the beneficiaries. (In my case, the trustees are the beneficiaries). </p>

<p>However, they could choose to do something else – for example, perhaps one kid decides to move back to California and wants to live in the house. They could decide to get the home appraised, then deed the house to that kid, and pay the other kid fair value out of the trust. Because the trust is revocable, they’ve got 100% control over when to make distributions and transfers, and when to terminate the trust. </p>

<p>I see a lot of problems that could come up with your transferring your home to your kids while you are still alive. Are any of your kids married? What if they get divorced, or incur a large debt? You could find that your house is subject to a forced sale because of life circumstances of your kids. The whole point of a revocable trust is to avoid that issue – my house no longer belongs to me, “Calmom” - because I deeded it over to “The Trust of Calmom”. I’m the trustee of “The Trust of Calmom”. When I die, my daughter becomes the trustee. House still belongs to “The Trust of Calmom” until such time as d. dissolves the trust or decides to redeed the house – as noted above, the logical thing is for her to sell it and simply direct the escrow company to sent the checks to the trust beneficiaries (which are her and her brother).</p>

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<p>I concur with NewHope’s comments in #30. My lawyer recommends against dual trustees and encouraged that I designate one kid as trustee, the other as successor trustee. For me that was an easy call, because one of my kid’s is highly organized and efficient, the other drives me nuts with procrastination and has lousy credit because he looses track of bills and forgets to pay them. So I named the efficient one as trustee.</p>

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<p>I’m in that situation – I actually own a 1/36th share of real property in another state. It’s a real mess. If my grandparent’s will had set up a family trust, instead of willing the property outright, things would have been a lot easier.</p>

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<p>NewHope33 (Post 29):</p>

<p>Could not one of the heirs, including your neighbor, have forced a sale to result in some mutually agreed-upon partition of income? Was that, is that, not allowed in CT?</p>

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<p>Hopefully, our estate planning attorney can make recommendations about pros & cons of having an impartial 3rd party as trustee. S has shown himself to be very good at handling assets so far, while D has just received notices of unclaimed property from her employer because she never cashed several of her paychecks & they are giving her one last chance to file paperwork so they can give her the money she is due!</p>

<p>All the issues raised in this thread raise issues about why there is so much intertia about resolving the estate planning stuff and why it’s so much more comfortable to keep putting things off. I know folks whose parents died in 1990 and 1995 whose estates still aren’treally “settled,” but things move on anyway.</p>

<p>Real estate is a mixed bag–it SOUNDS like a good thing to sell the property, but it may not always be as easy as it seems to get a good price for real estate, especially in this market. Hard to please everyone. I guess it’s nice to have assets but can be challenging to figure out how best to have things work out moving forward.</p>

<p>With the rate of marriages and divorces, it can be dicey to put things in the names of your kids/young adults. I know several folks who got divorces in their 50s–laws vary about what happens to assets in such circumstances.</p>

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<p>"When we were working on our will a few years ago, our attorney said the same thing. He said it depends on states. He named NY, CA, FL places to avoid. Otherwise, he said it’s an unnecessary expense. "</p>

<p>I think this is bad advice. First, arranging to dispose of your assets after death through a revocable trust doesn’t usually cost you any more to prepare than if you only have a will. Revocable trusts are will substitutes and a decent wills and trusts attorney doesn’t take any more time to write up your wishes as a trust than he/she would to write it up as a will. You still need a will with the revocable trust, but basically all the will says is that anything not disposed of by my trust goes to my spouse or children or whomever you want. Then you state in the trust that all of your personal property is held in trust and have your real property deeded to the trust. </p>

<p>One exception to that would be if your state recognizes a tenancy in entirety for a married couple’s primary residence. Then it is usually better to keep your primary residence as a tenancy in entirety. Another exception is if you have a homestead exemption or other property tax issues that would be affected by redeeding your real property to a trust. You can make your bank accounts payable on death to a beneficiary and your IRA/401K/brokerage accounts transfer on death to a beneficiary, so those don’t even need to be held in trust.</p>

<p>The main difference if you only have a will is that your heirs have to go through probate. If all of your assets are in the name of the trust, not having to go through probate saves time and money. That is true in every state.</p>

<p>One of the other advantages of a revocable trust over a will is that a will can be contested after your death. It is much harder for someone to try to circumvent your wishes as to the disposition of your assets after death if it is done through a trust. That is true in every state, too.</p>

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<p>Atacom–thanks for your added insights on these issues. There really is no good reason for H&I to keep balking about doing our estate planning, other than laziness and inertia. It will be good for peace of mind, especially if it can get H & his family to sort out their left over estate issues from their parents estates (remember inertia).</p>

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<p>That’s a mixed bag, I think – because if the designated trustee opts to ignore some of the wishes… it might be harder for anyone else to enforce. For example, suppose you decide to leave your money to your kids, naming your eldest child as trustee, but also want to leave $100K to your favorite charity. You die after a long & expensive illness, and there is not nearly as much money in your estate as you had planned when you wrote the will. Let’s say, hypothetically, you’ve got 3 kids and only $150K left at the time you die. Your son figures that the kids need the money, and he isn’t a fan of your designated charity anyway – so he just ignores that part entirely and distributes the money among himself and his siblings, or he makes a token gift – let’s say, $1000 – to the charity, figuring that is what you would have wanted anyway under the circumstances. There’s no one to stop him – the siblings agree with the result, and the charity doesn’t even know the trust exists or that you have passed away, so even though they may have some sort of legal claim to assert, there is no practical way for them to enforce their rights.</p>

<p>I’ve structured my hypothetical in a way where you can see both pros and cons – that is, I could have also described the estate as being large and the trustee son as merely being a selfish git who won’t spare $100K from a $10 million estate – but I wanted to also highlight the potential benefit of enabling your heirs to make the right judgments on their own, rather than creating a situation where some probate judge has to make a decision in a will contest action. In my hypothetical, with a written will, the surviving children would have to contest the will in court, and the judge might rule based on the language of the will rather than the current equities of the situation.</p>

<p>On the other hand, epiphany raised a good point about the issues that come up in some families. If, in my hypothetical, the son is a selfish git refusing to write a check to the charity, what’s to say that he won’t also cheat his siblings out of their fair share? I don’t see any possibility of this happening in my own family – that is, I trust my kids and I’ve known them both long enough to be confident in my judgment. In epiphany’s example, there was already bad blood between her husband and his sister – so it could have been anticipated that it would be bad to designate either one of them as a trustee. I think that most of us probably know our families well enough to figure out whether or not they are going to handle things responsibly and fairly on their own, or whether it would be better to have a court or disinterested outsider handling things.</p>