Living Trust vs Transfer on Death

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Dan32
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Living Trust vs Transfer on Death

Post by Dan32 » Thu Mar 31, 2016 9:25 am

I did post this on another site, but am gathering as much info as possible so:

My wife and I have a simple will and have been discussing whether we should establish a living trust. The size of our "estate" would be ~$2 MM.

Main benefits of a revocable living trust: Bypass probate, easier for children, privacy of transfer.

In our state we can get all of the above benefits by establishing all of our financial accounts, house deeds, etc as either transfer on death or payable on death accounts. Cars can not be transferred.

So..... Can someone provide reasons why a trust would be better for us than a simple will with TOD / POD provisions? Am I missing something else that a trust could do for us?

Your comments, suggestions, and experiences are appreciated.

Carefreeap
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Re: Living Trust vs Transfer on Death

Post by Carefreeap » Thu Mar 31, 2016 9:37 am

Do you have minor/college aged children?

Dan32
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Re: Living Trust vs Transfer on Death

Post by Dan32 » Thu Mar 31, 2016 9:50 am

Children are on their own and doing well. They will be the beneficiaries of any Wills / Trusts / or TOD documents that we establish. Currently have only a will.

sport
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Re: Living Trust vs Transfer on Death

Post by sport » Thu Mar 31, 2016 9:58 am

A will only applies if you die. If you are incapacitated, a trust will name a secondary trustee. If you die, a will pay out to the beneficiaries regardless of age, or even if they have been sued and will lose the money to the party that successfully sued them. A trust can be written to pay out at certain ages (for children), and to prevent payout when the money would go to someone else. IINAL, and I am sure a lawyer could cite other benefits.

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1210sda
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Re: Living Trust vs Transfer on Death

Post by 1210sda » Thu Mar 31, 2016 10:32 am

I too was thinking..."do I need a trust"?

Now that the exemption amount is over $5 million (plus, portability doubles it), I question the use for a trust if your assets are
under the exemption amount.

Other considerations:
1. A trust avoids probate. So do Joint ownership, beneficiary designations,and POD/TOD.

2. A trust is private, a will is a public record. But, as I understand it, only the "probate estate" is a public record.
Jointly owned assets and assets with a beneficiary designation (IRA, life insurance, etc) are not part of the probate estate.

3. A trust is speedier. Joint ownership and beneficiary designations are fast also.(only probate estate assets go through probate)

4. Upon death, the revocable living trust becomes irrevocable thus requiring the filing of a form 1041 tax return.

5. Protection against incapacity. Durable Powers of Atty (health and property) should provide similar.

There are other factors that might come into play also.....would love to hear from other Bogleheads.

1210
Last edited by 1210sda on Tue Apr 12, 2016 9:44 am, edited 2 times in total.

bsteiner
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Re: Living Trust vs Transfer on Death

Post by bsteiner » Thu Mar 31, 2016 10:42 am

You're conflating two different issues here: (i) whether to provide for your children outright or in trust, and (ii) whether to do so by Will or in a revocable trust.

Given the amount involved, you may want to provide for your children in trust rather than outright. That will keep their inheritances out of their estates for estate tax purposes, and provide better protection against their creditors, predators, spouses and Medicaid. Each child can effectively control his/her trust.

Revocable trusts are useful in some cases, and in some states (they're common in California for reasons specific to California). However, you haven't provided any reason that they would make sense in your case. As for privacy, if you're not a celebrity, and if you're providing for your spouse and then for the children of your marriage, no one will be going to the courthouse to look at your Will, and the newspapers won't be interested in it. On the other hand, if you want to provide for a nonmarital child, or for a romantic partner other than your spouse, you might want to do that outside your Will.

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dm200
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Re: Living Trust vs Transfer on Death

Post by dm200 » Thu Mar 31, 2016 10:57 am

"Transfer on Death" (TOD) and "Payable On Death" (POD) can be very useful in many situations. In my opinion, these designations are most useful for relatively small or modest balance accounts. Opinions differ, though.

In my opinion, for relatively larger balance accounts, a will and/or trust is usually preferable for the following reasons (or potential reasons):
1. A POD/TOD provides no benefits while owner(s) alive, while a trust can provide for someone to act on owner's behalf die to disability, impairment, etc.
2. A POD/TOD is limited is "what if" situations and cannot be as comprehensive as a will or trust. Circumstances can change (such as a death of a beneficiary) and the changes are not made before the death of an owner.
3. With a will or trust managing the bulk of assets, there can be one comprehensive plan for their disposition. POD/TOD for large amounts can fracture a plan. A POD/TOD overrides anything and everything in a will or trust. There may be "unintended consequences".

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Re: Living Trust vs Transfer on Death

Post by Grt2bOutdoors » Thu Mar 31, 2016 11:44 am

Correct me if I'm wrong, but doesn't a Trust need to be funded for it to become effective? If you create a living trust, don't fund it by re-titling your assets, what then?
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afan
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Re: Living Trust vs Transfer on Death

Post by afan » Thu Mar 31, 2016 12:11 pm

You can write your will to establish the trust at your death. This does no good for taking over is you become incapacitated, but it works just fine for estate planning.

