Do I really need a trust?

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WoodSpinner
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Do I really need a trust?

Post by WoodSpinner » Thu Aug 10, 2017 10:22 pm

All,

I could use some of the BH collective wisdom ....

Went to see an attorney about doing a trust and was quoted a price of $3200 for a trust, will, PoAs etc.

She advised against having the trust be bennificiaries of my 401K/ IRA (which is 80% of my estate, mid 7 figures).

Suggested we put the house and the Taxable account into the trust.

We live in CA which does have some nasty probate costs, but best I can tell there won't be anything that has to go through probate. All of the accounts have PoD bennificiaries (wife first, then daughter) and alternates set up. House is jointly owned with my wife.

I do have a current will (Nola Press Willmaker) and have been revising it regularly.

I do not expect to be hit with Fed or State Estate taxes (would love to have to deal with that problem :) ).

Seems to me that $3200 for a trust is overkill to protect a small part of the estate.

For $59 you can do a simple Living Trust through Nolo and protect against the probate risk of both My wife and I dying at the same time and leaving my daughter to deal with the house. I have read Beyond the Grave ( great book) but don't see any real complexities that I have to deal with at this point. I trust both of them to manage the money ( with some help from an FA).



Questions:
  • - Am I missing any significant advantages?
    - Any missing risks?
    - Can I trust Nolo Press to put together the trust/willdocuments with the right rigor?
    -Any other questions I should be researching?
Thanks in advance 8-)
Last edited by WoodSpinner on Thu Aug 10, 2017 11:06 pm, edited 1 time in total.

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Thu Aug 10, 2017 10:50 pm

WoodSpinner wrote:
She advised against having the trust be bennificiaries of my 401K/ IRA (which is 80% of my estate, mid 7 figures).
Did she mention a separate trust specifically to receive these qualified retirement plan assets? If she is unfamiliar with such trusts, then you need to find a better attorney.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

letsgobobby
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Re: Do I really need a trust?

Post by letsgobobby » Thu Aug 10, 2017 10:59 pm

Unclear who your intended beneficiaries are, how old your daughter is, what your goals are, etc.

Some food for thought:

- you die, your wife owns the house. Then she dies. Probate? So you do need a trust. Whether it needs to be the $3200 or $59 version is beyond my expertise.
- your daughter inherits the taxable account, and is sued. Protection?

WoodSpinner
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Re: Do I really need a trust?

Post by WoodSpinner » Thu Aug 10, 2017 11:08 pm

FIREchief wrote:
WoodSpinner wrote:
She advised against having the trust be bennificiaries of my 401K/ IRA (which is 80% of my estate, mid 7 figures).
Did she mention a separate trust specifically to receive these qualified retirement plan assets? If she is unfamiliar with such trusts, then you need to find a better attorney.
She did not, can you point me to some info to review?

Thanks.

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RetiredMule
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Re: Do I really need a trust?

Post by RetiredMule » Thu Aug 10, 2017 11:09 pm

Thanks WoodSpinner for posing this question to the BH forum!

I've been a longtime lurker, recent member. Very interested in the responses from fellow BH brains, as I have been meaning to ask the same question.

I also live in the same state (CA) as OP ; my estate is much smaller, in the low 7 figures with 70% of it in financial accounts where one can designate beneficiaries online and I have them. I also own a primary home in CA and a rental home in another state (TX), both jointly owned with DW. I've long questioned why I need anything more than a simple will :?

Thanks everyone for your thoughts :)

Minty
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Re: Do I really need a trust?

Post by Minty » Thu Aug 10, 2017 11:22 pm

I am a California lawyer, and even though it kills me that I can't get someone to do it for me for free, I just pay for my will and trust. Seen too many car crashes with diy in this area.

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 12:15 am

WoodSpinner wrote:
FIREchief wrote:
WoodSpinner wrote:
She advised against having the trust be bennificiaries of my 401K/ IRA (which is 80% of my estate, mid 7 figures).
Did she mention a separate trust specifically to receive these qualified retirement plan assets? If she is unfamiliar with such trusts, then you need to find a better attorney.
She did not, can you point me to some info to review?

Thanks.
If you Google "Retirement Plan Trust" you will receive many matches. The following link provides a very high level overview. Pay particular attention to the mention of "accumulation trust" versus "conduit trust." An accumulation trust is really the only version that provides strong asset protection.

http://www.wealthmanagement.com/estate- ... a-forecast

Perhaps the most ideal approach is to maximize Roth conversions so that RMDs held (accumulated) within the trust do not generate significant tax liabilities for the trust. You mention "mid 7 figures." Just to clarify, are you referring to something like 3 to 7 Million dollars? If so, that would have implications for how you set up retirement plan trusts for you and/or your wife. As an example, the first-to-die spouse could leave a meaningful amount of retirement plan assets directly to your child (in trust) so as to mitigate eventual estate taxes payable by the surviving spouse.
Last edited by FIREchief on Fri Aug 11, 2017 3:51 am, edited 2 times in total.
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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 12:22 am

Minty wrote:I am a California lawyer, and even though it kills me that I can't get someone to do it for me for free, I just pay for my will and trust. Seen too many car crashes with diy in this area.
Just to clarify, I don't think $3200 is too much to pay for a robust and meaningful estate plan. My concern is that the lawyer selling this to the OP apparently is not familiar with qualified retirement plan trusts and may just be selling a "turn the crank" boilerplate A/B trust. I've encountered several such "trust mills" among local attorneys (very nicely dressed folks in nice offices in nice parts of town), but by the end of the initial consultations I concluded that I knew more about these things from my own research than they appeared to know from their law school, continuing education, etc. My favorite litmus test was to ask them if they knew who Natalie Choate was. Do you know who Natalie is?
Last edited by FIREchief on Mon Aug 14, 2017 2:36 pm, edited 1 time in total.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

letsgobobby
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Re: Do I really need a trust?

Post by letsgobobby » Fri Aug 11, 2017 12:33 am

FIREchief wrote:
Minty wrote:I am a California lawyer, and even though it kills me that I can't get someone to do it for me for free, I just pay for my will and trust. Seen too many car crashes with diy in this area.
Just to clarify, I don't think $3200 is too much to pay for a robust and meaningful estate plan. My concern is that the lawyer selling this to the OP apparently is not familiar with qualified retirement plan trusts and may just be selling a "turn the crank" boilerplate A/B trust. I've encountered several such "trust mills" among local attorneys (very nicely dressed folks in nice offices in nice parts of town), but by the end of the initial consultations I concluded that I knew more about these things from my own research than they appeared to know from their law school, continuing education, etc. My favorite litmus test was to ask them if they knew who Natalie Choat was. Do you know who Natalie is?
Bruce Steiner has also written about trusts for retirement accounts and does post here regularly.

I also found this good article recently:

https://www.forbes.com/sites/deborahlja ... c76170172b

We leave our retirement accounts in trust because our children are minors and their abilities with regards to handling money responsibly are unknown. In addition we prefer to keep that money out of their estates.

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 1:17 am

letsgobobby wrote: Bruce Steiner has also written about trusts for retirement accounts and does post here regularly.

