Will/Trust Plan Thoughts?

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TheClash
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Will/Trust Plan Thoughts?

Post by TheClash »

I'm getting ready to draft my will (with an attorney), but I want a decent understanding of the approach before I give him direction. Current situation: Age 54. Assets ~$6 million. No real estate. Not married. No kids. One sister, age 58 (not good with money). Two nieces, 16 + 19. Brother-in-law will spend it unwisely (also I'm not a huge fan).

Current distribution plan:
- Sister: 1/3
- Niece A: 1/3 in three installments — ages 25, 30, 35 (+ healthcare and education expenses)
- Niece B: 1/3 in three installments — ages 25, 30, 35 (+ healthcare and education expenses)

- Sister = executor
- Vanguard National Trust Company = trustee

Any issues, concerns, or thoughts on the above?

Also, any thoughts on how much an attorney should cost to draft this with a healthcare proxy and living will?

Thank you in advance!
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Re: Will/Trust Plan Thoughts?

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Gill
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Re: Will/Trust Plan Thoughts?

Post by Gill »

Agree that sister doesn't seem a good choice as executor. Also, utilizing trusts for these beneficiaries would give them the advantage of professional management as well as protection from creditors and spouses.
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GmanJeff
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Re: Will/Trust Plan Thoughts?

Post by GmanJeff »

There is nothing inherently wrong with your approach. Depending on your desires, you could provide the 1/3 share to the sister in trust for her to receive only income, with invasion of principal only under certain circumstances such as medical need or long-term care to the extent her other resources would not suffice, and with the principal passing ultimately to your nieces. That would keep the principal from being squandered by the BIL.

The nieces are also currently a little young, so perhaps consider the provisions to them to be something to be revisited periodically in case you form an unfavorable view over time of their ability to wisely manage the inheritance you contemplate providing for them. It's not unusual to revisit estate plans at least once a decade to review their provisions in view of then-effective tax laws and any revisions in your perspectives about the suitability of your heirs.

Legal costs could vary quite a bit, depending where you're located, whether you use a small firm or a larger one (larger firms often employ more highly credentialed attorneys, and their rates reflect that), and the complexity of the provisions you envision for your trust arrangements. For example, you could have the niece's trusts pay them an annual amount equal to the income they earn from employment, to provide an incentive for meaningful employment and a disincentive to just live off of inherited money, if that approach aligns with your values. That's more complicated than just periodic outright distributions. A rough guesstimate for the legal fees might be between $1500 - $4000.
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Re: Will/Trust Plan Thoughts?

Post by aristotelian »

Do you have any charitable interests?

What do you think of the nieces in terms of likelihood to spend the money responsibly?
LarryAllen
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Re: Will/Trust Plan Thoughts?

Post by LarryAllen »

Do continuing trusts for the benes to give creditor protection to them. Staggered distributions is for simpleton planning and really only for small estates (under $500k). You can make your nieces their own trustees, at an appropriate age, but definitely give them the benefits of a continuing trust. If your attorney hasn't suggested that I would get a new attorney.
indexonlyplease
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Re: Will/Trust Plan Thoughts?

Post by indexonlyplease »

Around 5k plus for that kind of money. Nice that you are looking to take care of family. No wife no kids I would spend and enjoy it.

Spend most on yourself for the next 40 plus years of your life
You can split up the money but I would put in something that gives them interest payments until they are much older 40-50. Let them make it on their own first.
I would give them some money along the way. I think it is much better to see them enjoy it while you are alive. Just some not much. Like pay for their college, buy them a car, nice down payment on house.

This is my plan for my 17 and 21 yr old.

Also, it would really be nice to be Santa Claus to needy kids of your choice. I read an article years ago how someone gives bike every xmas. So I do the same. Every xmas I buy 20 bikes for HIS HOUSE which is kids taken away from their parents. You could start something like this now.
J295
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Re: Will/Trust Plan Thoughts?

Post by J295 »

I know you are only asking about will/trust, however I'll mention that you will want to determine agents for power of attorney and power of attorney for health care (and if you are funding a revocable trust now, the successor agent in the event of your inability to serve as trustee (i.e. your disability).

Your distribution determinations seem fine, since they are after all your wishes. As I understand the distributions to someone under 35 will be incremental (25-30-35). Some might go 30-35-40, but it's splitting hairs a bit.

As for sister as executor, I'm assuming you mean a person who handles the winding up of your probate estate (assuming you have one, which you may not depending on how you title your assets). She would do this under the guidance of a lawyer (who prepares and files all the docs), and with an accountant, so it doesn't seem like a big deal to have her for this choice as I assume she is trustworthy and responsible even if not a real numbers type person.

You are thoughtful to do this planning for everyone and share your assets to make their life better.

Have a nice weekend.
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Re: Will/Trust Plan Thoughts?

Post by NotWhoYouThink »

We'll have about half our assets in retirement accounts. They will go to the kids, who can stretch them over their lifetimes. The rest will go to them at 25 and 30. Actually older, since they are now that age and we have not died. I have read everything bsteiner and Gill have written about trusts, and keeping the money out of their estates and away from ex-spouses, creditors, and Medicaid. And have still decided to avoid encumbering the assets with trusts and trustees. If they blow it they blow it. I don't pretend to be able to control that, and am willing to let them use or waste it as they see fit.

You do you.
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TheClash
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Re: Will/Trust Plan Thoughts?

Post by TheClash »

Thank you all for all your input!