Having titled things in our trust years ago and keeping it up as new accounts arise, it is really simple. Basically, identical to opening an account in your own name. Absolutely nothing to it and not worth considering in this decision.
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iflyjetzzz
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Re: Living Trust vs Transfer on Death

Post by iflyjetzzz » Thu Mar 31, 2016 2:17 pm

How many assets would one start looking at doing a living trust vs Transfer on Death?

I have a will but have the bulk of my assets (IRA, 401K, Investment accounts, checking accounts) as Transfer on Death (TOD) - to be inherited by my daughter. Real estate and cars are joint so wife would inherit. Not much 'value' in my personal items.

My objective is to avoid probate of my estate. Someone correct me if I'm wrong, but it's my understanding that TOD doesn't count toward assets for probate purposes. I need to stay below $100K in NV to avoid probate.

Is there a dollar amount that I should consider a living trust? I'm currently ~$1M in TOD assets which is the bulk of my net worth.

chx
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Re: Living Trust vs Transfer on Death

Post by chx » Thu Mar 31, 2016 2:50 pm

Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.

cyfan
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Re: Living Trust vs Transfer on Death

Post by cyfan » Thu Mar 31, 2016 3:58 pm

chx wrote:The best trust you can have is trust in your children.

+1
I am in a similar situation with grown children who are more responsible than most any trustee that I could think of. It seems the most significant gap between a will and trust is the need for durable power of attorney in case I or my wife are not able to take care of our affairs before we pass. Other than that, let the POD, POA, and will perform their intended purpose while eliminating the unnecessary expense of a trust. Of course a review of ones specific situation with a qualified attorney is probably money well spent.

Greg4boat
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Re: Living Trust vs Transfer on Death

Post by Greg4boat » Thu Mar 31, 2016 4:03 pm

dm200 wrote:"Transfer on Death" (TOD) and "Payable On Death" (POD) can be very useful in many situations. In my opinion, these designations are most useful for relatively small or modest balance accounts. Opinions differ, though.

In my opinion, for relatively larger balance accounts, a will and/or trust is usually preferable for the following reasons (or potential reasons):
1. A POD/TOD provides no benefits while owner(s) alive, while a trust can provide for someone to act on owner's behalf die to disability, impairment, etc.
2. A POD/TOD is limited is "what if" situations and cannot be as comprehensive as a will or trust. Circumstances can change (such as a death of a beneficiary) and the changes are not made before the death of an owner.
3. With a will or trust managing the bulk of assets, there can be one comprehensive plan for their disposition. POD/TOD for large amounts can fracture a plan. A POD/TOD overrides anything and everything in a will or trust. There may be "unintended consequences".


This is a very good summary in my opinion. I do use POD and TOD balances for larger amounts but I only have one beneficiary designation - my wife. Another limitation I have discovered is many financial institutions are inflexible with beneficiary designations, i.e. you can only designate one beneficiary. Be aware that for FDIC and NCUA insurance purposes POD / TOD accounts are treated the same (same ownership class) as an account titled to a living trust. You do need to fund a trust which means you need to change the title of all assets you want covered by the trust to the name of the trust.

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dm200
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Re: Living Trust vs Transfer on Death

Post by dm200 » Thu Mar 31, 2016 4:19 pm

Grt2bOutdoors wrote:Correct me if I'm wrong, but doesn't a Trust need to be funded for it to become effective? If you create a living trust, don't fund it by re-titling your assets, what then?


Worthless. You just wasted paying for the trust.

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dm200
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Re: Living Trust vs Transfer on Death

Post by dm200 » Thu Mar 31, 2016 4:22 pm

cyfan wrote:
chx wrote:The best trust you can have is trust in your children.

+1
I am in a similar situation with grown children who are more responsible than most any trustee that I could think of. It seems the most significant gap between a will and trust is the need for durable power of attorney in case I or my wife are not able to take care of our affairs before we pass. Other than that, let the POD, POA, and will perform their intended purpose while eliminating the unnecessary expense of a trust. Of course a review of ones specific situation with a qualified attorney is probably money well spent.


I think there are situations when a trust can make a lot of sense - even if your children are "trustworthy". One situation that occurs to me is planned distributions to current and future grandchildren, At the time of your death, such grandchildren may be young, or not even born yet.

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Re: Living Trust vs Transfer on Death

Post by NMJack » Thu Mar 31, 2016 5:55 pm

chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


A trust that names the primary beneficiary (your child) as trustee does not require any management fee and can provide significant asset protections. This is legal in my state, and perhaps most/all others. Further, your child can be given the power to appoint (and remove) an independent trustee as necessary or desired. I'm right in the middle of this, and had to meet with three estate attorneys before finding one who I could actually work with on these types of issues. Also, while not free, Fidelity (and I'm sure others) market an "agent for trustee" service to assist your child/spouse/etc. with the administrative aspects. I believe that Fidelity's current fees are .12% for the first $3M of trust value. Not free, but maybe a good deal for somebody who would otherwise be overwhelmed by serving in capacity as trustee.

