Estate Planning (Input Requested)

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MilkMoney
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Estate Planning (Input Requested)

Post by MilkMoney » Sat Jan 13, 2018 1:39 pm

Sometime back my wife and I had a will and trust setup. We refinanced several properties years ago, and when we did had to take them out of ownership in the trust. We were negligent in having them put back under the trust, and contacted an attorney to get that done. When I spoke with him, he said it was a simple strait forward filling, but wanted us to have a quick talk with their estate planning attorney since we had not done anything with our trust in probably 12 years. Now our situation had changed since we had everything setup, as our second child was born after, so I said sure we can do that. Here is the guidance that we were given:

The attorney said that our setup was overly complicated and he saw no need for us to have a trust, a simple will was all we should have. He said that with the estate tax exemptions being where they are, the trust did nothing but complicate the distribution process when it was needed, given that we would never hit the $22 Million exemption. Also, outside of that using it to escape probate was only really useful in a couple complicated states like Florida and California. We are in a Maryland superb just outside of DC, and it's a high COL area. He also said that our Powers of attorney needed to be redone, because they can be difficult to use if more than a few years old, ours have not been updated since we had the Will and trust established. Also, he wants to charge us $4500 to revoke the trust and setup a new will. I am trying to separate the advice portion of this, from the price he gave, which seems very high to me.

I would appreciate anyones experience and opinion on the trust logic and other items here. Our situation is as follows:

1. Currently we have a Will, Trust, Durable Power of Attorney, and AMD setup. While we have one child not specifically named in the current will and trust, it is setup to account for equal treatment of any future children. This was all setup in 2007.
2. I am 43, and my Wife is 46. We have 7 and 10 YO children.
3. We have a primary residence, and 3 rental properties. There is approximately 1.7 Million of equity in the houses, which have about a 2.5 Million valuation.
4. We have about 1.3 Million in our 401K's.
5. We have about 350K in taxable accounts (HYS, CD's, Muni Fund & iBonds), plus 80K in the kids 529's.

I guess I am looking for thoughts on the attorneys general advice on the need for a trust given our situation, and whether it truly overcomplicates our situation. Any experience with issues using powers of attorney that are more than a few years old, etc.

Thanks for any thoughts!

Jeff

afan
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Re: Estate Planning (Input Requested)

Post by afan » Sat Jan 13, 2018 3:00 pm

Sounds like terrible advice.

First, the trust in no way "complicates" distribution after the second death. As your attorney seems to have acknowledged, it avoids probate. Probate may not be a big deal in your state but avoiding it will hardly make the distribution more complicated.

Since you have already titled your assets in the trust there is no further complication involved in maintaining it.

Having your money in trust can be very helpful if you become incapacitated and someone else has to manage your affairs while you are still alive. In theory your powers of attorney should permit this but it can be hard to get these accepted. A trustee would provide this management ability without a fight about whether a company would accept a POA.

Although the current estate tax exclusion amount is very high it changes frequently and could easily be lower in the future. Maintaining your current estate plan will cost you nothing.

You should make sure that your plan takes advantage of portability, which may not have been in place when your trust was drafted.

The cost for doing a simple will is outrageous.

Given the amounts you have in retirement accounts you may want to name an accumulation trust as the beneficiary after your spouse. This will protect your children's inheritance. You would need some adult to manage the money on behalf of your children is both parents die before the younger child is an adult. The accumulation trust let's the trustee keep the money in trust for their benefit.

You need a better estate planning attorney.
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FIREchief
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Re: Estate Planning (Input Requested)

Post by FIREchief » Sat Jan 13, 2018 4:28 pm

afan wrote:
Sat Jan 13, 2018 3:00 pm
Sounds like terrible advice.

You need a better estate planning attorney.
+1.

That said, and considering the timeline, it is quite possible that you were sold an A/B trust back in 2007 and that this trust very well may be too complicated and/or inappropriate for your situation. As afan suggested, a better fit might be a qualified retirement plan trust (set up as accumulation, not conduit) for both your wife and yourself, along with a simple joint living trust to hold your non-retirement plan assets. At 1.3M, your 401k will hopefully double or triple in size before it will be inherited, so an appropriate investment in a trust may be very worthwhile. If your attorney (or any other), doesn't understand these trusts, then find one who does.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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celia
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Re: Estate Planning (Input Requested)

Post by celia » Sat Jan 13, 2018 4:59 pm

Not only is the advice questionable, but the price is ridiculous.