I also found this good article recently:

https://www.forbes.com/sites/deborahlja ... c76170172b
That Forbes article is a pretty good introduction to the topic. Chapter six in Natalie Choate's book (Life and Death Planning for Retirement Benefits) is devoted entirely to retirement plan trusts, and provides arguably the most authoritative reference on the topic. I'll warn you though, that chapter is 80 pages of material whose intended audience is estate planning attorneys, not Bogleheads just approaching the topic.

https://www.amazon.com/Life-Death-Plann ... t+benefits

("not intended for nonprofessional readers" LOL)
Last edited by FIREchief on Mon Aug 14, 2017 2:36 pm, edited 1 time in total.
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JBTX
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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 1:33 am

In our last update of wills and trusts a couple of years ago the trust document was revised to include "benefits trusts" designed to receive retirement plan assets if both me and spouse die prematurely.

Do you have life insurance? Where does that go? A trust document can spell out how you want funds distributed to your kids, at what age,etc.

Ragnoth
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Re: Do I really need a trust?

Post by Ragnoth » Fri Aug 11, 2017 1:48 am

I think $3200 seems pretty reasonable. I've seen family members pay twice as much for an estate of your size.

Although the "basics" of a decent estate plan should be simple to understand, actually drafting something up and navigating the potential pitfalls of state/federal law is best left to the pros. Keep in mind that there are a lot of "unexpected" circumstances that can scuttle a plan if you havent thought ahead (e.g., depending on your state, something as simple as spouses dying simultaneously can ruin some of those pre-fab plans off the Internet).

It kinda sucks, but this is really an area where you are much better off just paying the cash and having a good lawyer look it over.
Last edited by Ragnoth on Fri Aug 11, 2017 1:54 am, edited 1 time in total.

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sergeant
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Re: Do I really need a trust?

Post by sergeant » Fri Aug 11, 2017 1:49 am

Remember to do a California transfer on death deed form for both you and your wife. This will keep the home out of probate. As long as the kids are adults I don't think you need the trust. If probate avoidance is your only motivation for the trust I think you have everything covered.

I'm not an estate attorney.
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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 1:52 am

JBTX wrote:In our last update of wills and trusts a couple of years ago the trust document was revised to include "benefits trusts" designed to receive retirement plan assets if both me and spouse die prematurely.
Are those "benefits trusts" conduit trusts or accumulation trusts?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

JBTX
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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 1:57 am

FIREchief wrote:
JBTX wrote:In our last update of wills and trusts a couple of years ago the trust document was revised to include "benefits trusts" designed to receive retirement plan assets if both me and spouse die prematurely.
Are those "benefits trusts" conduit trusts or accumulation trusts?
No idea. I have no idea what either of those are.

JBTX
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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 2:00 am

This is a random google result of retirement benefits trust.

http://www.kelleherbuckley.com/Retireme ... Trusts.pdf

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 3:47 am

JBTX wrote:
FIREchief wrote:
JBTX wrote:In our last update of wills and trusts a couple of years ago the trust document was revised to include "benefits trusts" designed to receive retirement plan assets if both me and spouse die prematurely.
Are those "benefits trusts" conduit trusts or accumulation trusts?
No idea. I have no idea what either of those are.
Both need to meet the IRS "see through" requirements in order to allow RMDs to be stretched over the oldest beneficiary's life expectancy. A conduit trust forces the RMDs to be paid out to the beneficiary(s) as they are withdrawn from the inherited IRAs. An accumulation trust allows some or all of the RMDs to be retained within the trust. Since a conduit trust forces a stream of payouts, it doesn't provide robust asset protection. If your attorney simply added something to an existing living trust to address qualified retirement plan assets, it is very likely a conduit trust. If you are concerned about protecting your heirs' inherited IRA assets from lawsuits, divorce, etc. you may wish to learn a bit more about these topics. If your current attorney doesn't understand the difference between these types of trusts (a shocking number do not), then you may not have the right attorney.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

NotWhoYouThink
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Re: Do I really need a trust?

Post by NotWhoYouThink » Fri Aug 11, 2017 7:55 am

It depends. What are you hoping to do?

If it is just to avoid probate costs after you or your wife dies, it sounds like you've got things covered already. If you want to make sure your daughter (I am assuming from your post she is an adult?) avoids probate costs on the house after you die, then maybe you need to set up a trust for the house to transfer to after both you and your wife die. Or to put it into now.

If you want for your loved ones to be able to manage your financial affairs if you are incapacitated for a long period of time, you might consider a trust for any after-tax accounts in your name, and setting up POAs with the institutions that hold your retirement accounts. A general POA from your attorney or NOLO should work for all of that, but in practice often does not. So for any account not in a trust, it probably makes sense to check with your financial institutions every 5 years or so to make sure that anyone that you have designated as durable POA still has the ability to manage your affairs. That is, if there is anyone you trust to assign as durable POA.

If you put your accounts in a trust and want someone else to be able to manage them, then you need to assign a co-trustee that you are willing to give that power to. Your wife, maybe, with your daughter as successor, then??

Now, what about after you die? Ok if all your money goes to your wife? She can roll your IRA into hers, and can inherit all your after tax accounts. You've read Beyond the Grave, so you've considered the possibility that she will re-marry and leave all of the money she inherited from you to her next husband, and leave your daughter in the cold. Are you willing to take that risk? Or maybe you want to leave all or part of your money to your daughter, either through TOD or in trust.

What about after you both die and your daughter has inherited everything? You could leave everything to her outright, or leave it in trust. If in trust, you could allow her to be her own trustee or not, now or later. You'll need separate trusts for IRAs (and separate for Roth IRAs maybe?). It really depends on how much restriction you want to put on her access to the money, how much you want to protect her from future lawsuits or divorce, how much you want to keep out of her estate for estate tax purposes. More protection costs more money and provides less freedom. More freedom costs less up front but allows more risk. Same kind of trade-offs. If you leave it to her in trust then you can specify that any money left after she dies goes to her kids (or whoever else you designate) rather than to her spouse. Or you can leave it to her free of trust and let her decide what happens to it after her death.

Our will now leaves our after tax money to our kids in separate trusts, with a trusted family member as trustee, until the kids turn 30. Then they get the money free of trust. Once they turned 21, we set them as contingent beneficiaries on our retirement accounts, so they will have the opportunity to stretch those, but they will not be protected by trusts. That's more freedom and less protection than some people on this board recommend, but it feels right to us. We understand the options and have made a choice. Just like some people like DIY investing, some like to have Investment Managers, and some like annuities. We all get to educate ourselves and make choices. And we can change our mind when our circumstances or outlook change.
Last edited by NotWhoYouThink on Fri Aug 11, 2017 11:50 am, edited 1 time in total.

fourwheelcycle
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Re: Do I really need a trust?

Post by fourwheelcycle » Fri Aug 11, 2017 8:26 am

FIREchief wrote:
WoodSpinner wrote: She advised against having the trust be bennificiaries of my 401K/ IRA (which is 80% of my estate, mid 7 figures).
Did she mention a separate trust specifically to receive these qualified retirement plan assets? If she is unfamiliar with such trusts, then you need to find a better attorney.
My wife and I have a joint revocable trust for our our home and our taxable savings. Our estate goes to our two adult married children, one of whom has a first child. Our attorney did not recommend a separate trust as beneficiary for our retirement savings, which are at TIAA, Fidelity, and Vanguard. However, he did give us a special beneficiary designation form which says to our spouse, then equally to our two children, with our children's shares going to our trust if a child is not living. Our trust says what to do with any assets intended for the benefit of one of our children who is not living.