Trust in my adult children? Absolutely! While not on the forum, they understand all the core principles of long term, tax efficient, index based, passive, buy-and-hold investing (does that capture the essence of a "Boglehead?", forgive me if it doesn't as I am a newbie to the forum). That said, it is not our children that are the focus. It is anybody/everybody else who might want to get their hands on our children's inherited assets. Predators, creditors, in-laws, out-laws, etc.....

That said, I appreciate the posters position. I believe that some estate planning attorneys are nothing other than assembly lines for generic "estate plans" that are one-size-fits-all solutions designed primarily to generate up front income with the potential for expensive execution and management days/months/years later when the person who set up the trust is long gone. For the retail client who has too much trust (no pun intended) in "experts," the trust may certainly do more harm than good. Great discussion! :sharebeer

Benp404
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Re: Living Trust vs Transfer on Death

Post by Benp404 » Thu Mar 31, 2016 6:08 pm

I agree with dm200, you may want to look at a total estate plan and not just into the efficiency of how your assests transfer upon death.

NMJack
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Re: Living Trust vs Transfer on Death

Post by NMJack » Thu Mar 31, 2016 6:10 pm

dm200 wrote:
Grt2bOutdoors wrote:Correct me if I'm wrong, but doesn't a Trust need to be funded for it to become effective? If you create a living trust, don't fund it by re-titling your assets, what then?


Worthless. You just wasted paying for the trust.


I believe that you are mostly correct, but there may be situations where delayed funding may have some positive implications. My primary after-tax assets are a home and brokerage account that are both registered as JWROS. Since I am in a community property state, both of these qualify for a step up basis upon the death of the first spouse. If I set up an unfunded joint simple living trust, and subsequently die, my surviving spouse can then retitle the assets to the trust but, if she later needs/desires to sell the assets, she will owe less capital gains taxes. If we retitle while we are both alive, I'm not sure that she would receive a step up basis upon my death, since I no longer own the assets in the same manner as if they were directly owned by myself. If there is a competent CPA out there, please weigh in!

That said, my wife could just set up the trust after my death, but might not be able/willing to do that.

rick2427
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Re: Living Trust vs Transfer on Death

Post by rick2427 » Thu Mar 31, 2016 10:09 pm

Unread postby 1210sda » Thu Mar 31, 2016 10:32 am

I too was thinking..."do I need a trust"?

Now that the exemption amount is over $5 million (plus, portability doubles it), I question the use for a trust if your assets are
under the exemption amount.

Other considerations:
1. A trust avoids probate. So do Joint ownership, beneficiary designations,and POD/TOD.

2. A trust is private, a will is a public record. But, as I understand it, only the "probate estate" is a public record.
Jointly owned assets and assets with a beneficiary designation (IRA, life insurance, etc) are not part of the probate estate.

3. A trust is speedier. Joint ownership and beneficiary designations are fast also.

4. Upon death, the revocable living trust becomes irrevocable thus requiring the filing of a form 1041 tax return.

5. Protection against incapacity. Durable Powers of Atty (health and property) should provide similar.


+1. This is what I understood after consulting with my attorney last week.
Thanks

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Re: Living Trust vs Transfer on Death

Post by Tamales » Fri Apr 01, 2016 12:00 am

ToD/PoD are limited in different ways at different banks/brokerages. They work fine if what you want fits within the lowest common denominator of their collective limits.

For example, some PoD/ToD only allow primary not contingent beneficiaries. Some only allow equal percentages across all named beneficiaries. Some allow a small number of beneficiaries which may be less than you want. Collectively, that may or may not work for you if your accounts have a mix of those limitations for PoD/ToD.

If you want to distribute a particular percentage of your assets from multiple accounts, it's easier to handle that via a living revocable trust. I suppose you could still do it with PoD/ToD accounts but you'd have to monitor balances and frequently submit changes to the percentages as different accounts grow/shrink by different amounts.

If you have any conditions on how the percent distribution takes place (for example, if person A is still alive they get 80%, person B gets 10%, person C gets 5% and person D gets 5%; but if person A is not alive then a different percent distribution), that's easier to handle via a trust and you don't have to pay attention to what the individual balances of your accounts are, and which ones have which ToD/PoD limitations. Again I suppose you could handle it via ToD/PoD if you regularly monitor and make changes.

1210sda mentioned: "5. Protection against incapacity. Durable Powers of Atty (health and property) should provide similar."

According to my attorney, while state law authorizes the creation of these POAs, there's no law requiring anyone to honor them (it's possible there may be laws in some states). As I'm finding out as I transfer some assets to my recently created trust, banks seem to be more comfortable with a trust than a POA (or you can do both), or they want to use their own POA (in another thread I read that is not allowed in Virginia I think it was, but it's not universal).