A few comments to your comments:
  • The girls are too young for me to know if they will be responsible. I know when I was 16 and 19 no one would give me a nickel to manage.
  • My sister is trustworthy, but naive about financial matters. I should look for another executor?
  • The attorney didn't ask about the asset size on our initial call (red flag, I'm guessing). Nor did I offer.... Figured he might try to gouge me.
  • I will look into continuing and lifelong trusts. And income-only (if not the same) for my sister, and then passing on to my nieces.
Thank you all for your thoughts and sharing! It really helps me get my bearings before making a decision like this.
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Re: Will/Trust Plan Thoughts?

Post by FIREchief »

NotWhoYouThink wrote: I have read everything bsteiner and Gill have written about trusts, and keeping the money out of their estates and away from ex-spouses, creditors, and Medicaid. And have still decided to avoid encumbering the assets with trusts and trustees. If they blow it they blow it. I don't pretend to be able to control that, and am willing to let them use or waste it as they see fit.

You do you.
You don't care if your children lose their inheritance to ex-spouses or frivolous lawsuits? The point you miss is that you in fact are able to control that with a properly executed trust. Why don't you like this approach?
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fourwheelcycle
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Re: Will/Trust Plan Thoughts?

Post by fourwheelcycle »

NotWhoYouThink wrote:We'll have about half our assets in retirement accounts. They will go to the kids, who can stretch them over their lifetimes. The rest will go to them [also]. I have read about trusts, and keeping the money out of their estates and away from ex-spouses, creditors, and Medicaid. And have still decided to avoid encumbering the assets with trusts and trustees.
My wife and I are headed in the same direction as NWYT. Our two sons are in their thirties now and will likely be in their fifties before the first of us dies. We have given them annual gifts of money since they became adults and they have managed it responsibly. Our marriage has lasted 42 years so far, with no concerns related to divorce or creditors. Our parents did not/will not leave us any significant money, but if they had been able to, and had asked if we wanted it protected in a trust, we would have said no - why tie it up with trustee expenses and authorizations for distribution?

Hopefully, our sons' marriages and financial habits will continue to be similar to our own. If circumstances change we can always modify our (existing) joint revocable trust.
NotWhoYouThink
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Re: Will/Trust Plan Thoughts?

Post by NotWhoYouThink »

I didn't miss the point. I evaluated the cost and risks and made an informed choice. My expectation is that my kids will be fine if they inherit nothing, so losing the inheritance to unlikely events is not a risk that concerns me. The cost and bother of maintaining the trust bothers me.

I'm not suggesting my choice is right for everyone, but it is not wrong for everyone either.
afan
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Re: Will/Trust Plan Thoughts?

Post by afan »

Just to be clear on these putatuve costs and complexities of trusts: there are none. The beneficiaries can be their own trustee and can hire someone to manage the investments and distributions for them. Or not. They can set it up so that the trust tax return is based on a single statement from the broker holding the assets. Fifteen minutes with a standard tax prep program to do the return. Or distribute all the income and report it on their own tax return.

I cannot think of a good reason to avoid trusts in this situation but "cost and complexity" simply do not apply.

The advantage of sister as personal representative is that the estate would not pay a fee to someone else to do the job.

If the sister is not a numbers person, but is reliable and honest then she would be fine. As others have noted, she can hire people to do the work. She has to help identify potential heirs and sign the forms the lawyer generates.

On the other hand, if the sister is disorganized and irresponsible, or worse, then she could not be relied upon to do the few things that only she could do. That would create problems.

Putting your assets in trust would let you take care of much of the work while you are alive, but you would still need a responsible person to clean up details after you pass.
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Re: Will/Trust Plan Thoughts?

Post by ETadvisor »

aristotelian wrote:Do you have any charitable interests?

What do you think of the nieces in terms of likelihood to spend the money responsibly?
You may rather give to charity instead of Uncle Sam. For 2017 death, net estate above $5.49 will owe federal estate tax. I do not know your state of domicile but you may have state death tax also.
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Re: Will/Trust Plan Thoughts?

Post by tibbitts »

afan wrote:Just to be clear on these putatuve costs and complexities of trusts: there are none. The beneficiaries can be their own trustee and can hire someone to manage the investments and distributions for them. Or not. They can set it up so that the trust tax return is based on a single statement from the broker holding the assets. Fifteen minutes with a standard tax prep program to do the return. Or distribute all the income and report it on their own tax return.

I cannot think of a good reason to avoid trusts in this situation but "cost and complexity" simply do not apply.
My first and hopefully last experience of being a trust beneficiary and dealing with trust taxation was in 2016. I'm not the brightest person but made at least one mistake I know of on the trust return that of course spilled over to my federal and state returns that required me to file amended returns, etc. I had to spend a lot of time trying to understand the trust taxation - I read countless documents and forum questions and answers, and worked at it off and on for days and days. I did end up buying some software to do the trust return but software doesn't always help you understand what you need to enter., it just helps prevent math errors and some (but not all) logic errors. Subsequent years would probably not have been as difficult but there would have been more work than without a trust. I do understand the advantages of a trust in certain circumstances but it's not the case that there are no disadvantages.
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Re: Will/Trust Plan Thoughts?

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TheClash
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Re: Will/Trust Plan Thoughts?

Post by TheClash »

He said his sister is not good with money, brother in law will spend it unwisely, and he's also not a huge fan of brother in law.

This clearly disqualifies sister, who may have all the right intentions but be incapable on many levels of managing the assets optimally, including resisting pressure from her husband.
But she can only mess with her portion, correct? She couldn't deplete my nieces' portion? Isn't that the purpose of the trust?
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Re: Will/Trust Plan Thoughts?

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Re: Will/Trust Plan Thoughts?