When we took our house out of the trust for refinancing, the escrow company drew up the deed to change ownership. To make it simple for us, I asked that they also draw up the deed to put it back in the trust after the refinancing was done. Then we just had to sign and notarize the deed and send it in.

A trust can protect your kids in case one of you dies and the survivor remarries, then dies before the new spouse. It can also specify things in case one of the beneficiaries is unable to handle finances very well or has a spouse who is eyeing the assets.

I also understand that this increased estate tax exemption is only good through 2025 only. What if one of you dies the following year? Will you remember to get a new trust before January 1, 2026?

samsmith
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Re: Estate Planning (Input Requested)

Post by samsmith » Sat Jan 13, 2018 5:16 pm

Just to be clear what type of trust is this. Is it a revocable living trust? If you wanted to revoke the trust, it should be relatively straightforward to move the brokerage accounts out of the trusts and the real estate is already out of the trusts ( so nothing to do). But maybe its some other type of trust?

PatrickA5
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Re: Estate Planning (Input Requested)

Post by PatrickA5 » Sat Jan 13, 2018 5:19 pm

samsmith wrote:
Sat Jan 13, 2018 5:16 pm
Just to be clear what type of trust is this. Is it a revocable living trust? If you wanted to revoke the trust, it should be relatively straightforward to move the brokerage accounts out of the trusts and the real estate is already out of the trusts ( so nothing to do). But maybe its some other type of trust?
Along a similar line of question: What do you have to do to Revoke a trust? What if you take something out of a trust during your lifetime, but have a pour over will that wants to put those same assets right back into your trust once you die. How do you officially kill a trust? Seems like it should be pretty easy and cheap to do so.

Gill
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Re: Estate Planning (Input Requested)

Post by Gill » Sat Jan 13, 2018 5:32 pm

PatrickA5 wrote:
Sat Jan 13, 2018 5:19 pm
Along a similar line of question: What do you have to do to Revoke a trust? What if you take something out of a trust during your lifetime, but have a pour over will that wants to put those same assets right back into your trust once you die. How do you officially kill a trust? Seems like it should be pretty easy and cheap to do so.
You sign a one-page document that basically says "I hereby revoke the MilkMoney trust dated 01/01/01 and direct all assets to be delivered to me".
Gill

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MilkMoney
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Re: Estate Planning (Input Requested)

Post by MilkMoney » Sat Jan 13, 2018 5:39 pm

What was setup was a revocable living trust for both myself and my wife. Upon our death it calls for a "Sprinkling" trust administered by our appointed Trustee until the youngest child reaches 25. At that time it equally splits remaining property into to a reservoir trust for each child, controlled by the child.
samsmith wrote:
Sat Jan 13, 2018 5:16 pm
Just to be clear what type of trust is this. Is it a revocable living trust? If you wanted to revoke the trust, it should be relatively straightforward to move the brokerage accounts out of the trusts and the real estate is already out of the trusts ( so nothing to do). But maybe its some other type of trust?

WannabeAgAlum
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Re: Estate Planning (Input Requested)

Post by WannabeAgAlum » Sun Jan 14, 2018 3:05 am

That attorney is right about this: you should consider updating your plan. You should probably do this even if you'll stick with your revocable trust. Most older trusts have credit shelter trusts and marital trusts. Usually in the older revocable trust documents the credit shelter trust gets filled up at the first death with the remaining exemption amount (was much lower in years past), then any excess goes to a marital trust. The cool thing about the credit shelter trust is that it is not included in the surviving spouse's estate. The not-so-cool thing is that it does not get a step up in basis at the survivor's death. The cool thing about the marital trust is that it does get a step up at survivor's death - the not-so-cool thing is that it is included in the survivor's estate. Today, with your level of wealth, you should care a lot about getting the second step up, and you should not care at all about having the assets includible in your estates because of the high exemptions. The plan of the attorney you consulted would give you the second step up (assuming each spouse's will gives the $ to the survivor), and your current plan may not. In addition, that plan is quite simple.

Some people value simplicity a lot, don't care about creditor protection for kids/beneficiaries, aren't concerned with more seamless administration of their assets in case of incapacity and aren't concerned with extra costs of probate (which in many states really aren't that big of a deal). What I'm trying to say here is estate tax avoidance and probate avoidance in a few states are not the only reasons people use trusts, which is what the attorney you spoke to seems to believe.