As one of the bank reps explained to me, when you transfer title of an account to your trust you are showing you trust your successor trustee (and the bank has a copy of (certain pages of) your trust). If your successor trustee also has POA to handle your finances when you are incapacitated, it's a much smoother process for the bank to connect the dots than with a POA alone. Whether it really plays out that way I don't know, but that's how it was explained to me. The other point I recall is that with a POA, nobody knows whether you revoked it betweeen the time you created it and now, so that adds to the uncertainty.

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Re: Living Trust vs Transfer on Death

Post by Bythesea » Fri Apr 01, 2016 9:06 am

Another advantage of a trust is to protect assets from leaving the family, eg one spouse dies, other remarries then dies and entire estate passes to new spouse. A trust can be a way to ensure this does not happen. And while one hopes people will make new wills etc when life changes occur, they often don't .

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dm200
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Re: Living Trust vs Transfer on Death

Post by dm200 » Fri Apr 01, 2016 9:59 am

According to my attorney, while state law authorizes the creation of these POAs, there's no law requiring anyone to honor them (it's possible there may be laws in some states). As I'm finding out as I transfer some assets to my recently created trust, banks seem to be more comfortable with a trust than a POA (or you can do both), or they want to use their own POA (in another thread I read that is not allowed in Virginia I think it was, but it's not universal).


A few years ago, many states adopted significant changes regarding POAs. I can speak specifically of Virginia.

Some of the Virginia changes included:
- Unless specifically stated otherwise, a POA is "durable"
- Financial institutions cannot dishonor a POA just because it is "too old"
- Financial institutions cannot require the POA be on their forms
- Financial institutions may validate that a POA is still valid

Another common misunderstanding about a POA is that it can be used after the death of the grantor. NOT TRUE. A Power of Attorney ceases to be valid immediately upon the death of the grantor.

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Re: Living Trust vs Transfer on Death

Post by c1over8 » Fri Apr 01, 2016 10:39 am

dm200 wrote:
Another common misunderstanding about a POA is that it can be used after the death of the grantor. NOT TRUE. A Power of Attorney ceases to be valid immediately upon the death of the grantor.


Good point that POA ends at principal's death.

If you name an executor under your will they have to go an qualify as executor before they can access your assets to pay your final expenses and distribute to your beneficiaries.

If you name someone as TOD/POD beneficiary it passes automatically at your death and the beneficiary will just need to produce a death certificate to the institution holding the assets.

If you have a revocable trust with yourself as initial trustee and someone as your successor, they automatically become successor and can access trust assets. No court involvement needed to qualify them as trustee like an executor under a will.

c1over8
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Re: Living Trust vs Transfer on Death

Post by c1over8 » Fri Apr 01, 2016 10:49 am

Something else to consider in TOD/POD provisions vs. a trust is how many beneficiaries you want to name and whether you have allocated the TOD/POD provisions properly.

I know someone who had two kids and wanted them to share equally in all assets. They named kid1 on all their bank accounts as joint with survivorship so all the bank accounts passed to kid1 and kid2 got nothing from these accounts. This was apparently done so kid1 would have access to the funds to pay the parent's bills instead of the parent executing a POA granting this power. Parent also had some other assets in trust where they passed 50/50 to kid1 and kid2 no problem. kid1 was a decent person and wanted to give kid2 half of the bank accounts but was not legally obligated to do so. Additionally by kid1 giving kid2 half of the bank accounts, kid1 was making a taxable gift (meaning that it ate into kid1's lifetime exemption because the amounts where significantly above the annual exclusion).

So - if you choose the TOD/POD route you have to be careful to make sure you have the correct designations on each account so the proper people are receiving the proper share. If you name kid1 as the POD on account1 and kid2 as the POD on account2 and later close account1 you have to make sure you take action to reallocate your designations so kid1 is getting their proper share. If you have a large number of people you want to share in part of your estate, it may be easier to do POD/TOD designations to your trust (to avoid probate) and then have them take under the trust. Also if you name all your accounts POD equally kid1 and kid2, see if your state allows you to also add a designation for "or their descendants per stirpes". If not and kid1 predeceases you, kid2 will get all of the account and kid1's children will not receive anything.
Last edited by c1over8 on Fri Apr 01, 2016 2:15 pm, edited 1 time in total.

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dm200
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Re: Living Trust vs Transfer on Death

Post by dm200 » Fri Apr 01, 2016 11:48 am

Example of "unintended consequences" with POD/TOD and/or too "simple" estate planning:

Suppose "Chris", the only surviving parent, has three adult children and "Chris" has accumulated a significant sum in banks, credit unions and investments. "Chris" decides a complex will or trust is just a waste of money and designates her three adult children as POD/TOD beneficiaries. After all, let them manage the funds and play no favorites. When/if there are grandchildren - the parent can take care of their needs - play no favorites. The amounts of money are large enough to take care of that.

The three children are:
1. "Kelly" - and spouse are professionals, earning excellent income, financially responsible, several children
2. "Pat" - single parent of 3 children, struggling financially and otherwise, but a good and deserving person
3. "Robin" - single, has all sorts of problems, marginally employed, up to ears in debt and very irresponsible.