Post by TheClash »

You grant considerable latitude to a trustee, and if she is easily swayed (ie, by her husband) adversely there is no oversight unless the beneficiaries recognize the errors and take action (ie, a lawsuit). For her own money, since she would be the benficiary, she could be persuaded by your brother in law to take all the money and invest in a speculative business of his; or take out all the money and put in their joint bank account, after which he could legally disappear with the money.
But (for my nieces' portion) she would be executor, Vanguard would be the trustee....
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Re: Will/Trust Plan Thoughts?

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Re: Will/Trust Plan Thoughts?

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afan wrote:Just to be clear on these putatuve costs and complexities of trusts: there are none. The beneficiaries can be their own trustee and can hire someone to manage the investments and distributions for them. Or not. They can set it up so that the trust tax return is based on a single statement from the broker holding the assets. Fifteen minutes with a standard tax prep program to do the return. Or distribute all the income and report it on their own tax return.

I cannot think of a good reason to avoid trusts in this situation but "cost and complexity" simply do not apply.
+1. I am also puzzled by how often people think that administering a trust has to be complicated and expensive. Of course, in some situations it can be, but that is driven by how the trust is written.
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Re: Will/Trust Plan Thoughts?

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (estate planning).
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Re: Will/Trust Plan Thoughts?

Post by Zott »

My kids are just a bit older than your nieces, and not wonderful with money. I gave my will/trust a lot of thought, with my attorney, and finally decided that I would call for distributing my legacy to each over the 30 years following my death, in an approximately level annual amount. I felt that this would provide a good "safety net" for them, while giving them the incentive (or need) to supplement their inheritance with earnings. That does mean the trust will last a long time, but the trade-off is worthwhile in my case. It has the advantage of not giving them a large bundle of cash at any time. I'm not convinced they could handle that well.

Things may change in the future and it's possible I may change the distribution provisions at some point if circumstances warrant.
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Re: Will/Trust Plan Thoughts?

Post by bsteiner »

markbco wrote:... The attorney didn't ask about the asset size on our initial call (red flag, I'm guessing). ...
It's better if you meet in person if possible. But many people do their planning by phone if they're not local or they're unable to travel. If you're doing your planning by phone, then not discussing your assets is more than a red flag. It's a parade. Doing your planning without knowing your assets would be like calling a doctor and asking for a prescription without discussing your medical condition or having the doctor look at you.

But if the initial phone call was just to set up an appointment, asking about your assets on the initial phone call would be to screen out people who wouldn't be a good fit. The screening would be less important for someone referred by another lawyer or an accountant than for someone who said he/she found the lawyer on Google.

The size of your estate won't have much to do with the cost of your planning, except to the extent that it wouldn't be practical to consider some issues if your estate were substantially smaller, and with $6 million you may want a lawyer who's used to dealing with estates of that size.

Back to your situation.

You would certainly want to provide for everyone in trust rather than outright. You said your sister can't handle money, and you're concerned about your brother-in-law.

The first decision is whether to leave your entire estate in a single trust for your niece and her issue, or to carve out portions for your nieces at your death. Given the amount involved, either way would probably work.

The next decision is the degree of control your sister should have. Should she be a co-trustee with Vanguard? Should she have the right to remove and replace Vanguard (and if so, can she replace Vanguard with an individual as long as the individual isn't a close relative or subordinate employee, or only with another corporate trustee)? Should she have the power to appoint the trust assets to or in trust for her issue, and if so, either during lifetime and by Will or only by Will?

The next decision is the age, if any, at which each niece should gain control over her trust. That issue is the same whether their trusts are set up at your death, or only at your sister's death. For this purpose, control means the right to become a trustee, the power to remove and replace her co-trustee (provided the replacement isn't a close relative or subordinate employee), and the power to appoint (give or leave) the trust assets to or in trust for anyone she wants (or only for a narrower class such as her issue).

As to the dispositive provisions, it's usually best to give the trustees discretion. No one knows what the future will bring.
aristotelian wrote:Do you have any charitable interests? ...


Since your estate is $6 million and the Federal estate tax exclusion amount is $5,490,000, you might want to consider leaving the excess over the Federal estate tax exclusion amount to charity. If you do that, you would have to review your planning if your assets change or if the estate tax exclusion amount changes, to make sure that your Will still makes sense based on your assets and your objectives and the tax law at the time.

Depending on what state you're in, and in what state your sister and nieces are in (it would be helpful to have that information), there might be state estate tax and state income tax considerations.
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Re: Will/Trust Plan Thoughts?

Post by afan »

As of the last time I checked Vanguard would not serve as executor/ personal representative. But many banks and trust companies will. For a price. One way around all the concerns about the sister as representative, getting the slestate settled, avoiding undue influence of the brother in law... would be to put your assets in a living trust now, at the institution that will settle the estate. In the trust set up the three separate trusts for your heirs with the trust company as trustee. At your death there would be nothing for the sister to do- everything would be handled by the trust company.

The brother in law might have influence over his wife but he would have no input into the process of settling the estate or funding the trusts. Once funded, the trusts would be managed by the trustee, again with no interference from the brother in law.

The downside of this would be the fees the trust company would charge. It is possible there are companies that might have ongoing trustee fees competitive with Vanguard but that will also do the estate work for a reasonable price.

Or you may be able to find a lawyer who will settle the estate for a reasonable price while you still use Vanguard as trustee.

All of the above prevent your sister from being caught between her husband and her duties to the estate. Should the marriage fail your sister's inheritance would be protected. Even if they stay married the professional trustee would make the distribution decisions.