Wannabe

afan
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Re: Estate Planning (Input Requested)

Post by afan » Sun Jan 14, 2018 10:31 am

All of the things brought up be wannabe can be accomplished by amending the existing trust. No need to revoke it, retitle assets currently held by the trust, force the estate to go through probate and all the other complexities inherent in the proposed plan.

The OP may need an update to the estate plan to account for changes in tax law. But maybe not. Some of those older documents allowed flexibility in how to allocate money to the trusts. Depending on what it said the current trust might still be OK.

The claim that administration after the second death with a funded living trust would be more complicated than going through probate is what makes me think this attorney is just trying to pad legal fees by suggesting as many changes as possible.
Last edited by afan on Mon Jan 15, 2018 9:34 am, edited 1 time in total.
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MilkMoney
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Re: Estate Planning (Input Requested)

Post by MilkMoney » Sun Jan 14, 2018 10:37 am

Wannabe,

Can you help me understand how having a will with NO trust provides the "second step up" you mention?

thanks
WannabeAgAlum wrote:
Sun Jan 14, 2018 3:05 am
That attorney is right about this: you should consider updating your plan. You should probably do this even if you'll stick with your revocable trust. Most older trusts have credit shelter trusts and marital trusts. Usually in the older revocable trust documents the credit shelter trust gets filled up at the first death with the remaining exemption amount (was much lower in years past), then any excess goes to a marital trust. The cool thing about the credit shelter trust is that it is not included in the surviving spouse's estate. The not-so-cool thing is that it does not get a step up in basis at the survivor's death. The cool thing about the marital trust is that it does get a step up at survivor's death - the not-so-cool thing is that it is included in the survivor's estate. Today, with your level of wealth, you should care a lot about getting the second step up, and you should not care at all about having the assets includible in your estates because of the high exemptions. The plan of the attorney you consulted would give you the second step up (assuming each spouse's will gives the $ to the survivor), and your current plan may not. In addition, that plan is quite simple.

Some people value simplicity a lot, don't care about creditor protection for kids/beneficiaries, aren't concerned with more seamless administration of their assets in case of incapacity and aren't concerned with extra costs of probate (which in many states really aren't that big of a deal). What I'm trying to say here is estate tax avoidance and probate avoidance in a few states are not the only reasons people use trusts, which is what the attorney you spoke to seems to believe.

Wannabe

cas
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Re: Estate Planning (Input Requested)

Post by cas » Sun Jan 14, 2018 11:01 am

MilkMoney wrote:
Sat Jan 13, 2018 1:39 pm
Any experience with issues using powers of attorney that are more than a few years old, etc.
On the POA issue, the attorney is (probably) correct. The "probably" is in there because the difficulties are apparently somewhat dependent on state law.

I don't have any personal experience with POAs being refused (because I haven't tried using my POA for my parents yet). However, there have certainly been threads here on bogleheads about people having great difficulty getting various banks/insurance companies etc to accept a POA. (On the other hand, there are other people who report not having any problem using a POA. This may or may not be the state-dependent situation described below.)

The problem has gotten bad enough, apparently, that some states are starting to write laws to require financial companies to accept POAs that meet certain standards or at least require the company to give a solid reason why they are rejecting the POA within a few days. You would have to do some googling and check the law for your state.

When DH and I recently had estate planning documents done by a lawyer, we asked the lawyer whether she had been seeing difficulty in getting POAs accepted in our state, and she wholeheartedly agreed.

I've heard various reasons for why the situation with POA has come to be ... increase in financial fraud, more rigorous anti-money-laundering laws since 9/11, etc etc. In any case, there certainly appear to be cases where financial institutions would just rather not be put in the position of being potentially liable for having accepted a fraudulent or out-of-date POA, so they've just thrown the baby out with the bathwater and started refusing to accept a general durable POA.

(By the way, Vanguard doesn't accept a general durable POA except in the case of complete incapacity, which is something that may be difficult to get a doctor to sign off on. Vanguard wants their own Agent Authorization form signed, notarized, and with 2 notarized witness signatures, IIRC. Don't know if you have Vanguard accounts, but since you are posting on bogleheads, I thought I would mention it.)