Assume the 3 children do NOT get along and will not help each other. "Chris" has $1.2 Million assets - so, at $400,000 each - all will be OK, even if "Robin" wastes the while amount.

"Chris" and "Pat" are traveling together in a car and the car goes off the road, hits a tree and "Pat" des instantly. "Chris" is seriously injured, lives for a month, never regains consciousness and dies.

The $1.2 Million is split two ways: 1/2 to "Robin" and 1/2 to "Kelly". "Pat" died first, so "Pat" (or the estate") gets NOTHING and the children of "Pat" get nothing either.

The funds were distributed EXACTLY as "Chris" had specified. Does anyone think that what actually happened is what "Chris" would have wanted?

ALL of this could have been prevented by spending a modest amount on a will or a trust - that would have provided for these types of situations.

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Re: Living Trust vs Transfer on Death

Post by pshonore » Fri Apr 01, 2016 1:31 pm

And living trusts do not always avoid probate fees. In Connecticut they are subject to the same statutory Probate fees. As an example:

$1 mil Estate $1865
$2 mil Estate $5615
$5 mil Estate $21615

NMJack
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Re: Living Trust vs Transfer on Death

Post by NMJack » Fri Apr 01, 2016 2:00 pm

pshonore wrote:And living trusts do not always avoid probate fees. In Connecticut they are subject to the same statutory Probate fees. As an example:

$1 mil Estate $1865
$2 mil Estate $5615
$5 mil Estate $21615


Ouch!

NMJack
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Re: Living Trust vs Transfer on Death

Post by NMJack » Fri Apr 01, 2016 2:09 pm

I touched upon this earlier in the thread, but want to expand the topic slightly as follows:

Living Trust vs. Living Trust as beneficiary of TOD vs. Outright TOD

I've not seen this addressed directly, as most living trusts are AB or ABC (I think) which for whatever reason seems to require re-titling of assets upon the creation of the trust. For a simple joint trust, is there any benefit from re-titling non-retirement assets upon trust creation versus just using a TOD or beneficiary deed to transfer the assets to the trust upon the death of the surviving spouse? I'm thinking KISS here. 8-)

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Re: Living Trust vs Transfer on Death

Post by Greg4boat » Fri Apr 01, 2016 3:06 pm

NMJack wrote:I touched upon this earlier in the thread, but want to expand the topic slightly as follows:

Living Trust vs. Living Trust as beneficiary of TOD vs. Outright TOD

I've not seen this addressed directly, as most living trusts are AB or ABC (I think) which for whatever reason seems to require re-titling of assets upon the creation of the trust. For a simple joint trust, is there any benefit from re-titling non-retirement assets upon trust creation versus just using a TOD or beneficiary deed to transfer the assets to the trust upon the death of the surviving spouse? I'm thinking KISS here. 8-)


The link below is to an excellent book that I used for estate planning. It addresses all the issues that your questions poses. I used this book and other Nolo software to create our estate planning documents.

https://www.nolo.com/products/plan-your ... -nest.html

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CABob
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Re: Living Trust vs Transfer on Death

Post by CABob » Fri Apr 01, 2016 3:14 pm

pshonore wrote:And living trusts do not always avoid probate fees. In Connecticut they are subject to the same statutory Probate fees. As an example:

$1 mil Estate $1865
$2 mil Estate $5615
$5 mil Estate $21615

And that sounds relatively cheap as compared to California.
Bob

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CABob
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Re: Living Trust vs Transfer on Death

Post by CABob » Fri Apr 01, 2016 3:43 pm

afan wrote:You can write your will to establish the trust at your death.

A will can transfer assets into a trust if I understand correctly. Do those assets avoid probate or must these assets go through probate in order to go into the trust?
Bob

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Re: Living Trust vs Transfer on Death

Post by Artsdoctor » Fri Apr 01, 2016 3:59 pm

I've learned a lot about trusts here on this forum, both for and against. We have one poster who is exceptional and has published widely on this very topic. There is one thing that cannot be debated, though: this all depends on the state of residence. One of the reasons you're going to get a variety of opinions here on the forum (and everywhere else for that matter) is because we all live in various states, and the pros and cons are significantly influenced by the state in which you live.

There is also something I've learned here. There are many, many people who have trusts who did not understand them when they were set up and continue to have false impressions of what trusts can and cannot do.