The tax return problems mentioned above sound like they were due to the investment involved or complexities of the trust. A simple trust with all assets being marketable securities, held at one broker and no complicated distribution provisions would produce a simple tax return.
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Re: Will/Trust Plan Thoughts?

Post by bsteiner »

afan wrote:As of the last time I checked Vanguard would not serve as executor/ personal representative. But many banks and trust companies will. For a price. One way around all the concerns about the sister as representative, getting the slestate settled, avoiding undue influence of the brother in law... would be to put your assets in a living trust now, at the institution that will settle the estate. ...

The downside of this would be the fees the trust company would charge. It is possible there are companies that might have ongoing trustee fees competitive with Vanguard but that will also do the estate work for a reasonable price.

Or you may be able to find a lawyer who will settle the estate for a reasonable price while you still use Vanguard as trustee. ...
I didn't discuss the choice of executor since that would require a more detailed discussion about the sister. If she's honest and responsible, she may be able to handle it, with the help of lawyers, accountants, real estate brokers, etc. If she's not responsible, she may not. If she's not honest, you shouldn't consider her.

If someone else, or a bank or trust company, is the executor, there will be a cost. Many states have a statutory schedule for executor's commissions (fees), generally a sliding scale On a $6 million estate it would be $154,000 in New York, $138,000 in New Jersey, and $150,000 in Florida. Other states have "reasonable compensation" (meaning that if the executor and beneficiaries don't agree, the court will decide). The sister could also take a commission, but most likely she wouldn't since it would come out of her own money and her children's money.

The executor's commission is deductible for estate tax purposes, so the net cost is only 60% of the commission (or about 50% in a state having a state estate tax).

So if the sister isn't the right choice, it might be worth the cost of having a bank or trust company as an insurance policy against something going amiss in the estate administration.

Since a bank or trust company can easily do the legwork, that would probably reduce the legal fees. To that extent, that reduces the effective cost of having a bank or trust company as executor.

While living trusts are overhyped and oversold, and not necessary for most people, in most states, a living trust with Vanguard taking over at death might provide some savings. For whatever reason, Vanguard is able to serve as a trustee but not as an executor.

In the case of a living trust, if a bank or trust company is serving as a trustee, they'll usually charge a one-time fee (in addition to their annual fees) of 1% or 2% or an amount equal to an executor's commission on the living trust's assets. So a living trust often ends up more expensive, since you're paying both the one-time fee plus the annual fees during the administration period. The administration period will continue until the estate tax return is accepted, which will probably be at least two years after death.

But I don't see a one-time fee in Vanguard's fee schedule. So if Vanguard became trustee of a living trust at death, and you paid them their usual trustee's commission for two years, that would be about 1%, which would be less than the usual executor's commissions.

My concerns about that are (i) since Vanguard isn't able to serve as executor, I don't know whether they would be able to do a good job administering a living trust upon death, since the work is essentially the same as that of an executor, (ii) since Vanguard won't deal with real estate, you'll need someone else as an executor or trustee to deal with the home, and (iii) an executor has to coordinate much more closely with the attorney than a trustee of an ongoing trust, and I don't know how well Vanguard can do that. You can solve (iii) by having the home outside the trust, so that there will be an executor who can deal with the lawyer regarding the estate tax return, any tax elections, and the retirement benefits.

Given these concerns, I would be hesitant to create a living trust to have Vanguard function as de facto executor (with the title of trustee of the trust during the administration period).

While the lawyer isn't allowed to seek the job, a lawyer can sometimes be a good choice (but can sometimes be a bad choice) as executor. If the assets are financial assets and a home, and no disputes are expected, the lawyer may be willing to accept less than the statutory commission.
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Re: Will/Trust Plan Thoughts?

Post by Norton750 »

To those who maintain that there is little or no cost or complication involved in leaving assets to a child in trust rather than outright:

Over 75% of the assets owned by my wife and I are in tax-deferred IRA accounts. I'm guessing that many others also have large percentages of their assets in tax-advantaged accounts. If we name each other as primary beneficiary for these accounts with our adult kids as secondary, then upon the death of the second spouse, the IRA assets will pass to the kids directly, bypassing probate. The kids will then be able to "stretch" the RMDs from these inherited IRAs for decades - until they are in their mid-80s). If instead we set up testamentary trusts for the kids, there is the cost to set these up, there are probate costs for the IRA money when the second spouse dies and the IRA money (now in trust) must be withdrawn from the IRA within five years of the second parent's death, presumably incurring very considerable income tax expense and foregoing decades of tax-deferred growth.

I'd love to hear that I'm wrong on this (anyone?) - but in the mean time, this sounds like a very considerable amount of cost and complication. Sure, no one wants to contemplate their kids losing a chunk of their inheritance to creditors or (ex-)spouses, but using trusts to provide some protection against such an event seems (at least in my case) to come at very considerable cost.

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Re: Will/Trust Plan Thoughts?

Post by Peter Foley »

With this level of assets, working with an attorney knowledgeable in estate planning is certainly a good approach.

You do not mention how/where your assets are held. If a significant percentage of your assets are in tax deferred accounts, this might be a factor to consider when setting things up. Beneficiary designations, wills and trusts are all potential aspects of a plan and should be part of the discussion with the attorney.
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Re: Will/Trust Plan Thoughts?