TIAA and Vanguard accepted these special beneficiary designation forms. Fidelity would not accept them, so our Fidelity retirement funds will probably be transferred to Vanguard when possible.

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Re: Do I really need a trust?

Post by afan » Fri Aug 11, 2017 8:47 am

It does not sound like the DIY approach is appropriate for the OP. But before deciding, I suggest you do what many of us bsteiner groupies do: Search for and read all his posts. There is a tremendous amount of expert information, explained for a lay readership. Much easier going than Choate's book.

Once you have educated yourself, you can see whether your attorney is up to the job of giving you good service. That cost seems reasonable, provided you are getting a true expert. Many people who offer to do estate planning are not experts.

Re: conduit trusts. Last year the Senate Finance Committee unanimously passed a provision that would eliminate the lifetime stretch for inherited retirement assets. If that makes it into law, then the conduit trust would do nearly nothing. Beneficiaries would be forced to take all the money out over a short time and then remove it from the trust.
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123
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Re: Do I really need a trust?

Post by 123 » Fri Aug 11, 2017 11:00 am

sergeant wrote:Remember to do a California transfer on death deed form for both you and your wife. This will keep the home out of probate. As long as the kids are adults I don't think you need the trust. If probate avoidance is your only motivation for the trust I think you have everything covered.

I'm not an estate attorney.
+1 The new California beneficiary deed process allow you to establish a beneficiary for California real estate. Since you can do handle other assets and accounts with beneficiaries the beneficiary deed is a welcome addition, assuming it's compatible with the way in which you want your assets distributed. Nolo Press even has an easy way to do it (but there's a charge) https://store.nolo.com/products/califor ... pr455.html.
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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 4:21 pm

afan wrote:It does not sound like the DIY approach is appropriate for the OP. But before deciding, I suggest you do what many of us bsteiner groupies do: Search for and read all his posts. There is a tremendous amount of expert information, explained for a lay readership. Much easier going than Choate's book.
This is good advice. To clarify, I didn't recommend Choate's book as the starting point for anybody; just an ultimate reference for anybody (like myself) who, at the end of the day, wanted to ensure that they fully understood the current situation with qualified trusts.
afan wrote:
Once you have educated yourself, you can see whether your attorney is up to the job of giving you good service. That cost seems reasonable, provided you are getting a true expert. Many people who offer to do estate planning are not experts.
This is why I mentioned Choat's book to a number of different attorneys. If they responded favorably, then they passed the test (i.e. if they have read and understand Natalie's book, then I didn't have to - I have read it but probably didn't fully understand some parts). If they said "who?", then I wasn't comfortable with entrusting my estate planning to them. If somebody only has mostly/all after-tax assets, this all may be irrelevant.
afan wrote: Re: conduit trusts. Last year the Senate Finance Committee unanimously passed a provision that would eliminate the lifetime stretch for inherited retirement assets. If that makes it into law, then the conduit trust would do nearly nothing. Beneficiaries would be forced to take all the money out over a short time and then remove it from the trust.
Although we can't discuss the topic here, folks who are interested may wish to review the following paper:

https://www.ataxplan.com/wp-content/upl ... ebsite.pdf
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pfrank
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Re: Do I really need a trust?

Post by pfrank » Fri Aug 11, 2017 5:02 pm

Once we had kids, we met with an estate attorney. We did it primarily to name guardians of our kids in case of our demise. He did the revocable trust, wills, power of attorney, living will, and health care proxies for $4,500 (I live in MA). The office even filled out the beneficiary forms for all of our accounts. He told us to put everything in the trust except for retirement accounts (401ks and IRAs) and vehicles (too much work for a item that depreciates quickly). The trust is listed as the secondary beneficiary on our retirement accounts. The spouse is listed first.

He also told us that the overwhelming majority of his clients NEVER fund their trusts. It took us awhile to move all of our assets to the trust, but it is done. The biggest hassle was transferring our savings bond in Treasury Direct.

The trust is listed under my Social Security Number so the income is reported on my regular tax return.

JBTX
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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 5:26 pm

FIREchief wrote:
JBTX wrote:
FIREchief wrote:
JBTX wrote:In our last update of wills and trusts a couple of years ago the trust document was revised to include "benefits trusts" designed to receive retirement plan assets if both me and spouse die prematurely.
Are those "benefits trusts" conduit trusts or accumulation trusts?
No idea. I have no idea what either of those are.
Both need to meet the IRS "see through" requirements in order to allow RMDs to be stretched over the oldest beneficiary's life expectancy. A conduit trust forces the RMDs to be paid out to the beneficiary(s) as they are withdrawn from the inherited IRAs. An accumulation trust allows some or all of the RMDs to be retained within the trust. Since a conduit trust forces a stream of payouts, it doesn't provide robust asset protection. If your attorney simply added something to an existing living trust to address qualified retirement plan assets, it is very likely a conduit trust. If you are concerned about protecting your heirs' inherited IRA assets from lawsuits, divorce, etc. you may wish to learn a bit more about these topics. If your current attorney doesn't understand the difference between these types of trusts (a shocking number do not), then you may not have the right attorney.
Thanks for the info. I'll definitely look into it. After a bit of research I'll ping the attorney and see what they say.

Ps: I googled and found this.

https://www.kitces.com/blog/qualifying- ... umulation/

It seems like conduit trust offers less protection but the accumulation trust offers less favorable tax treatment upon distribution. Obviously I have a lot to learn about this.

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 6:57 pm

JBTX wrote: It seems like conduit trust offers less protection but the accumulation trust offers less favorable tax treatment upon distribution. Obviously I have a lot to learn about this.
The only difference with tax treatment is that RMDs accumulated within the trust (rather than being immediately distributed to the beneficiary) will incur the (potentially) higher trust tax rates. If the RMDs are initially small, there may be no tax consequences (or maybe even a tax benefit). If the RMDs will be larger, there is great advantage to having the trust inherit Roth assets instead of tIRA, as there are no taxes due upon the Roth RMDs and they can be accumulated in an after-tax account within the trust. Then, only the dividends and capital gains are taxable to the trust.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

JBTX
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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 9:11 pm

FIREchief wrote:
JBTX wrote: It seems like conduit trust offers less protection but the accumulation trust offers less favorable tax treatment upon distribution. Obviously I have a lot to learn about this.
The only difference with tax treatment is that RMDs accumulated within the trust (rather than being immediately distributed to the beneficiary) will incur the (potentially) higher trust tax rates. If the RMDs are initially small, there may be no tax consequences (or maybe even a tax benefit). If the RMDs will be larger, there is great advantage to having the trust inherit Roth assets instead of tIRA, as there are no taxes due upon the Roth RMDs and they can be accumulated in an after-tax account within the trust. Then, only the dividends and capital gains are taxable to the trust.
So where then would the tIRA amounts go (assuming they are substantial enough to worry about) if not the retirement benefits trust?

WoodSpinner
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Re: Do I really need a trust?

