Is a Trust really needed today?

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Topic Author
sjhruby
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Is a Trust really needed today?

Post by sjhruby »

Hi - Helping a family member who has had a trust for years, as I beleive that there were originally advantages of bypassing probate court when it was set up and other complications including real estate and beneficiaries who were minors at the time. Now, he is questioning if it is even necessary since tax laws seem to have changed and a taxable account doesn't go through probate unless the account is above a very high $$$ threshold (my understanding). The trust is now very simple, only has stocks, bonds, and annuities in it, and 3 adult beneficiaries. Thought the lawyer who handles the trust paperwork might be biased to say that keeping the trust open is smart so they can continue making money from legal fees associated with the trust, so thought I would ask here....your help is appreciated.
poppa23
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Re: Is a Trust really needed today?

Post by poppa23 »

There are no legal fees associated with a trust once its created. Legal fees are associated with probate if needed. A trust allows the decedent to direct money or assets or keepsakes to particular individuals. I want my son jimmy to get my stamp collection or I want my daughter sally to get my wedding dress....Fees are associated with a Trust only if you go back in to the lawyer and redo the Trust or change things. As far as do you need it ? Probably not...if you dont have a Trust and you pass your assets will pass through what is called intestate succession which means your heirs will get your assets in equal shares ( I believe all states do this ) generally your kids get it first in equal shares. If no kids then your parents if no parents brothers and sisters of the decedent etc...That being said, the Trust is already set up from what you say so why not keep it....
retired@50
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Re: Is a Trust really needed today?

Post by retired@50 »

Based on what I've heard and read about probate, avoiding it can be a blessing.

Regards,
This is one person's opinion. Nothing more.
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WoodSpinner
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Re: Is a Trust really needed today?

Post by WoodSpinner »

OP,

What state is the family member in?

Are there any other objectives for the trust besides the ones outlined above?

WoodSpinner
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sjhruby
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Re: Is a Trust really needed today?

Post by sjhruby »

poppa23 wrote: Sat Sep 26, 2020 9:40 am There are no legal fees associated with a trust once its created. Legal fees are associated with probate if needed. A trust allows the decedent to direct money or assets or keepsakes to particular individuals. I want my son jimmy to get my stamp collection or I want my daughter sally to get my wedding dress....Fees are associated with a Trust only if you go back in to the lawyer and redo the Trust or change things. As far as do you need it ? Probably not...if you dont have a Trust and you pass your assets will pass through what is called intestate succession which means your heirs will get your assets in equal shares ( I believe all states do this ) generally your kids get it first in equal shares. If no kids then your parents if no parents brothers and sisters of the decedent etc...That being said, the Trust is already set up from what you say so why not keep it....
Makes sense - the family member has different % allocations for the 3 beneficiaries - 2 are children, 1 is a grandchild. He wants to pass more on to 1 child than the other and have a material portion for the grandchild. Would "intestate succession" rules in a taxable investment account (non-trust) override beneficiaries %'s that are set up on the investment account?
Topic Author
sjhruby
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Re: Is a Trust really needed today?

Post by sjhruby »

WoodSpinner wrote: Sat Sep 26, 2020 9:45 am OP,

What state is the family member in?

Are there any other objectives for the trust besides the ones outlined above?

WoodSpinner
The family member is a healthy mid-80-year-old. All assets in the trust are managed through PAS at Vanguard. The objective of the trust is essentially just to dictate the percentage allocation of the total trust that each family member will receive. It also explains that one of the children would be able to manage the trust in event the family member becomes incapacitated.
Last edited by sjhruby on Sat Sep 26, 2020 10:31 am, edited 1 time in total.
quantAndHold
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Re: Is a Trust really needed today?

Post by quantAndHold »

WoodSpinner wrote: Sat Sep 26, 2020 9:45 am What state is the family member in?
This question actually matters if you want useful answers.
Yes, I’m really that pedantic.
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AstroJohn
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Re: Is a Trust really needed today?