Post by bsteiner »

Norton750 wrote:... Over 75% of the assets owned by my wife and I are in tax-deferred IRA accounts. I'm guessing that many others also have large percentages of their assets in tax-advantaged accounts. If we name each other as primary beneficiary for these accounts with our adult kids as secondary, then upon the death of the second spouse, the IRA assets will pass to the kids directly, bypassing probate. The kids will then be able to "stretch" the RMDs from these inherited IRAs for decades - until they are in their mid-80s). If instead we set up testamentary trusts for the kids, there is the cost to set these up, there are probate costs for the IRA money when the second spouse dies and the IRA money (now in trust) must be withdrawn from the IRA within five years of the second parent's death, presumably incurring very considerable income tax expense and foregoing decades of tax-deferred growth.

I'd love to hear that I'm wrong on this ...
These won't be problems.

First, there is very little cost to setting up the trusts to receive the IRA benefits. The cost of drafting your Will is only slightly more if you provide for your children in trust rather than outright, and if you provide for them in trust, the cost is only slightly more if you include a parallel set of trusts to receive the IRA benefits.

Second, there is no probate cost for the IRA. That's for two reasons. First, you probate the Will, not the assets, and the cost to prepare and file the probate papers is the same regardless of the size of the estate. Second, the IRA isn't a probate asset -- it passes directly either to the children or to the trusts for the children.

Third, under the 1987 proposed regulations (overhauled in 2001 and issued in final form in 2002), you can leave IRA benefits in trust and still get the stretch. See my article on this subject in the March 2004 issue of BNA Tax Management's Estates, Gifts & Trusts Journal: https://www.elderlawanswers.com/Documen ... nefits.pdf.
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Re: Will/Trust Plan Thoughts?

Post by Norton750 »

bsteiner - Thanks very much for the info and the reference to your paper.
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Re: Will/Trust Plan Thoughts?

Post by TheClash »

Thank you all for all your input and advice! As usual, Bogleheads has been a wealth of information! Thanks!
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Re: Will/Trust Plan Thoughts?

Post by Afull »

Norton750 wrote:To those who maintain that there is little or no cost or complication involved in leaving assets to a child in trust rather than outright:

Over 75% of the assets owned by my wife and I are in tax-deferred IRA accounts. I'm guessing that many others also have large percentages of their assets in tax-advantaged accounts. If we name each other as primary beneficiary for these accounts with our adult kids as secondary, then upon the death of the second spouse, the IRA assets will pass to the kids directly, bypassing probate. The kids will then be able to "stretch" the RMDs from these inherited IRAs for decades - until they are in their mid-80s). If instead we set up testamentary trusts for the kids, there is the cost to set these up, there are probate costs for the IRA money when the second spouse dies and the IRA money (now in trust) must be withdrawn from the IRA within five years of the second parent's death, presumably incurring very considerable income tax expense and foregoing decades of tax-deferred growth.

I'd love to hear that I'm wrong on this (anyone?) - but...
I concur with bsteiners reply to your post. For simple estates (no illiquid investments, business, etc.) the only cost I've experienced is the initial drafting of a Jt trust with wife, separate wills, general durable PoA's and health care PoA's for about $2500. The wife and I manage our own accts as co trustees so cost is identical trust or not.

About 70 percent of the assets are in tax qualified accts. The tax qualified accts have spouses as primary and the contingent is the trustee (Fidelity upon our death or incapacity) who is directed to stretch the accts. for the kids. Of course once we are incapacitated or deceased there is a fee for trustee services which may include some of the investing management or this may be a little extra. I think this is appropriate even for responsible and honest beneficiaries.

The thing I think some people miss on why to have a trust is addressing incapacity. How are you taken care of when you can't do it? And past family members live to old age and die suddenly is not something to rely on. People are incapcitated in accidents as well.

Just a thought.
NotWhoYouThink
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Re: Will/Trust Plan Thoughts?

Post by NotWhoYouThink »

. Of course once we are incapacitated or deceased there is a fee for trustee services which may include some of the investing management or this may be a little extra. I think this is appropriate even for responsible and honest beneficiaries.

The thing I think some people miss on why to have a trust is addressing incapacity. How are you taken care of when you can't do it? And past family members live to old age and die suddenly is not something to rely on. People are incapcitated in accidents as well.
For the OP, he needs to make sure the money he intends to leave to his nieces gets to them, so he'll probably need an attorney or other non-family member to be the executor, or to be a successor trustee if he decides to put his money in trust now. How he leaves the money to his sister and nieces is a personal decision, and he may change his mind as the nieces become independent adults.

If you have your assets in a living trust and can trust one of your children to be a co-trustee, that does help a lot with managing accounts after the grantor loses the physical or cognitive ability to take care of things. I've seen this play out well with friends and family. As others have warned, POA assignments work much better in theory than in practice. Trustees seem to be able to operate smoothly. Of course you have to have trustworthy trustees.

But that's for while we're living. After we die, we're willing to throw our offspring to the wolves, I guess. I don't know anyone who has been sued for large amounts for frivolous reasons, unless you count doctors, who have malpractice insurance. I do know some people who have been divorced, but I'm not going to interfere in my kids' marriages by putting money in trusts that makes it hard for them to share with their spouses. If they want to pay off their spouses' student loans with money inherited from me, fine. If they want to pay their spouse to get lost with money inherited from me, fine. It seems that the kind of trusts that give the most "protection" have the least "freedom" for how the money can be used. A trust that lets them spend or not as they choose won't protect against anything. And a trust that provides a lot of protection has costs and restrictions.
Last edited by NotWhoYouThink on Mon Jul 31, 2017 1:46 pm, edited 1 time in total.
Avo
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Re: Will/Trust Plan Thoughts?