Post by WoodSpinner » Fri Aug 11, 2017 9:41 pm

FIREchief wrote:
JBTX wrote: It seems like conduit trust offers less protection but the accumulation trust offers less favorable tax treatment upon distribution. Obviously I have a lot to learn about this.
The only difference with tax treatment is that RMDs accumulated within the trust (rather than being immediately distributed to the beneficiary) will incur the (potentially) higher trust tax rates. If the RMDs are initially small, there may be no tax consequences (or maybe even a tax benefit). If the RMDs will be larger, there is great advantage to having the trust inherit Roth assets instead of tIRA, as there are no taxes due upon the Roth RMDs and they can be accumulated in an after-tax account within the trust. Then, only the dividends and capital gains are taxable to the trust.
FireChief,

First thanks for some excellent insights and links to review.

It's interesting that many don't routinely setup their bennificiaries and contingencies when opening accounts. Frankly it's been second nature to me and they are in place. The link to the discussion on the Stretch IRA was interesting--but our situation (DW rolling my IRA Into hers on my death, DD inheriting our IRA's and stretching over her lifetime) is covered under the existing law. Will refrain from further speculation on pending changes, but agree that they need to be watched.

Again, for us I do not see a good value in either the conduit (no real protection) or accumulation (tax consequences, very small Roth IRA at this point) trusts.

The key risks we would like to address are:
  • - Probate avoidance ( mainly house)
    - Difficulties in settling estate and paying heirs
    - Protection from creditors and legal judgements.
    - Protection for DD in case a future spouse pressures her to use these assets (low risk at this point)
Not very concerned that either DW or DD would blow the money, they are both smart, capable and well grounded (definitely not spendthrifts).

I am certainly not an expert but I have been doing a bunch of reading, including many of BSteiner's excellent posts. It's definitely a complicated area, and am concerned that I am missing something important.

What might help in my decision are stories, good or bad, about using a DIY approach with the NOLO press Trust and Willmaker. I found using Willmaker a really positive experience. It certainly seemed complete and they seem a reputable company. If my trust is misplaced , then it's an easy decision to go with a lawyer. OTOH, I would rather invest the $3200 and let it grow if the expense is not warranted.

I definitely welcome any other insights or suggestions.

Thanks again

8-)

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 9:59 pm

JBTX wrote:
FIREchief wrote:
JBTX wrote: It seems like conduit trust offers less protection but the accumulation trust offers less favorable tax treatment upon distribution. Obviously I have a lot to learn about this.
The only difference with tax treatment is that RMDs accumulated within the trust (rather than being immediately distributed to the beneficiary) will incur the (potentially) higher trust tax rates. If the RMDs are initially small, there may be no tax consequences (or maybe even a tax benefit). If the RMDs will be larger, there is great advantage to having the trust inherit Roth assets instead of tIRA, as there are no taxes due upon the Roth RMDs and they can be accumulated in an after-tax account within the trust. Then, only the dividends and capital gains are taxable to the trust.
So where then would the tIRA amounts go (assuming they are substantial enough to worry about) if not the retirement benefits trust?
Sorry, I wasn't clear on that. The tIRA amounts would still go into the retirement plan trust. There then becomes a potential trade-off between asset protection and tax optimization. At some point, the tIRA RMDs - if accumulated within the trust - might be pushing the trust income into the higher brackets. If instead, they are distributed to the beneficiary, they incur taxes at the beneficiary's marginal rate (which is usually lower), but at the expense of exposure to creditors. It doesn't need to be an all or none proposition. My point was really an argument in favor of Roth conversions by the trust grantor prior to death.
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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Fri Aug 11, 2017 10:10 pm

WoodSpinner wrote:
FireChief,

The key risks we would like to address are:
  • - Protection from creditors and legal judgements.
    - Protection for DD in case a future spouse pressures her to use these assets (low risk at this point)
Not very concerned that either DW or DD would blow the money, they are both smart, capable and well grounded (definitely not spendthrifts).
This is where the challenge arises. If retirement plan assets are left directly to a non-spouse beneficiary (either upon first-to-die or second-to-die spouse), they are wide open to creditors and legal judgements. Since your DD is responsible, in most states she could serve as her own sole trustee without jeopardizing asset protection or incurring trustee fees. You mentioned an asset amount in your OP that strongly supported the case for establishment of qualified trusts to inherit retirement plan assets. You also appear to be bumping up against the federal estate tax, which can argue for the first-to-die spouse to leave some portion of their qualified retirement plan assets immediately to a non-spouse beneficiary in order to avoid the second to die spouse having to incur federal estate taxes upon their death. This can be done either directly or through disclaimer. Every situation is unique, so there are very few "right" answers for a lot of this.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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tooluser
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Re: Do I really need a trust?

Post by tooluser » Fri Aug 11, 2017 10:19 pm

I am single in California and have a trust to protect my non-beneficiary assets from what I consider to be a predatory government. The money my estate will save in probate costs will allow my heirs to send my ashes to the stars. Weird maybe, but it works for me as justification of the cost.

Make you sure you have a living will and healthcare power of attorney, and that your family is taken care of if the worst happens. Think in terms of a disaster during a family reunion. There are some hard questions in there.
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JBTX
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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 11:31 pm

FIREchief wrote:
JBTX wrote:
FIREchief wrote:
JBTX wrote: It seems like conduit trust offers less protection but the accumulation trust offers less favorable tax treatment upon distribution. Obviously I have a lot to learn about this.
The only difference with tax treatment is that RMDs accumulated within the trust (rather than being immediately distributed to the beneficiary) will incur the (potentially) higher trust tax rates. If the RMDs are initially small, there may be no tax consequences (or maybe even a tax benefit). If the RMDs will be larger, there is great advantage to having the trust inherit Roth assets instead of tIRA, as there are no taxes due upon the Roth RMDs and they can be accumulated in an after-tax account within the trust. Then, only the dividends and capital gains are taxable to the trust.
So where then would the tIRA amounts go (assuming they are substantial enough to worry about) if not the retirement benefits trust?
Sorry, I wasn't clear on that. The tIRA amounts would still go into the retirement plan trust. There then becomes a potential trade-off between asset protection and tax optimization. At some point, the tIRA RMDs - if accumulated within the trust - might be pushing the trust income into the higher brackets. If instead, they are distributed to the beneficiary, they incur taxes at the beneficiary's marginal rate (which is usually lower), but at the expense of exposure to creditors. It doesn't need to be an all or none proposition. My point was really an argument in favor of Roth conversions by the trust grantor prior to death.
It would seem that if the RMD amounts were low enough not to trigger high tax rates in an accumulation trust then the RMD amounts wouldn't be high enough to be a "material" risk for a conduit trust - lets say $10,000 per year for instance. Most likely the $10k distribution would be spent by beneficiary. If the RMD were greater, say $50k per yes the some of that rmd was saved by beneficiary there becomes an exposure. But there is also a real tax exposure. Seems to me the tax exposure is a definite, and the credit risk while possible hopefully isn't a probability.

To your point if it is Roth then there is no tax risk and I can see benefit of accumulation trust.

In my case i have Roth and regular Retirement savings roughly 50/50. Seems like setting something up to optimize both gets rather unwieldy.

Nonetheless this is great information and something I'm going to follow up on. Thanks again.

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Re: Do I really need a trust?