Post by AstroJohn »

My wife and I have dealt with end of life issues for two relatives. One had a trust the other did not. For the most part everything was easy for both. The only bothersome problem we had was taking over some of the finances for the non-trust relative. Powers of attorney and banks and investment firms do not seem to get along very well. Also, my understanding is that a power of attorney ceases at death. Not a problem with a trust.
BogleDan
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Re: Is a Trust really needed today?

Post by BogleDan »

sjhruby wrote: Sat Sep 26, 2020 9:30 am Hi - Helping a family member who has had a trust for years, as I beleive that there were originally advantages of bypassing probate court when it was set up and other complications including real estate and beneficiaries who were minors at the time. Now, he is questioning if it is even necessary since tax laws seem to have changed and a taxable account doesn't go through probate unless the account is above a very high $$$ threshold (my understanding). The trust is now very simple, only has stocks, bonds, and annuities in it, and 3 adult beneficiaries. Thought the lawyer who handles the trust paperwork might be biased to say that keeping the trust open is smart so they can continue making money from legal fees associated with the trust, so thought I would ask here....your help is appreciated.
Trusts help with more than just money. Probate is an issue regardless of $$ amount of accounts. Perhaps you're conflating probate with the issue of the estate tax, and the special kind of trusts you need to set up to avoid that if you have very high net worth (>$10m currently I believe).

That being said, if you no longer have minor children, and you don't own a lot of real estate, and you set up all of your accounts with the proper beneficiaries, a trust might not be necessary. But it's a minor cost either way.
inbox788
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Re: Is a Trust really needed today?

Post by inbox788 »

BogleDan wrote: Sat Sep 26, 2020 10:46 amTrusts help with more than just money. Probate is an issue regardless of $$ amount of accounts. Perhaps you're conflating probate with the issue of the estate tax, and the special kind of trusts you need to set up to avoid that if you have very high net worth (>$10m currently I believe).

That being said, if you no longer have minor children, and you don't own a lot of real estate, and you set up all of your accounts with the proper beneficiaries, a trust might not be necessary. But it's a minor cost either way.
Trusts are like insurance policies and wills. They're very useful if used, but if you don't use them, they're just a waste of paper. Even when done, often they're done incorrectly, or incompletely. Accounts and assets may go in the trust or have POD beneficiary that's different. Information that's not updated or current can cause problems. Fortunately, much of this activity is just spinning wheels, and nobody notices. It's a rare even when it's needed and issues come to light, but by then, it's too late.

Yeah, trusts are useful and you should have one, especially if you have children and/or lots of assets. Without these instruments, you're letting the cards fall where they lie. I've been irresponsible, and haven't followed the best course, and got lucky (most people get lucky, so really didn't get unlucky), and the most important phase has passed for me, so even less compelling, and I think I've got a relatively simple situation that in the worst case probate shouldn't be that bad (just costly and time consuming). If your life is complicated where there may be a contentious estate, then you may want to help clarify matters and protect assets.

One benefit touted is that a trust helps shield privacy, but it's a two edge sword. I'm sure there's a group of criminals targeting those with trusts. Proper titling and POD/TOD may be sufficient privacy for some.
heyyou
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Re: Is a Trust really needed today?

Post by heyyou »

My trust, suggested by a AUM advisor who definitely got a referral fee, cost my wife and I, age 40s adults with no kids, a month's pay in about year 2000. Now she has passed and a new lawyer has charged me a month's income, mentioning that some parts of the trust are irrevocable, but with no further info about which parts. Prior to her passing, she distributed her Roth IRA to her siblings, so there were no solely owned assets of hers to be processed, nor any jointly owned assets other than our residence.

I do not now see the need for a $350 an hour lawyer to study the entire 3" of legal boiler plate just to dissolve a trust for my solely owned assets. I was in his office wearing casual summer clothing when he ask about assets, my answers-- "pension" (no response), "Social Security" (no response), "portfolio" (he sat up, smiled, and ask how large, then was noticeably more animated going forward). A trust may well be suitable for some, but not sensible for others, and few to none in the industry are going to advise a potential customer that a trust is not needed.
illumination
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Re: Is a Trust really needed today?