Post by Avo »

The tax qualified accts have spouses as primary and the contingent is the trustee (Fidelity upon our death or incapacity) who is directed to stretch the accts. for the kids. Of course once we are incapacitated or deceased there is a fee for trustee services which may include some of the investing management or this may be a little extra.
Do you have an estimate of what these trustee service fees would be over, say, ten years, as a percentage of assets in the accts? It seems to me they would be a lot. Also, what are the kids' options for dealing with this trust after your deaths? Can they take over direction of it without having to pay endless trustee fees to Fidelity?

FWIW, I'm just gobsmacked by the notion that trusts have no additional cost or complexity ...
Afull
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Re: Will/Trust Plan Thoughts?

Post by Afull »

Avo wrote:Do you have an estimate of what these trustee service fees would be over, say, ten years, as a percentage of assets in the accts? It seems to me they would be a lot. Also, what are the kids' options for dealing with this trust after your deaths? Can they take over direction of it without having to pay endless trustee fees to Fidelity?

FWIW, I'm just gobsmacked by the notion that trusts have no additional cost or complexity ...
Speaking from my personal experience, I've had three different revocable trusts over about the last 30 years, and I've had no additional expense except for the initial drawing up of documents and re titling of the house. Retitling was about $100. Cost of setting up is very dependent on the attorney you select and complexity of your estate.

I do expect ongoing fees to be incurred by the corporate trustee and probably investing once they take over. I looked at Fidelity and Vanguard and a couple bank trust departments. Everyone I checked with had a fee structure depending on the estate. Other costs depend on the needs of the estate. Considering my options for my personal circumstances I felt this was the best choice.

I don't recall what my exact cost would be once the coporate trustee takes over as I did this about 2 years ago. If you consider cost over ten years in dollars it's substantal I'm sure. If you consider the cost as a percent of estate value I don't consider it worth worrying over. Again, for me, I found non trust options more expensive and more worrisome than using a trust.

My solution is not correct everyone, but I didn't consider the trust costs as onerous as the cost and consequence of any non trust option that I could find...for my personal circumstances.
Afull
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Re: Will/Trust Plan Thoughts?

Post by Afull »

Avo wrote:Also, what are the kids' options for dealing with this trust after your deaths? Can they take over direction of it without having to pay endless trustee fees to Fidelity?
The kids have all the rights that I've allowed them in the trust. You are free to designate. There was a thread in the last month or two where it was suggested to decant a trust into a new trust such that the final beneficiary become the trustee. That allows him full authority to do as he wishes. He probably wouldn't have any more fees than if he were the grantor. Those circumstances entirely different from mine. Suggestion was by bsteiner if I remember correctly.
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TheClash
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Re: Will/Trust Plan Thoughts?

Post by TheClash »

Do you have an estimate of what these trustee service fees would be over, say, ten years, as a percentage of assets in the accts? It seems to me they would be a lot. Also, what are the kids' options for dealing with this trust after your deaths? Can they take over direction of it without having to pay endless trustee fees to Fidelity?
Based on my asset level: Fidelity is 20bps just for trust admin, investment management fees are another 58bps - 72bps. Vanguard is 55bps (trust admin and investment management fees combined). Seems reasonable....for my situation.
NotWhoYouThink
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Re: Will/Trust Plan Thoughts?

Post by NotWhoYouThink »

Afull wrote:
Avo wrote:Do you have an estimate of what these trustee service fees would be over, say, ten years, as a percentage of assets in the accts? It seems to me they would be a lot. Also, what are the kids' options for dealing with this trust after your deaths? Can they take over direction of it without having to pay endless trustee fees to Fidelity?

FWIW, I'm just gobsmacked by the notion that trusts have no additional cost or complexity ...
Speaking from my personal experience, I've had three different revocable trusts over about the last 30 years, and I've had no additional expense except for the initial drawing up of documents and re titling of the house. Retitling was about $100. Cost of setting up is very dependent on the attorney you select and complexity of your estate.

I do expect ongoing fees to be incurred by the corporate trustee and probably investing once they take over. I looked at Fidelity and Vanguard and a couple bank trust departments. Everyone I checked with had a fee structure depending on the estate. Other costs depend on the needs of the estate. Considering my options for my personal circumstances I felt this was the best choice.

I don't recall what my exact cost would be once the coporate trustee takes over as I did this about 2 years ago. If you consider cost over ten years in dollars it's substantal I'm sure. If you consider the cost as a percent of estate value I don't consider it worth worrying over. Again, for me, I found non trust options more expensive and more worrisome than using a trust.

My solution is not correct everyone, but I didn't consider the trust costs as onerous as the cost and consequence of any non trust option that I could find...for my personal circumstances.
Well of course you have had no additional expense except the initial drawing up of documents and retitling the house. It is a revocable living trust and you have complete freedom to do whatever you want with the assets, and you are paying no one to manage or review the distribution of assets unless you decide to. Trust income is your income and goes on your tax form. That works great while you are alive and competent. Two things may happen in the future:

-You become incompetent. In that case, the trust will be a great thing for you to have if you have named a co-trustee that can act on your behalf. If you have named a successor trustee who can act once you become incompetent, that can also work although someone will have to jump through whatever hoops the trust dictates to have you so declared so that the successor can take over.

-You die. The assets are passed to the beneficiaries, either outright or in trust. If in trust, the trust will then become irrevocable, and will have some instructions for who can be trustee and how the assets will be managed and distributed. That's where the cost and expense will come in. Taxation on this trust will not be like taxation on your existing RLT, a separate trust tax form must be filed. If you have a corporate trustee, the fees to manage the assets will be more than zero. If you have given your heirs less than full authority to use the assets as they see fit they may have to jump through hoops to use them to their best advantage. In return for this complexity, the assets may be protected from creditors. Depending on trust language and state law.