Post by JBTX » Fri Aug 11, 2017 11:43 pm

FIREchief wrote:
WoodSpinner wrote:
FireChief,

The key risks we would like to address are:
  • - Protection from creditors and legal judgements.
    - Protection for DD in case a future spouse pressures her to use these assets (low risk at this point)
Not very concerned that either DW or DD would blow the money, they are both smart, capable and well grounded (definitely not spendthrifts).
This is where the challenge arises. If retirement plan assets are left directly to a non-spouse beneficiary (either upon first-to-die or second-to-die spouse), they are wide open to creditors and legal judgements. Since your DD is responsible, in most states she could serve as her own sole trustee without jeopardizing asset protection or incurring trustee fees. You mentioned an asset amount in your OP that strongly supported the case for establishment of qualified trusts to inherit retirement plan assets. You also appear to be bumping up against the federal estate tax, which can argue for the first-to-die spouse to leave some portion of their qualified retirement plan assets immediately to a non-spouse beneficiary in order to avoid the second to die spouse having to incur federal estate taxes upon their death. This can be done either directly or through disclaimer. Every situation is unique, so there are very few "right" answers for a lot of this.
Indeed. In my case I have set up kids trusts that last indefinitely. 15 years ago the money became available when they were 30 (they became sole trustee) but things have changed such I don't think either will have the ability to manage large sums responsibly perhaps ever. So we have others as trustees for the duration of their lives (luckily they have financially savvy and responsible aunts and uncles we can trust with that responsibility ) Beyond that we've set things up (with my wife's total buy in) that if I die non retirement amounts (mainly insurance proceeds) go into trust and her very frugal financially astute sister is co-trustee with my wife. I understand this won't work for everybody but that is what we did.

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Re: Do I really need a trust?

Post by FIREchief » Sat Aug 12, 2017 12:09 am

JBTX wrote:
It would seem that if the RMD amounts were low enough not to trigger high tax rates in an accumulation trust then the RMD amounts wouldn't be high enough to be a "material" risk for a conduit trust - lets say $10,000 per year for instance. Most likely the $10k distribution would be spent by beneficiary. If the RMD were greater, say $50k per yes the some of that rmd was saved by beneficiary there becomes an exposure.
I believe that part of the risk with a conduit trust is the "guaranteed" income stream that can be attached in a court settlement. BSteiner may be able to provide more info on this aspect.
JBTX wrote:
In my case i have Roth and regular Retirement savings roughly 50/50. Seems like setting something up to optimize both gets rather unwieldy.
I don't consider this to be true. At its simplest, you just establish one qualified accumulation trust and name that trust as beneficiary of some or all of your IRA's, 401k's and other qualified retirement plans. It doesn't really matter if they are Roth, tax-deferred or both. The trustee can decide how much of the RMDs from each to retain or pay out to the beneficiary. If the beneficiary is serving as trustee, they can be provided with significant discretion.

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Re: Do I really need a trust?

Post by JBTX » Sat Aug 12, 2017 12:39 am

FIREchief wrote:
JBTX wrote:
It would seem that if the RMD amounts were low enough not to trigger high tax rates in an accumulation trust then the RMD amounts wouldn't be high enough to be a "material" risk for a conduit trust - lets say $10,000 per year for instance. Most likely the $10k distribution would be spent by beneficiary. If the RMD were greater, say $50k per yes the some of that rmd was saved by beneficiary there becomes an exposure.
I believe that part of the risk with a conduit trust is the "guaranteed" income stream that can be attached in a court settlement. BSteiner may be able to provide more info on this aspect.
JBTX wrote:
In my case i have Roth and regular Retirement savings roughly 50/50. Seems like setting something up to optimize both gets rather unwieldy.
I don't consider this to be true. At its simplest, you just establish one qualified accumulation trust and name that trust as beneficiary of some or all of your IRA's, 401k's and other qualified retirement plans. It doesn't really matter if they are Roth, tax-deferred or both. The trustee can decide how much of the RMDs from each to retain or pay out to the beneficiary. If the beneficiary is serving as trustee, they can be provided with significant discretion.

(readers: please review my signature below)
Would the easier way to "skin this cat" be to strongly recommend the beneficiary have an umbrella liability policy? I get what you are saying but seems to me when you are trying to protect heirs from legal judgements against future income streams you are trying to manage fairly remote risks and potentially paying a tax premium to do so if tIRA RMDs. And in terms of managing which tax retirement accounts to distribute out of is not something your average trustee could do and would need some help of a not very cheap tax or estate planning lawyer. I am not sure if the theoretical gain is worth the costs. But this is me just aimlessly rambling on a subject I am very new to.

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Re: Do I really need a trust?

Post by StevieG72 » Sat Aug 12, 2017 3:41 am

I am leaning towards a trust myself.

Like the idea of protecting assets from some of life's inevitable things.

Particularly find peace in being able to protect assets from the ever so common divorce.

Bought Beyond the Grave book based on recommendations here, look forward to reading it soon.
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Re: Do I really need a trust?

Post by WoodSpinner » Sat Aug 12, 2017 8:27 am

tooluser wrote:I am single in California and have a trust to protect my non-beneficiary assets from what I consider to be a predatory government. The money my estate will save in probate costs will allow my heirs to send my ashes to the stars. Weird maybe, but it works for me as justification of the cost.

Make you sure you have a living will and healthcare power of attorney, and that your family is taken care of if the worst happens. Think in terms of a disaster during a family reunion. There are some hard questions in there.
Psychologically and emotionally just thinking about the idea tha our DD could pass before me our my wife is one of the most difficult plans we face. Gotta be done, but it ain't easy.

:shock:

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Re: Do I really need a trust?

Post by afan » Sat Aug 12, 2017 8:54 am

For the non spouse beneficiary of retirement assets the entire amount is exposed to creditors, not just the RMDs. The amounts in the plan are not protected as they are for your own retirement plan or for your spouse who inherits.

If you leave, say $1M in retirement assets to your spouse then only the amounts the spouse takes out are exposed to creditors. For this purpose it does not matter whether the withdrawals were elective or were RMDs. Once the money comes out of the plan it is exposed. Any money remaining in the plan is protected.

If you leave that same $1M in retirement to anyone other than your spouse, then the entire $1M is exposed, whether they take the money out or leave it in.

The value of both the conduit and accumulation trusts is in protecting the assets in the plan. Even with a conduit trust, the money that stays in the retirement account is protected from creditors. The protection comes from the trust, not from the retirement plan. With a conduit trust any withdrawals from the retirement plan lose their protection because they immediately go to the beneficiary.

With an accumulation trust the assets are protected as long as they are in the trust. They are protected while in the retirement plan. Again, the protection comes from the trust, not from the retirement plan. When the money is withdrawn from the retirement plan it stays protected as long as it remains in the trust.

Income tax considerations. Currently trusts get to high tax brackets at low income levels. But a trust invested in a broad stock fund would have dividend income on the order of 2% per year. Any muni bonds would escape federal taxation altogether. So the tax hit may be low. If minimizing federal tax were the primary concern, the trustee would distribute to the beneficiary the amount of income that would be taxed at a lower rate on the beneficiary's return than on the trust return. If the beneficiary is employed this probably would not be all the income. More likely it would be some or none of the income, depending on the beneficiary's marginal tax rate.

The accumulation trust permits this sort of tax optimization. The conduit trust does not, since all the RMDs go to the beneficiary, regardless of the tax implications.
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Re: Do I really need a trust?

Post by bsteiner » Sat Aug 12, 2017 9:08 pm

WoodSpinner wrote:
Thu Aug 10, 2017 10:22 pm

Went to see an attorney about doing a trust and was quoted a price of $3200 for a trust, will, PoAs etc.