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Re: Living Trust vs Transfer on Death

Post by NMJack » Fri Apr 01, 2016 4:00 pm

Greg4boat wrote:
NMJack wrote:I touched upon this earlier in the thread, but want to expand the topic slightly as follows:

Living Trust vs. Living Trust as beneficiary of TOD vs. Outright TOD

I've not seen this addressed directly, as most living trusts are AB or ABC (I think) which for whatever reason seems to require re-titling of assets upon the creation of the trust. For a simple joint trust, is there any benefit from re-titling non-retirement assets upon trust creation versus just using a TOD or beneficiary deed to transfer the assets to the trust upon the death of the surviving spouse? I'm thinking KISS here. 8-)


The link below is to an excellent book that I used for estate planning. It addresses all the issues that your questions poses. I used this book and other Nolo software to create our estate planning documents.

https://www.nolo.com/products/plan-your ... -nest.html


Thanks Greg. Short of buying the book, can you give me a "hint" as to what the answers might look like? :happy

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Re: Living Trust vs Transfer on Death

Post by dm200 » Fri Apr 01, 2016 4:05 pm

pshonore wrote:And living trusts do not always avoid probate fees. In Connecticut they are subject to the same statutory Probate fees. As an example:
$1 mil Estate $1865
$2 mil Estate $5615
$5 mil Estate $21615


How do they collect a "Probate Fee" if there is no "Probate"?

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Re: Living Trust vs Transfer on Death

Post by dm200 » Fri Apr 01, 2016 4:07 pm

CABob wrote:
afan wrote:You can write your will to establish the trust at your death.

A will can transfer assets into a trust if I understand correctly. Do those assets avoid probate or must these assets go through probate in order to go into the trust?


This is what is called a "Testamentary Trust" - put into the will, but the trust is not established until after death and the will is (probably) probated. There are both advantages and disadvantages. Will with testamentary trust probably costs less upfront.

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Re: Living Trust vs Transfer on Death

Post by dm200 » Fri Apr 01, 2016 4:15 pm

NMJack wrote:I touched upon this earlier in the thread, but want to expand the topic slightly as follows:
Living Trust vs. [b]Living Trust as beneficiary of TOD vs. Outright TOD[/b]
I've not seen this addressed directly, as most living trusts are AB or ABC (I think) which for whatever reason seems to require re-titling of assets upon the creation of the trust. For a simple joint trust, is there any benefit from re-titling non-retirement assets upon trust creation versus just using a TOD or beneficiary deed to transfer the assets to the trust upon the death of the surviving spouse? I'm thinking KISS here. 8-)


In some cases, after establishing a Revocable Living Trust, it may make sense (for some assets) to just make the trust the POD or TOD Beneficiary on the account. You get the benefit of not having the funds go through probate. You do not have to retitle that account in the name of the trust. What you do NOT get, however, is the potential benefit of the trustee managing that account while alive. This option, IMO, can make sense for small balance accounts where you do not want to go to the trouble of retitling.

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Re: Living Trust vs Transfer on Death

Post by NMJack » Fri Apr 01, 2016 4:36 pm

dm200 wrote:In some cases, after establishing a Revocable Living Trust, it may make sense (for some assets) to just make the trust the POD or TOD Beneficiary on the account. You get the benefit of not having the funds go through probate. You do not have to retitle that account in the name of the trust. What you do NOT get, however, is the potential benefit of the trustee managing that account while alive. This option, IMO, can make sense for small balance accounts where you do not want to go to the trouble of retitling.


Thanks. That makes sense. Waiting until death of the second spouse would still provide asset protection for children via the TOD to the beneficiary trust. It would not provide the benefits of a third party trustee having access to assets during the life of a remaining incapacitated spouse.

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Re: Living Trust vs Transfer on Death

Post by bsteiner » Sat Apr 02, 2016 8:51 pm

chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.

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Re: Living Trust vs Transfer on Death

Post by bsteiner » Sat Apr 02, 2016 9:02 pm

CABob wrote:
pshonore wrote:And living trusts do not always avoid probate fees. In Connecticut they are subject to the same statutory Probate fees. As an example:

$1 mil Estate $1865
$2 mil Estate $5615
$5 mil Estate $21615

And that sounds relatively cheap as compared to California.


The probate court filing fee in California is $435. In Connecticut it's 0.5% (less on the first $2 million), and it's based on the total assets for estate tax purposes, including nonprobate assets.

I think you may be thinking of attorneys' fees and executor's commissions (fees).

California has a limit on attorneys' fees (except for extraordinary services) for estates. Florida has a schedule of presumed reasonable attorneys' fees in estates, and another schedule of presumed reasonable attorneys' fees that's 25% lower for living trusts. If the law firm works on a time basis, the legal fees will usually be about the same in either case since probating the Will is generally a small part of the work in an estate administration.

Some states, such as New York, New Jersey, Florida and and California, have a statutory schedule for executors' commissions. California's is lower than most. However, in most cases, the spouse or one or more of the children are the executors, and they usually don't take executors' commissions, since it would mean they would be paying income tax on their own money. If the estate is large enough to pay estate tax, the children would likely take commissions if the income tax cost is less than the estate tax saving. This happened more often when the estate tax rates were higher.

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Re: Living Trust vs Transfer on Death

Post by chx » Mon Apr 04, 2016 9:39 am

bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.