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MilkMoney
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Re: Estate Planning (Input Requested)

Post by MilkMoney » Sun Jan 14, 2018 1:55 pm

cas wrote:
Sun Jan 14, 2018 11:01 am
MilkMoney wrote:
Sat Jan 13, 2018 1:39 pm
Any experience with issues using powers of attorney that are more than a few years old, etc.
(By the way, Vanguard doesn't accept a general durable POA except in the case of complete incapacity, which is something that may be difficult to get a doctor to sign off on. Vanguard wants their own Agent Authorization form signed, notarized, and with 2 notarized witness signatures, IIRC. Don't know if you have Vanguard accounts, but since you are posting on bogleheads, I thought I would mention it.)
Thank you, cas. Very helpful, as our funds are basically split between Vanguard and Fidelity. We use Fidelity as our primary bank and PenFed for CD's and some savings since we have a local branch near us.

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FIREchief
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Re: Estate Planning (Input Requested)

Post by FIREchief » Sun Jan 14, 2018 2:08 pm

MilkMoney wrote:
Sun Jan 14, 2018 10:37 am
Wannabe,

Can you help me understand how having a will with NO trust provides the "second step up" you mention?

thanks
WannabeAgAlum wrote:
Sun Jan 14, 2018 3:05 am
That attorney is right about this: you should consider updating your plan. You should probably do this even if you'll stick with your revocable trust. Most older trusts have credit shelter trusts and marital trusts. Usually in the older revocable trust documents the credit shelter trust gets filled up at the first death with the remaining exemption amount (was much lower in years past), then any excess goes to a marital trust. The cool thing about the credit shelter trust is that it is not included in the surviving spouse's estate. The not-so-cool thing is that it does not get a step up in basis at the survivor's death. The cool thing about the marital trust is that it does get a step up at survivor's death - the not-so-cool thing is that it is included in the survivor's estate. Today, with your level of wealth, you should care a lot about getting the second step up, and you should not care at all about having the assets includible in your estates because of the high exemptions. The plan of the attorney you consulted would give you the second step up (assuming each spouse's will gives the $ to the survivor), and your current plan may not. In addition, that plan is quite simple.

Some people value simplicity a lot, don't care about creditor protection for kids/beneficiaries, aren't concerned with more seamless administration of their assets in case of incapacity and aren't concerned with extra costs of probate (which in many states really aren't that big of a deal). What I'm trying to say here is estate tax avoidance and probate avoidance in a few states are not the only reasons people use trusts, which is what the attorney you spoke to seems to believe.

Wannabe
It's not the "will vs. trust" issue that will impact step-up. It's the type of trust. I earlier suggested you may have an A/B trust, which is what Wannabe just described (i.e. credit shelter and marital trusts). I suggested that you might be better off with a "simple trust," which would not estatblish a credit shelter trust upon death of first spouse, but would remain pretty much the same under control of the surviving spouse. This type of trust remains 100% revocable upon death of first spouse, and thus 100% in the surviving spouse's estate, but also fully eligible for step up basis. If you are in a community property state, there are likely stronger step up benefits upon death of the first spouse as well (100% vs. 50% for jointly owned assets, if I remember correctly - see my signature).
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

bsteiner
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Re: Estate Planning (Input Requested)

Post by bsteiner » Tue Jan 16, 2018 1:15 pm

MilkMoney wrote:
Sat Jan 13, 2018 1:39 pm
Sometime back my wife and I had a will and trust setup. We refinanced several properties years ago, and when we did had to take them out of ownership in the trust. We were negligent in having them put back under the trust, and contacted an attorney to get that done. When I spoke with him, he said it was a simple strait forward filling, but wanted us to have a quick talk with their estate planning attorney since we had not done anything with our trust in probably 12 years. Now our situation had changed since we had everything setup, as our second child was born after, so I said sure we can do that. Here is the guidance that we were given:

The attorney said that our setup was overly complicated and he saw no need for us to have a trust, a simple will was all we should have. He said that with the estate tax exemptions being where they are, the trust did nothing but complicate the distribution process when it was needed, given that we would never hit the $22 Million exemption. Also, outside of that using it to escape probate was only really useful in a couple complicated states like Florida and California. We are in a Maryland superb just outside of DC, and it's a high COL area. He also said that our Powers of attorney needed to be redone, because they can be difficult to use if more than a few years old, ours have not been updated since we had the Will and trust established. Also, he wants to charge us $4500 to revoke the trust and setup a new will. I am trying to separate the advice portion of this, from the price he gave, which seems very high to me.