She advised against having the trust be beneficiaries of my 401K/ IRA (which is 80% of my estate, mid 7 figures).

Suggested we put the house and the Taxable account into the trust.

We live in CA which does have some nasty probate costs, but best I can tell there won't be anything that has to go through probate. All of the accounts have PoD beneficiaries (wife first, then daughter) and alternates set up. House is jointly owned with my wife.

I do have a current will (Nola Press Willmaker) and have been revising it regularly.

I do not expect to be hit with Fed or State Estate taxes (would love to have to deal with that problem :) ).

Seems to me that $3200 for a trust is overkill to protect a small part of the estate.

For $59 you can do a simple Living Trust through Nolo and protect against the probate risk of both My wife and I dying at the same time and leaving my daughter to deal with the house. I have read Beyond the Grave ( great book) but don't see any real complexities that I have to deal with at this point. I trust both of them to manage the money ( with some help from an FA).

Questions:
  • - Am I missing any significant advantages?
    - Any missing risks?
    - Can I trust Nolo Press to put together the trust/willdocuments with the right rigor?
    -Any other questions I should be researching?
The question in the subject line is probably the least important issue, so I'll deal with it last.

Condon's book is useful. However, he focuses on the two end points (providing for children outright and providing for children in trusts that they don't control). Most of our clients opt for a middle ground, where they provide for their children in trusts that the children control.

You said your retirement benefits are in the mid 7 figures. I've assumed that they're $5.5 million, since that's the midpoint between $1 million and $9,999,999. Since you said that your retirement benefits are 80% of your assets, I've assumed that your other assets are about $1.4 million, so that your total assets are about $7 million.
FIREchief wrote:
Thu Aug 10, 2017 10:50 pm
... Did she mention a separate trust specifically to receive these qualified retirement plan assets? If she is unfamiliar with such trusts, then you need to find a better attorney.
You've assumed that the original poster and his wife are providing for their daughter in trust rather than outright. Our clients almost always provide for their children in trust rather than outright. This keeps the children's inheritances out of their estates for estate tax purposes. That's no longer relevant for most people, but for a $7 million inheritance that's likely to be important. Providing for the daughter in trust rather than outright will also protect her inheritance against her creditors and spouses.

While a lawyer who can do an estate plan for $3,200 may be sufficient for many couples, it's not reasonable to expect her to be familiar with trusts for retirement benefits.
FIREchief wrote:
Fri Aug 11, 2017 12:15 am
... Perhaps the most ideal approach is to maximize Roth conversions so that RMDs held (accumulated) within the trust do not generate significant tax liabilities for the trust. ... the first-to-die spouse could leave a meaningful amount of retirement plan assets directly to your child (in trust) so as to mitigate eventual estate taxes payable by the surviving spouse.
While there are lots of benefits to a Roth conversion, in this case the original poster may not have sufficient nonretirement assets to pay the tax on a Roth conversion.

Whether to leave some of the retirement benefits to the daughter at the first death is complicated. Most married people leave their retirement benefits to the spouse so that the spouse can roll them over, possibly do Roth conversions, name new beneficiaries, and get a longer stretch. For example, if the spouse lives long enough, it may make sense for the spouse to leave some or all of the retirement benefits to or in trust for the grandchildren. On the other hand, the portability amount is not indexed for inflation, and there's no portability for the GST exemption.
FIREchief wrote:
Fri Aug 11, 2017 12:22 am
... I don't think $3200 is too much to pay for a robust and meaningful estate plan. My concern is that the lawyer selling this to the OP apparently is not familiar with qualified retirement plan trusts and may just be selling a "turn the crank" boilerplate A/B trust. I've encountered several such "trust mills" among local attorneys (very nicely dressed folks in nice offices in nice parts of town), but by the end of the initial consultations I concluded that I knew more about these things from my own research than they appeared to know from their law school, continuing education, etc. My favorite litmus test was to ask them if they knew who Natalie Choate was. Do you know who Natalie is?
Again, while a lawyer who can do an estate plan for $3,200 may be sufficient for many couples, you can't expect to get one who's familiar with Natalie at that price level.
letsgobobby wrote:
Fri Aug 11, 2017 12:33 am
... Bruce Steiner has also written about trusts for retirement accounts and does post here regularly. ...
Thanks for the kind words.

Here's my article in the March 2004 issue of BNA Tax Management's Estates, Gifts & Trusts Journal on trusts as beneficiaries of retirement benefits: https://www.elderlawanswers.com/Documen ... nefits.pdf; and here's my article in the April 2013 issue of Trusts & Estates on Roth conversions: http://kkwc.com/wp-content/uploads/2015 ... r_ATRA.pdf.
FIREchief wrote:
Fri Aug 11, 2017 3:47 am
... A conduit trust forces the RMDs to be paid out to the beneficiary(s) as they are withdrawn from the inherited IRAs. An accumulation trust allows some or all of the RMDs to be retained within the trust. Since a conduit trust forces a stream of payouts, it doesn't provide robust asset protection. ...
For these reasons, conduit trusts for children or grandchildren rarely make any sense. I don't know why there's so much discussion of this point.
afan wrote:
Fri Aug 11, 2017 8:47 am
... I suggest you do what many of us bsteiner groupies do: Search for and read all his posts. There is a tremendous amount of expert information, explained for a lay readership. Much easier going than Choate's book. ....
Thanks for the kind words.
FIREchief wrote:
Fri Aug 11, 2017 4:21 pm
...
afan wrote:... Last year the Senate Finance Committee unanimously passed a provision that would eliminate the lifetime stretch for inherited retirement assets. If that makes it into law, then the conduit trust would do nearly nothing. Beneficiaries would be forced to take all the money out over a short time and then remove it from the trust.
Although we can't discuss the topic here, folks who are interested may wish to review the following paper:

https://www.ataxplan.com/wp-content/upl ... ebsite.pdf
I think the practical approach is to draft based on current law, and revisit it if this change is enacted.
pfrank wrote:
Fri Aug 11, 2017 5:02 pm
... Once we had kids, we met with an estate attorney. ... He did the revocable trust, wills, power of attorney, living will, and health care proxies for $4,500 (I live in MA). ...
Revocable trusts used to make sense in Massachusetts. The probate process in Massachusetts used to be more complicated. However, Massachusetts enacted the Uniform Probate Code effective in 2012, which greatly simplified the process. Massachusetts also used to require trusts under a Will to file periodic accountings. However, Massachusetts also adopted the Uniform Trust Code effective in 2012, which eliminated this requirement. So in most cases there's no longer any need for a revocable trust in Massachusetts.

Turning to the subject line for this thread, you can put the same dispositive terms in your Will or in a revocable trust. The benefits of doing a good job with respect to the dispositive provisions are likely to be many times greater than any difference in cost between doing or not doing a revocable trust.

While people often discuss costs, the issue is more a matter of nuisance than a matter of cost. There's much more to do with the court in California than in most states.

Professor David Horton of the University of California, Davis, School of Law examined every estate in Alameda County (Oakland) in a single year, and wrote about it in the Georgetown Law Review: https://georgetownlawjournal.org/articl ... robate/pdf. His analysis is balanced, and is thus worth reading.