I think in the quote you included, Avo was asking Zott what the costs would be on his plan to have a trustee distribute his kids' inheritance annually for 30 years following his death. And the answer, I'm going to guess, it quite a lot. But we all get to make our own decisions.
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Re: Will/Trust Plan Thoughts?

Post by FIREchief »

NotWhoYouThink wrote:
But that's for while we're living. After we die, we're willing to throw our offspring to the wolves, I guess. I don't know anyone who has been sued for large amounts for frivolous reasons, unless you count doctors, who have malpractice insurance.
People with money become targets for lawsuits.
NotWhoYouThink wrote:
I do know some people who have been divorced, but I'm not going to interfere in my kids' marriages by putting money in trusts that makes it hard for them to share with their spouses.

It seems that the kind of trusts that give the most "protection" have the least "freedom" for how the money can be used. A trust that lets them spend or not as they choose won't protect against anything. And a trust that provides a lot of protection has costs and restrictions.
Neither of the bold/underlined are correct (although I would replace "spend as they choose" with spend for health, education, maintenance and support.) Trusts are routinely written that provide significant flexibility and access to funds for the primary beneficiary, but provide full asset protection wrt lawsuits and divorce. This may vary somewhat by state laws, but in many states this doesn't even require an independent trustee.

(I am not a lawyer)
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NotWhoYouThink
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Re: Will/Trust Plan Thoughts?

Post by NotWhoYouThink »

I know people with money. They haven't been sued. Their compensation is sometimes reported publicly as required by the SEC, so people know they have money.

Does "health, education, maintenance and support" include paying off a spouse's student loans? Making large charitable contributions?
fourwheelcycle
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Re: Will/Trust Plan Thoughts?

Post by fourwheelcycle »

FIREchief wrote: I am ... puzzled by how often people think that administering a trust has to be complicated and expensive. Of course, in some situations it can be, but that is driven by how the trust is written.
From my (not legally trained) reading, I understand in order to be effective asset protection trusts that include beneficiaries as trustees must also include a non-sibling as co-trustee. My wife and I would not want to involve our children's aunts or uncles, or any of our unrelated friends, in our finances. By the time we both die these other co-trustee candidates would be dead or aged anyway. This means we would most likely need to provide for paid, professional co-trustees in order to establish effective asset protection trusts for our children.

I also understand a discretionary distribution trust must have written guidelines beyond "Give our child any income or principal they request, for any purpose", and that the co-trustee must adhere to those guidelines, and document authorized distributions, in order to maintain the effectiveness of the trust in the event of divorce or creditor challenges. One article I read indicated the child co-trustee should ideally terminate their co-trustee role before any divorce or creditor actions are initiated. Also, of course, if all of the trusts' income is not distributed to our children each year it will be subject to the trusts' higher tax rates. That would seem to add costs in the event discretionary distribution ever amounts to less than 100% distribution.

This does seem to make effective asset protection trusts somewhat complicated and expensive. Are my understandings incorrect? I am genuinely seeking education on these points.
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Re: Will/Trust Plan Thoughts?

Post by Nutmeg »

Fourwheelcycle--I am familiar with the laws of only three states, but none of those states requires a non-sibling trustee. I am currently serving as a trustee of a trust along with one of my siblings, and we are both beneficiaries, along with others. I encourage you to check the laws of your state.

FIREchief--I agree that administering a trust does not have to be complicated and expensive. It is true that there will be some expenses and a bit of hassle because a trust is a separate legal entity. As a result, the trust has to have its own bank account and employer ID number (which is free to request and requires only a one-page form.) A trust has to file income tax forms, and our trust pays a CPA to prepare them because the trustees aren't experts in preparing trust tax forms. But some of the expenses and hassle arise out of owning assets, whether the assets are owned by the trust or by the beneficiaries outright. Rental real estate has to be managed and mutual fund tax information has to be gathered no matter who the owner is.
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Re: Will/Trust Plan Thoughts?

Post by bsteiner »

fourwheelcycle wrote:... Are my understandings incorrect?
Yes.

See my previous posts in this thread.
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FIREchief
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Re: Will/Trust Plan Thoughts?

Post by FIREchief »

First, let's acknowledge BSteiner's response, which should be considered authoritative.
fourwheelcycle wrote: From my (not legally trained) reading, I understand in order to be effective asset protection trusts that include beneficiaries as trustees must also include a non-sibling as co-trustee.
In my state, this is not true.
fourwheelcycle wrote: I also understand a discretionary distribution trust must have written guidelines beyond "Give our child any income or principal they request, for any purpose", and that the co-trustee must adhere to those guidelines, and document authorized distributions, in order to maintain the effectiveness of the trust in the event of divorce or creditor challenges.
Again, in my state, an asset protection trust can allow an independent trustee to make distributions to the beneficiaries at any time for any purpose. If the beneficiary is serving as sole trustee, they are allowed to make distributions (to themselves) for health, education, maintenance and support (the "HEMS" standard). The trust will specifically NOT allow them to distribute funds to settle claims against them.
fourwheelcycle wrote: This does seem to make effective asset protection trusts somewhat complicated and expensive. Are my understandings incorrect? I am genuinely seeking education on these points.
They are incorrect. An asset protection trust can be simple and cheap (both relative terms). If you have assets that are worth the cost of protection, the price of a good estate attorney may be the best bargain you'll ever find.

(I am NOT a lawyer, but I know a very good one)
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NotWhoYouThink
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Re: Will/Trust Plan Thoughts?