I would appreciate anyones experience and opinion on the trust logic and other items here. Our situation is as follows:

1. Currently we have a Will, Trust, Durable Power of Attorney, and AMD setup. While we have one child not specifically named in the current will and trust, it is setup to account for equal treatment of any future children. This was all setup in 2007.
2. I am 43, and my Wife is 46. We have 7 and 10 YO children.
3. We have a primary residence, and 3 rental properties. There is approximately 1.7 Million of equity in the houses, which have about a 2.5 Million valuation.
4. We have about 1.3 Million in our 401K's.
5. We have about 350K in taxable accounts (HYS, CD's, Muni Fund & iBonds), plus 80K in the kids 529's.

I guess I am looking for thoughts on the attorneys general advice on the need for a trust given our situation, and whether it truly overcomplicates our situation. Any experience with issues using powers of attorney that are more than a few years old, etc.
...
You're conflating two different issues. The more important issue is the dispositive provisions (who gets what). The less important issue is whether to create or retain revocable trusts.

Your assets appear to consist of about $2 million of nonretirement assets and $1.3 million of retirement benefits.

In 2007, the Federal estate tax exclusion amount was $2 million. It was scheduled to increase to $3.5 million in 2009, there wasn't going to be any Federal estate tax in 2010, and the estate tax was scheduled to return in 2011 with a $1 million exclusion amount. The Maryland exclusion amount was $1 million. I think most people in Maryland in your situation at that time would have created a credit shelter trust for the $1 million state exclusion amount, though some people might have created a credit shelter trust for the Federal exclusion amount. There were also some ways to retain flexibility to decide after the first spouse's death.

As we know, the Federal exclusion amount is about $11.2 million, and is scheduled to revert to $5.6 million (indexed) in 2026. There's no way to know what if anything Congress may do between now and 2026. The Maryland exclusion amount is now $4 million, and is scheduled to increase to the Federal level in 2019. I haven't checked to see whether that means $5.6 million (indexed) or twice that amount in 2018-2025. Maryland will have portability beginning in 2019.

As long as neither spouse's assets (not counting the retirement benefits if they're payable to the surviving spouse) don't exceed the lesser of the Federal or the Maryland exclusion amount, the credit shelter trust, assuming it's sufficiently flexible and gives the spouse effective control, doesn't create much complexity. If the trust is sufficiently flexible, the trustees can distribute the assets of the credit shelter trust to the spouse.

If you were doing the planning now, since your nonretirement assets are well below the Federal and the Maryland exclusion amounts, even if they revert to $5.6 million (indexed), you would have several choices. You could have credit shelter trusts (which is what it appears you now have). You could leave your estates to each other, with disclaimer trusts as backup, for simplicity and to get a second basis step-up at the surviving spouse's death. You could leave your estates to each other in marital-type trusts and (under Revenue Procedure 2016-49, issued in 2016) elect the marital deduction, and portability, and likewise get another basis step-up at the surviving spouse's death. You could give your executors the choice as to whether some or all of your estate would go to a marital trust or a credit shelter trust. You could review this when you reach the point that estate taxes are a consideration (or if the law changes such that estate taxes are a consideration).

Perhaps the most important thing is whether the provisions for your children are what you want. Our clients generally provide for their children in trust rather than outright, with each child gaining control of his/her trust at a specified age (absent a reason not to give a child control). That keeps the children's inheritances out of their estates for estate tax purposes, and protects their inheritances from their creditors and spouses.

We've had several estates in Maryland. Probating the Wills was not particularly difficult, expensive or burdensome. Especially since you were in your early 30s when you did your planning 12 years ago, creating revocable trusts may not have been worth the effort, But if you already have your nonretirement assets in them, especially since you have several pieces of real estate, it's probably easier to keep them, even if you didn't might not create them now if you didn't already have them.

The lawyer's fee estimate is reasonable if the lawyer is good or reasonably good. You should be able to get a sense of that from his/her bio and his/her firm's website.

You mentioned Florida. Probating a Will in Florida is generally not particularly difficult, expensive or burdensome. For most people it's not worth trying to "avoid" probating their Will in Florida.

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