In this case, the spouse or daughter would probably be the executor, and probably wouldn't charge executor's commissions (fees). If the lawyer works based on the statutory schedule for attorneys' fees, since the retirement benefits are 80% of the estate, and pass outside the Will, if the legal fees are based on the statutory schedule, and applied only to the probate assets, they're likely to be on the low side for an estate of this size.

Nevertheless, revocable trusts are commonly used in California. So the lawyer may be able to do them more efficiently than in a state where they're not commonly used.

Again, this is probably the least important issue.

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Re: Do I really need a trust?

Post by FIREchief » Sat Aug 12, 2017 10:28 pm

Glad you weighed in Bruce.
bsteiner wrote:
Sat Aug 12, 2017 9:08 pm

FIREchief wrote:
Thu Aug 10, 2017 10:50 pm
... Did she mention a separate trust specifically to receive these qualified retirement plan assets? If she is unfamiliar with such trusts, then you need to find a better attorney.
You've assumed that the original poster and his wife are providing for their daughter in trust rather than outright. Our clients almost always provide for their children in trust rather than outright. Providing for the daughter in trust rather than outright will also protect her inheritance against her creditors and spouses.

While a lawyer who can do an estate plan for $3,200 may be sufficient for many couples, it's not reasonable to expect her to be familiar with trusts for retirement benefits.
I did not assume that they were leaving the retirement benefits (80% of the estate) to their daughter in trust. If fact, the OP specifically indicated that the lawyer they were seeing (for some reasons) recommended they NOT do this. You mention that most of your clients do provide for their children in trust, and I also did assume that the OP may be wise to do so.

I never suggested that it was reasonable to expect the $3200 lawyer to be familiar with retirement plan trusts. I did suggest that if this lawyer was not, that they may need a different lawyer. We may be saying the same things here. :confused
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Re: Do I really need a trust?

Post by FIREchief » Sat Aug 12, 2017 10:32 pm

bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
FIREchief wrote:
Fri Aug 11, 2017 12:15 am
... Perhaps the most ideal approach is to maximize Roth conversions so that RMDs held (accumulated) within the trust do not generate significant tax liabilities for the trust. ... the first-to-die spouse could leave a meaningful amount of retirement plan assets directly to your child (in trust) so as to mitigate eventual estate taxes payable by the surviving spouse.
While there are lots of benefits to a Roth conversion, in this case the original poster may not have sufficient nonretirement assets to pay the tax on a Roth conversion.
Nevertheless, there are scenarios where it would be wise to use tIRA retirement assets to pay for the Roth conversions. This is generally considered unwise as a "rule of thumb," but in some specific situations it may be a wise thing to do if the Roth assets will ultimately be left in trust for non-spouse beneficiaries.
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Re: Do I really need a trust?

Post by FIREchief » Sat Aug 12, 2017 10:37 pm

bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
FIREchief wrote:
Fri Aug 11, 2017 12:22 am
... I don't think $3200 is too much to pay for a robust and meaningful estate plan. My concern is that the lawyer selling this to the OP apparently is not familiar with qualified retirement plan trusts and may just be selling a "turn the crank" boilerplate A/B trust.

I've encountered several such "trust mills" among local attorneys (very nicely dressed folks in nice offices in nice parts of town), but by the end of the initial consultations I concluded that I knew more about these things from my own research than they appeared to know from their law school, continuing education, etc. My favorite litmus test was to ask them if they knew who Natalie Choate was. Do you know who Natalie is?
Again, while a lawyer who can do an estate plan for $3,200 may be sufficient for many couples, you can't expect to get one who's familiar with Natalie at that price level.
Again, I never suggested that a $3200 lawyer would be familiar with Natalie. That said, I know of a few $5000 lawyers who have at least heard her name and reference to her book (from me) :D . Hopefully, the OP (and anybody else in this situation) will simply keep looking!
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Sat Aug 12, 2017 10:43 pm

bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
FIREchief wrote:
Fri Aug 11, 2017 3:47 am
... A conduit trust forces the RMDs to be paid out to the beneficiary(s) as they are withdrawn from the inherited IRAs. An accumulation trust allows some or all of the RMDs to be retained within the trust. Since a conduit trust forces a stream of payouts, it doesn't provide robust asset protection. ...
For these reasons, conduit trusts for children or grandchildren rarely make any sense. I don't know why there's so much discussion of this point.
One of the earlier posters indicated that they didn't understand conduit vs. accumulation, so a couple of us were trying to help them understand the issues. I think you've echoed our thoughts, so thanks for helping with that. 8-)
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Re: Do I really need a trust?

Post by FIREchief » Sat Aug 12, 2017 10:50 pm

bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
FIREchief wrote:
Fri Aug 11, 2017 4:21 pm
...
afan wrote:... Last year the Senate Finance Committee unanimously passed a provision that would eliminate the lifetime stretch for inherited retirement assets. If that makes it into law, then the conduit trust would do nearly nothing. Beneficiaries would be forced to take all the money out over a short time and then remove it from the trust.
Although we can't discuss the topic here, folks who are interested may wish to review the following paper:

https://www.ataxplan.com/wp-content/upl ... ebsite.pdf
I think the practical approach is to draft based on current law, and revisit it if this change is enacted.
I agree with this with respect to drafting of trusts at this time. That said, the various potential future scenarios do need to be considered with respect to financial and tax planning. We each have decisions to make for our own situations. If one wishes to rule out death of the stretch, then Roth conversions are much less important. If one wishes to plan/allow for the worst (ref: afan post quoted above), then Roth conversions can be considered much more critical. At 21 years, somewhere in between. There are many other parallels in financial planning that are addressed in the same manner (e.g. what is the market going to do, how long am I going to live, etc.). The prudent approach is to go in with eyes wide open and consider as many scenarios as possible.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Do I really need a trust?

Post by WoodSpinner » Sun Aug 13, 2017 8:51 pm

bsteiner,

Many thanks for your response and suggestions--your insights are highly valued and appreciated.

Please see my replies in-line below:
bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
The question in the subject line is probably the least important issue, so I'll deal with it last.

Condon's book is useful. However, he focuses on the two end points (providing for children outright and providing for children in trusts that they don't control). Most of our clients opt for a middle ground, where they provide for their children in trusts that the children control.
Actually that was my starting assumption when I first sat down with the attorney to discuss matters. I thought a Trust for my DW that she could control and then on her passing, one for my DD that she would control. I was a bit thrown-off my game plan when the attorney indicated that we should not having a Trust as a beneficiary of our Retirement Account assets (IRA, 401K, Roth, and Defined Benefit Pension plan).

From your perspective, is that a good indication that I need to continue looking for another Attorney? Or is that a reasonable conclusion given the significant downside to using an Accumulation Trust (e.g. tax implications) given my situation.

bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
Again, while a lawyer who can do an estate plan for $3,200 may be sufficient for many couples, you can't expect to get one who's familiar with Natalie at that price level.
Forgive my sticker shock :shock: -- what price level should I be expecting?

bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
Here's my article in the March 2004 issue of BNA Tax Management's Estates, Gifts & Trusts Journal on trusts as beneficiaries of retirement benefits: https://www.elderlawanswers.com/Documen ... nefits.pdf; and here's my article in the April 2013 issue of Trusts & Estates on Roth conversions: http://kkwc.com/wp-content/uploads/2015 ... r_ATRA.pdf.
Thanks -- I will give both of those articles a read--although I might need a translator for the first, :shock: . I am planning a fairly aggressive Roth Conversion schedule over the next 12 years (I retire Dec2017) starting next year through age 70 when RMDS begin.
bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
Turning to the subject line for this thread, you can put the same dispositive terms in your Will or in a revocable trust. The benefits of doing a good job with respect to the dispositive provisions are likely to be many times greater than any difference in cost between doing or not doing a revocable trust.