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Re: Living Trust vs Transfer on Death

Post by dm200 » Mon Apr 04, 2016 10:57 am

NMJack wrote:
dm200 wrote:In some cases, after establishing a Revocable Living Trust, it may make sense (for some assets) to just make the trust the POD or TOD Beneficiary on the account. You get the benefit of not having the funds go through probate. You do not have to retitle that account in the name of the trust. What you do NOT get, however, is the potential benefit of the trustee managing that account while alive. This option, IMO, can make sense for small balance accounts where you do not want to go to the trouble of retitling.

Thanks. That makes sense. Waiting until death of the second spouse would still provide asset protection for children via the TOD to the beneficiary trust. It would not provide the benefits of a third party trustee having access to assets during the life of a remaining incapacitated spouse.


There is a tradeoff (perhaps of costs/expenses) of getting the full benefits (including incapacity) of having the assets in the trust during life vs. possible complexities of moving assets to the trust. Making the trust the beneficiary also allows a very easy (and no cost/hassle) way pf changing the beneficiary if, for some reason, circumstances change.

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Re: Living Trust vs Transfer on Death

Post by bsteiner » Mon Apr 04, 2016 11:38 am

chx wrote:
bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.


The child's co-trustee may distribute any or all of the trust assets to the child. The child may remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee.

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Re: Living Trust vs Transfer on Death

Post by chx » Mon Apr 04, 2016 12:05 pm

bsteiner wrote:
chx wrote:
bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.


The child's co-trustee may distribute any or all of the trust assets to the child. The child may remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee.


In this case, the assets will be in the child's estate and not protected from creditors.

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Re: Living Trust vs Transfer on Death

Post by bsteiner » Mon Apr 04, 2016 12:48 pm

chx wrote:
bsteiner wrote:
chx wrote:
bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.


The child's co-trustee may distribute any or all of the trust assets to the child. The child may remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee.


In this case, the assets will be in the child's estate and not protected from creditors.


After losing two court cases, Vak v. Commissioner, 973 F.2d 1409 (8th Cir. 1992), rev’g T.C. Memo 1991-503, and Estate of Helen S. Wall, 101 T.C. 300 (1993), the IRS conceded this issue in Rev. Rul. 95-58, 1995-2 C.B. 191.

The above deal with grantors rather than beneficiaries, but if a grantor can retain the power to remove and replace the trustees (provided the replacement trustee can't be a close relative or subordinate employee), then a beneficiary should be able to do the same.

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Re: Living Trust vs Transfer on Death

Post by chx » Mon Apr 04, 2016 1:07 pm

Thank you for the pointers to the rulings. Those are useful.

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Re: Living Trust vs Transfer on Death

Post by NMJack » Mon Apr 04, 2016 3:37 pm

chx wrote:
bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.


Are you referring to language such as the HEMS standard? (only for health, education, maintenance and support)

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Re: Living Trust vs Transfer on Death

Post by bsteiner » Mon Apr 04, 2016 3:48 pm

NMJack wrote:
chx wrote:
bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.


Are you referring to language such as the HEMS standard? (only for health, education, maintenance and support)


I wasn't.

A trustee who is a beneficiary may (if the Will or trust agreement permits) participate in discretionary distributions to himself/herself for health, maintenance, support and education without causing the trust to be included in the beneficiary's estate. Some people (including another member of this group) draft Wills and trusts that way. That allows a beneficiary to act as sole trustee, and to make distributions to himself/herself for these items (and to add a co-trustee in the unlikely event that he/she ever wants distributions for other items.)

I prefer to have a co-trustee, and to prevent the beneficiary from participating in distributions to himself/herself even for these items. While it's not necessary to do this for estate tax purposes, I think it provides better creditor protection (there's some risk that a creditor could require the beneficiary to make distributions for these purposes or that Medicaid might say that the trust is available to the beneficiary), and that it makes it more likely that the trust will be properly administered.

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Re: Living Trust vs Transfer on Death

Post by NMJack » Mon Apr 04, 2016 9:18 pm

bsteiner wrote:
NMJack wrote:
chx wrote:
bsteiner wrote:
chx wrote:Leaving your assets to your children in a trust seems to go against everything Boglehead. Why would you burden them with something that will require at least 1% management fee and annual tax complications for the rest of their lives? The best trust you can have is trust in your children.


Leaving your assets to your children will keep their inheritances out of their estates for estate tax purposes, and will provide better protection against their creditors, predators, current and future spouses, and Medicaid.

This won't require a 1% management fee. The trustees (the child can be a trustee, and can have the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee) can invest the money in any way they think is prudent under the circumstances. If they invest in low-cost mutual funds, the cost will be much less than 1%. If the child is a trustee, he/she probably won't take trustee's commissions (fees), and if his/her co-trustee(s) is a close family member, the co-trustee probably won't take trustee's commissions either.

If the trust invests in a small number of mutual funds, and doesn't do much trading, then the annual income tax returns will be relatively simple.

If you provide for your child in trust, and it turns out that it isn't worth the effort to have the trust, then the child's co-trustee can terminate the trust and distribute the trust assets to the child. But if you provide for your child outright, and it turns out that it would have been better to have provided for the child in trust, it's too late. In the same way that it's easy to take toothpaste out of the tube but hard to put it back, it's easy to take money out of a trust but hard to put it back.