Post by illumination »

I think trusts are heavily oversold, but that doesn't mean they have no use. No offense to our wonderful estate lawyers here that give helpful advice and guidance, but my guess is if you go into most law firms and ask if you need a trust, the answer 99% of the time is going to be yes. Sort of like if you asked a salesperson if you need life insurance. Just as a real-world example, an estate attorney convinced my parents to set up 8 trusts in addition to several (ridiculous) LLCs for an insane amount of billable hours. It's been an absolute nightmare for them to juggle these and any revisions.

I think the "needed today" part of the OP's question is in reference to the estate tax threshold being raised. There are valuable planning techniques using trusts to move assets outside of an estate to avoid getting hit with the estate tax. When the estate tax was at a million, this made a lot of sense for a lot more people, but now you're talking about less than 1% of estates that really need to do this as a result of it being raised (at least on the federal level).
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celia
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Re: Is a Trust really needed today?

Post by celia »

sjhruby wrote: Sat Sep 26, 2020 10:03 am It also explains that one of the children would be able to manage the trust in event the family member becomes incapacitated.
BINGO!

The trustee will have a much easier time managing things if/when the grantor is incapacitated. We are experiencing this with some family members currently where not everything is in the trust. This leaves unnecessary headaches for the trustee.

If the grantor should need to move to other housing and incur higher expenses, it may matter what asset is sold first, as far as beneficiaries still receiving the same percentage or not.

Does the grantor really need PAS? That indicates the portfolio is probably too complicated. I also assume the grantor doesn’t currently own any real estate.

Keeping the trust open or not does not benefit a lawyer. You only pay them when you get new services from them, such as when they guide/ represent you through probate. Meanwhile, a trustee will be easily recognized as authorized to act on behalf of the grantor when things are in the trust.
miket29
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Re: Is a Trust really needed today?

Post by miket29 »

sjhruby wrote: Sat Sep 26, 2020 10:03 am The family member is a healthy mid-80-year-old. All assets in the trust are managed through PAS at Vanguard. The objective of the trust is essentially just to dictate the percentage allocation of the total trust that each family member will receive. It also explains that one of the children would be able to manage the trust in event the family member becomes incapacitated.
I'm not a lawyer, you should get legal advice from a lawyer before taking any action. That said, instead of a trust the assets could be set up at Vanguard as POD (pay on death) with the desired percentages, and a durable power of attorney created to manage the financial affairs in the event the family member becomes incapacitated. A POD is not as flexible as a trust in regards to what happens if one or more of the children should predecease the family member. At best the beneficiary can be designated at per stirpes meaning that if they die first then their children inherit their share.

Given the trust already exists there probably is no reason to change it; there should not be any fees until the the family member passes unless there is a need to alter the trust. And it is possible for the named executor to handle the paperwork without an attorney. We went thru this earlier this year after a family member passed with a trust holding the Vanguard assets. The executor sent an official death certificate to Vanguard and got control of the assets in the trust, which he then distributed as per the trust.
inbox788
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Re: Is a Trust really needed today?

Post by inbox788 »

heyyou wrote: Sat Sep 26, 2020 12:04 pmMy trust, suggested by a AUM advisor who definitely got a referral fee, cost my wife and I, age 40s adults with no kids, a month's pay in about year 2000.
What went in the trust at formation? Later?
Now she has passed and a new lawyer has charged me a month's income, mentioning that some parts of the trust are irrevocable, but with no further info about which parts.
Sympathies for your loss. Puzzling what is irrevocable. What is still in the trust?
Prior to her passing, she distributed her Roth IRA to her siblings, so there were no solely owned assets of hers to be processed, nor any jointly owned assets other than our residence.
Did she WITHDRAW the all the funds from the Roth IRA closing the account? You had no joint bank or brokerage accounts? Was the residence in the trust (titled and recorded)?
I do not now see the need for a $350 an hour lawyer to study the entire 3" of legal boiler plate just to dissolve a trust for my solely owned assets.
Are these current assets titled in your name or the trust name?