I think this is a key point--which brings me back to the crux of my real question, have I done a good job in putting together the provisions of my estate plan so far? To be honest, I think I done well on the basics but wonder if I could be doing better or if I have missed something important.

Thanks for all of your insights and advice, its really much appreciated. 8-)



LarryAllen
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Re: Do I really need a trust?

Post by LarryAllen » Sun Aug 13, 2017 9:01 pm

FIREchief wrote:
Fri Aug 11, 2017 12:22 am
Minty wrote:I am a California lawyer, and even though it kills me that I can't get someone to do it for me for free, I just pay for my will and trust. Seen too many car crashes with diy in this area.
Just to clarify, I don't think $3200 is too much to pay for a robust and meaningful estate plan. My concern is that the lawyer selling this to the OP apparently is not familiar with qualified retirement plan trusts and may just be selling a "turn the crank" boilerplate A/B trust. I've encountered several such "trust mills" among local attorneys (very nicely dressed folks in nice offices in nice parts of town), but by the end of the initial consultations I concluded that I knew more about these things from my own research than they appeared to know from their law school, continuing education, etc. My favorite litmus test was to ask them if they knew who Natalie Choat was. Do you know who Natalie is?
I have seen her speak several times, have met her and it's Choate. I guess I pass!? :)

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bengal22
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Re: Do I really need a trust?

Post by bengal22 » Sun Aug 13, 2017 9:17 pm

Maybe I am being foolish but I live in Ohio and I do not see any reason whatsoever for a trust. I did a DIY will based upon my FIL and I set up beneficiaries for my mutual funds and IRA's. I realize that when I pass on my wife will have to redo these beneficiaries to pass things on to the kids(currently they are secondary beneficiaries). Currently, the oldest child would have to sell the house and vehicles and possesions and then split the proceeds equally. Everything else will just be passed on as a beneficiaries. From my experience as an executor without a lawyer, the system tries to make the whole estate thing seem more complicated than what it is. A lawyer wanted 5K to execute my FIL's estate and we did it ourselves for court cost - $295.

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Re: Do I really need a trust?

Post by bsteiner » Sun Aug 13, 2017 9:30 pm

WoodSpinner wrote:
Sun Aug 13, 2017 8:51 pm
bsteiner,

Many thanks for your response and suggestions--your insights are highly valued and appreciated.
...
bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
...
Condon's book is useful. However, he focuses on the two end points (providing for children outright and providing for children in trusts that they don't control). Most of our clients opt for a middle ground, where they provide for their children in trusts that the children control.
Actually that was my starting assumption when I first sat down with the attorney to discuss matters. I thought a Trust for my DW that she could control and then on her passing, one for my DD that she would control. I was a bit thrown-off my game plan when the attorney indicated that we should not having a Trust as a beneficiary of our Retirement Account assets (IRA, 401K, Roth, and Defined Benefit Pension plan).

From your perspective, is that a good indication that I need to continue looking for another Attorney? Or is that a reasonable conclusion given the significant downside to using an Accumulation Trust (e.g. tax implications) given my situation.
...
Most people leave their retirement benefits to their spouse outright. That lets the spouse roll them over into his/her own IRA, name new beneficiaries, possibly do Roth conversions, and get a longer stretch. While there's sometimes a compelling reason to leave the retirement benefits in trust for the spouse outright, that limits the stretch to the spouse's life expectancy.

You might leave your other assets to your wife in trust rather than outright.

You can leave the retirement benefits to your daughter in trust at the surviving spouse's death. You wouldn't leave the retirement benefits to the revocable trust (if you create one). Rather, you would leave them to a trust for the benefit of your daughter. The trust for the benefit of your daughter could be in your Will, in a revocable trust, or in some other trust instrument.

Except for the price level, you didn't provide enough information for anyone to be able to know whether the lawyer is a reasonable choice.

What is "the significant downside to using an accumulation trust?" How else would you leave the retirement benefits to your daughter?
WoodSpinner wrote:
Sun Aug 13, 2017 8:51 pm
...
bsteiner wrote:
Sat Aug 12, 2017 9:08 pm
Again, while a lawyer who can do an estate plan for $3,200 may be sufficient for many couples, you can't expect to get one who's familiar with Natalie at that price level.
Forgive my sticker shock -- what price level should I be expecting?
That depends on where the lawyer is located, the level of the lawyer, and the level of the law firm. Given the amount involved (the information you provided suggests about $7 million), and most of it being retirement benefits, you may want to work with a lawyer who deals with estates of this size and the issues discussed in this thread. ...

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FIREchief
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Re: Do I really need a trust?

Post by FIREchief » Sun Aug 13, 2017 11:31 pm

LarryAllen wrote:
Sun Aug 13, 2017 9:01 pm
FIREchief wrote:
Fri Aug 11, 2017 12:22 am
Minty wrote:I am a California lawyer, and even though it kills me that I can't get someone to do it for me for free, I just pay for my will and trust. Seen too many car crashes with diy in this area.
Just to clarify, I don't think $3200 is too much to pay for a robust and meaningful estate plan. My concern is that the lawyer selling this to the OP apparently is not familiar with qualified retirement plan trusts and may just be selling a "turn the crank" boilerplate A/B trust. I've encountered several such "trust mills" among local attorneys (very nicely dressed folks in nice offices in nice parts of town), but by the end of the initial consultations I concluded that I knew more about these things from my own research than they appeared to know from their law school, continuing education, etc. My favorite litmus test was to ask them if they knew who Natalie Choat was. Do you know who Natalie is?
I have seen her speak several times, have met her and it's Choate. I guess I pass!? :)
Yeah, you pass Larry. Congrats! :sharebeer

(We might have to bump you down from A+ to A for that small (justified) amount of nit-picking. :D My new mantra: If my lawyer knows how to spell Choate, I don't need to.)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

DrGoogle2017
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Re: Do I really need a trust?

Post by DrGoogle2017 » Mon Aug 14, 2017 12:47 pm

I just signed on recently to participate in this thread. I want to thank OP for starting this thread because I've now realized I have a wrong type of trust. It was set up very quickly after we had a major accident, plus several laws passed since 2011 when the trust was first set up. Despite paying nearly $5000 and 2-year maintenance for $800, the law firm never told us that the A/B trust might not be the best way to move forward, hence my reservation of going back to them.
I want a very simple trust to pass my real estate properties to my children, that's it. My IRA or other financial accounts already have them listed as beneficiaries. I don't just want a TOD for my real estate properties. I want a trust for health care directives also and a slew of other stuff with it.

I'm thinking of doing it myself through NOLO or LegalZoom. However, I have a question for those who plan to DIY your trust and will, how do you deal with the notarization process. How many people have to witness this process? I usually do my notarization at my bank with one person. Can I ask the bank to provide another witness. This is the part of most nervous about and thinking of going to the law office just in case. Thanks ahead for any advice.

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