If the child is his/her own trustee, then the trust must be written with restrictive language that limits withdrawals--or else you won't get the benefits that keep the trust out of the child's estate and provide the protections you are asking for.


Are you referring to language such as the HEMS standard? (only for health, education, maintenance and support)


I wasn't.

A trustee who is a beneficiary may (if the Will or trust agreement permits) participate in discretionary distributions to himself/herself for health, maintenance, support and education without causing the trust to be included in the beneficiary's estate. Some people (including another member of this group) draft Wills and trusts that way. That allows a beneficiary to act as sole trustee, and to make distributions to himself/herself for these items (and to add a co-trustee in the unlikely event that he/she ever wants distributions for other items.)

I prefer to have a co-trustee, and to prevent the beneficiary from participating in distributions to himself/herself even for these items. While it's not necessary to do this for estate tax purposes, I think it provides better creditor protection (there's some risk that a creditor could require the beneficiary to make distributions for these purposes or that Medicaid might say that the trust is available to the beneficiary), and that it makes it more likely that the trust will be properly administered.


Thank you. It sounds like you've gone one step beyond that. My only concern with a co-trustee is finding the right party and not imposing an excessive "tax" on the trust assets. If there is that elusive "trusted friend," (who is guaranteed to live forever) all can work well. If I have to pay somebody 1% of trust assets every year simply to not screw things up, then maybe things aren't where they should be. Then, there is the further risk of a future compensated trustee becoming the "kid in the candy store" (i.e. having somewhat free rein to hire their brothers/sisters/buddies/neighbors to provide advice, council, guidance, lunch, financial management - my favorite - or anything else the trust allows). The trust I am currently working on will provide my children the right to act as sole trustee with distributions only for HEMS, with the option to appoint a corporate fiduciary as co-trustee, who could distribute additional funds at the discretion of the trustee. They would retain the right to remove the co-trustee at any time. I think this is what you have described.

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Re: Living Trust vs Transfer on Death

Post by gnujoe2001 » Mon Apr 04, 2016 9:24 pm

dm200 wrote:Example of "unintended consequences" with POD/TOD and/or too "simple" estate planning:

Suppose "Chris", the only surviving parent, has three adult children and "Chris" has accumulated a significant sum in banks, credit unions and investments. "Chris" decides a complex will or trust is just a waste of money and designates her three adult children as POD/TOD beneficiaries. After all, let them manage the funds and play no favorites. When/if there are grandchildren - the parent can take care of their needs - play no favorites. The amounts of money are large enough to take care of that.

The three children are:
1. "Kelly" - and spouse are professionals, earning excellent income, financially responsible, several children
2. "Pat" - single parent of 3 children, struggling financially and otherwise, but a good and deserving person
3. "Robin" - single, has all sorts of problems, marginally employed, up to ears in debt and very irresponsible.

Assume the 3 children do NOT get along and will not help each other. "Chris" has $1.2 Million assets - so, at $400,000 each - all will be OK, even if "Robin" wastes the while amount.

"Chris" and "Pat" are traveling together in a car and the car goes off the road, hits a tree and "Pat" des instantly. "Chris" is seriously injured, lives for a month, never regains consciousness and dies.

The $1.2 Million is split two ways: 1/2 to "Robin" and 1/2 to "Kelly". "Pat" died first, so "Pat" (or the estate") gets NOTHING and the children of "Pat" get nothing either.

The funds were distributed EXACTLY as "Chris" had specified. Does anyone think that what actually happened is what "Chris" would have wanted?

ALL of this could have been prevented by spending a modest amount on a will or a trust - that would have provided for these types of situations.


Would a Per-Stirpes provision avoid this situation? ("Pat"'s kids would get a portion).

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Re: Living Trust vs Transfer on Death

Post by Peter Foley » Mon Apr 04, 2016 11:20 pm

Can someone confirm that the following is true?

c1over8 wrote:

I know someone who had two kids and wanted them to share equally in all assets. They named kid1 on all their bank accounts as joint with survivorship so all the bank accounts passed to kid1 and kid2 got nothing from these accounts. This was apparently done so kid1 would have access to the funds to pay the parent's bills instead of the parent executing a POA granting this power. Parent also had some other assets in trust where they passed 50/50 to kid1 and kid2 no problem. kid1 was a decent person and wanted to give kid2 half of the bank accounts but was not legally obligated to do so. Additionally by kid1 giving kid2 half of the bank accounts, kid1 was making a taxable gift (meaning that it ate into kid1's lifetime exemption because the amounts where significantly above the annual exclusion).


I ask because it is not unusual for an older parent to have one child on a joint account to help with money management and bill paying. I understand that joint account, POD and TOD all trump the provisions of the will in terms of division of assets. But if the intent of the will is that all children share equally, cannot the child who is joint on the account distribute to others w/o "eating into the lifetime exemption"?

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