I assume you're the executor and trustee and recipient of the trust assets and there are no other persons involved. Can't you simply move anything that's in a trust out and leave it an empty shell? And if it's empty, is there any reason to pay a lawyer to dissolve it?

I have always been confused about trusts and what's kept in them since it doesn't seem like there's anyone keeping track of trusts or what's in them.

Did the trust help in any way? Was it worth it? Thanks for sharing your experience.

FWIW, I can't imagine why you'd even mention pension or SS in a trust.

Add: This is a revocable living trust, no? Isn't there a clause on how to revoke it? Did not know there was a difference between terminating and closing a trust when ending one. And may depend on what type of trust.

http://pennyborn.com/trustadministratio ... trust.html
http://pennyborn.com/guidetolivingtrust ... trust.html
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Mullins
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Re: Is a Trust really needed today?

Post by Mullins »

There's also other situation a trust is useful where, to illustrate this, say John has children from a previous relationship, and wants to take care of his current mate, Mary, providing her with a roof over her head and an income stream she needs to live, but keeping the assets in John's trust if and when he pre-deceases her. But upon Mary's death, John's trust directs the remainder of his estate go to his children, not Mary's next living relative (that good-for-nothing brother of hers!).

Without a trust, you could have Mary write her Will in accordance with John's wish to leave the remainder of his estate to his children, but too many things can happen to upset that arrangement.

Though that may not be your circumstance, it may happen that something comes up where having a trust would be beneficial. Since we don't know what twists life has in store, I'd say keep it.
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celia
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Re: Is a Trust really needed today?

Post by celia »

Even if the ONLY thing in the trust is mutual funds, the trustee would be able to vote in shareholder elections and if the fund should cease to exist, the trustee can re-invest the money in another fund.

If tax withholdings were done but no taxes were due by the grantor, the trustee can file a tax return to get the withheld money back.
bsteiner
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Re: Is a Trust really needed today?

Post by bsteiner »

heyyou wrote: Sat Sep 26, 2020 12:04 pm My trust, suggested by a AUM advisor who definitely got a referral fee, cost my wife and I, age 40s adults with no kids, a month's pay in about year 2000. Now she has passed and a new lawyer has charged me a month's income, mentioning that some parts of the trust are irrevocable, but with no further info about which parts. Prior to her passing, she distributed her Roth IRA to her siblings, so there were no solely owned assets of hers to be processed, nor any jointly owned assets other than our residence.

I do not now see the need for a $350 an hour lawyer to study the entire 3" of legal boiler plate just to dissolve a trust for my solely owned assets. I was in his office wearing casual summer clothing when he ask about assets, my answers-- "pension" (no response), "Social Security" (no response), "portfolio" (he sat up, smiled, and ask how large, then was noticeably more animated going forward). A trust may well be suitable for some, but not sensible for others, and few to none in the industry are going to advise a potential customer that a trust is not needed.
Lawyers are not permitted to share fees with nonlawyers.

If your revocable trust cost a month's pay, it may have cost too much or your income may have been too low.

If your revocable trust is 3 inches thick, the lawyer may be charging by the word.

It often costs more to go through and revise a Will or revocable trust than it would cost to prepare a new one, especially if the existing one is 3 inches thick. However, when someone dies, there's often a good deal of work involved in dealing with the decedent's estate and assets.

The first half of your last sentence is correct. Revocable trusts make sense in some cases and in some states, but not in most cases in most states. However, if you and your wife had a single revocable trust, you're in a community property state, probably California since that's the largest one by population and the one where revocable trusts are most common since probating a Will is said to be more difficult in California than in most if not all other states. So it may have made sense for you and your wife.

The second half of your last sentence is not correct. I won't suggest a revocable trust unless there's a reason for one in a given case. However, as we've both pointed out, they make sense in some cases.
Gill
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Re: Is a Trust really needed today?

Post by Gill »

heyyou wrote: Sat Sep 26, 2020 12:04 pm My trust, suggested by a AUM advisor who definitely got a referral fee...
Lawyers do not share fees with nonlawyers.
Gill

Edit: I see bsteiner beat me to it.
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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