Post by NotWhoYouThink »

Again, in my state, an asset protection trust can allow an independent trustee to make distributions to the beneficiaries at any time for any purpose.
Isn't it the case that if an independent trustee can make distributions to the beneficiaries at any time and any purpose, then that trustee can also decline to make distributions to the beneficiaries at any time for any purpose? So there is a "Mother may I" game that must be played. If everyone gets along and agrees with each other, no problem. But if there is a difference in judgement between the beneficiaries and the trustee about what the money should be used for, there is a problem.

In my book, interpersonal differences about how to spend money are pretty frequent. Just look at this board - a self-selected group of people who generally live below their means and save and invest wisely and look at investment costs under a microscope. And the discussions on what to spend for a house or a car or a watch or a plane ticket are frequent and boisterous. But none of us can stop the others from spending, so we get along. If one of us could say no to the others there would be trouble.
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Re: Will/Trust Plan Thoughts?

Post by fourwheelcycle »

bsteiner wrote:
fourwheelcycle wrote:... Are my understandings incorrect?
Yes.
Thank you, Mr. Steiner. I guess this proves not everything I read on the internet is correct. What a surprise!
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Re: Will/Trust Plan Thoughts?

Post by FIREchief »

NotWhoYouThink wrote:
Again, in my state, an asset protection trust can allow an independent trustee to make distributions to the beneficiaries at any time for any purpose.
Isn't it the case that if an independent trustee can make distributions to the beneficiaries at any time and any purpose, then that trustee can also decline to make distributions to the beneficiaries at any time for any purpose? So there is a "Mother may I" game that must be played. If everyone gets along and agrees with each other, no problem. But if there is a difference in judgement between the beneficiaries and the trustee about what the money should be used for, there is a problem.

In my book, interpersonal differences about how to spend money are pretty frequent. Just look at this board - a self-selected group of people who generally live below their means and save and invest wisely and look at investment costs under a microscope. And the discussions on what to spend for a house or a car or a watch or a plane ticket are frequent and boisterous. But none of us can stop the others from spending, so we get along. If one of us could say no to the others there would be trouble.
The trust can also allow the beneficiary to remove and replace an independent trustee. If the Grantor intends for the trustee to be liberal in distributions to the beneficiary, this can be stated within the trust. Of course, if the trust allows for the beneficiary to serve as sole trustee, then despite the HEMS "restriction," the beneficiary is in complete control of distributions. Again, it all comes down to the Grantor having a clear idea of what they want the trust to accomplish and using a good estate attorney to draft the trust. The only reason administration of a trust should be cumbersome (and perhaps costly) is because that is what the Grantor intended.
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afan
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Re: Will/Trust Plan Thoughts?

Post by afan »

Regarding tax returns for the trust:

Like any other tax return the complexity depends on the investments. If the assets were held at Vanguard all they will accept are marketable securities. The trust will get an annual statement of income, capital gains (if any) and a tax form. Fill in the boxes in your favorite consumer level tax prep software and you are done.

Or hire an enrolled agent or tax prep company to do it for you.
I am trustee of such a trust and I use an enrolled agent simply to have another set of eyes on the numbers. The actual return I could do myself far easier than my own tax return.

As described, this would require an executor to handle whatever assets were passing by will, but it is not clear that there would be any. The OP says "no real estate" and as bsteiner points out, the retirement funds would pass by the beneficiary designation.

Putting all the money into a living trust could leave essentially nothing in a probate estate. Vanguard would serve as trustee, but it might still be safe to have someone reliable appointed as executor. Under this design you could well get away with a small estates situation, which is simpler and cheaper. By having essentially everything of value already under Vanguard's supervision as trustee you do not have to worry about brother in law's undue influence on sister as the estate is settled.

By having the three trusts also with Vanguard as trustee you avoid any concern about brother in law interfering with transfer of money from your trust to those of the nieces.
Once all three trusts are funded the relationship of your sister to her husband still exposes her share of the assets to risk, but there is nothing you can do about that.

Having served as personal representative, once, I let the lawyer and the enrolled agent do the work, signed where I was told and got frustrated by how long it took to get the estate tax return accepted. But it was not difficult once I gave up on trying to do it myself. I don't remember what the lawyer charged, but it certainly was not $10,000, let alone $100,000. The lawyer did not serve as the executor. The lawyer provided legal advice and billed by the hour.

If you want to know what Vanguard would do under this setup, ask them. Also you can ask the lawyer who is helping you draft your estate planning documents for suggestions of banks or trust companies who could do the work for a reasonable price.
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Re: Will/Trust Plan Thoughts?

Post by tibbitts »

afan wrote:Regarding tax returns for the trust:

Like any other tax return the complexity depends on the investments. If the assets were held at Vanguard all they will accept are marketable securities. The trust will get an annual statement of income, capital gains (if any) and a tax form. Fill in the boxes in your favorite consumer level tax prep software and you are done.
As I said I did exactly that and made a mistake - not in entering the data but in understanding where to enter what data, even after spending days and days pouring over IRS documentation.

And my favorite consumer-level tax software doesn't do trust returns, just as it doesn't do business returns. I had to buy separate software for trusts and still other software for my business. I have a reasonable amount of experience doing my own returns for partnerships and my own personal returns, but I still made a mistake on the trust return. One year out of a couple of decades I made a mistake on a 1065 too, again not a simple math error, which software tends to identify or correct. When you do three returns instead of one you have three times greater a chance of error.

I have a simple estate situation (almost - hopefully it will be once I re-title an out-of-state property with a life-estate deed), but understand that for some other people a trust is necessary. But it's an on-going expense and complication that's nice to avoid if you can.
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