Will or Trust?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
User avatar
Topic Author
Artful Dodger
Posts: 927
Joined: Thu Oct 20, 2016 12:56 pm

Will or Trust?

Post by Artful Dodger » Mon Jun 18, 2018 3:30 pm

Hi All,

I'm looking for advice and/or what other people do with their estate planning.

When my parents died in 2001 and 2004, I was power of attorney and executor of the will. I'm one of two brothers. My parents had a simple will. When dad died, all went to mom. When mom died, my brother and I split the estate 50/50. Everything worked out well. At mom's death, my attorney prepared the necessary papers to probate the will. The estate wasn't large: about $220K in savings and a house worth $80k.

Likewise, when my wife's mother passed, she was executor, and split up her mom's assets between the four children.

Both seemed simple and worked out well.

Now to our case. Fifteen years ago, we met with an estate planning attorney to do our will. At the time, we had two minor children, 15 and 12. We named my wife's brother as our children's guardian. We also set up a revocable trust so that should one or both of us decease, most of the assets would go into the trust. If both of us are deceased, then my wife's brother would be trustee. Under the original agreement, each child's share of the trust assets would be distributed at age 25 (one half), then balance at age 30.

We are now fifteen years later. Our oldest is 30, has a Master's degree, is employed, and very responsible. Our younger, spent a few years travelling the world, but is now back at home and going to school. She handles her money fine, but is not used to having much money.

We met with our attorney a few weeks ago to update our estate. Our attorney thinks we should continue the trust. She feels it offers more protection to us, my wife and I, than a regular will. If we both pass, the trust will be set up for the girls. I would probably extend the time to for them to take full control by another five years. Our attorney also feels this is some protection to the girls if they get married and it doesn’t work out, the trust will keep some assets out of their marital property.

My wife and I are 63 (me) and 65 (her). Total current assets including whole life, investments, and retirement accounts are $2.3 million. House is worth $325,000. We still have an $80,000 mortgage on the house.

If we keep the trust, I will remove my wife’s brother as trustee. He was named originally as he and his wife would have been their guardians if we deceased, but he’s not the best choice as trustee for adult children. I’ve talked to Fidelity Investments, and they have trust services, and could serve as co-trustee. This would add some cost (an advisor fee plus the trust services fee), but spouse and kids would have some handholding on the investment side which wouldn’t be all bad.

I keep coming back to what our parents did was so simple, and it worked out, and every time I think about this trust, I get a headache. But, at the same time, maybe having someone look over the money, at least for the kids for a short time, would be a good idea. Plus, anything that would help protect my wife or myself from being scammed in old age is good.

So, what do you do? What would you advise in my circumstances. Will or trust? What have you done with your plan?

Thanks!

kaudrey
Posts: 1027
Joined: Fri Nov 22, 2013 2:40 pm

Re: Will or Trust?

Post by kaudrey » Mon Jun 18, 2018 3:34 pm

We have about $3M in assets, my DH has a bunch of kids from a prior marriage, and we just have wills. The retirement accounts are not part of the estate, as they will pass directly to the beneficiaries. So will the life insurance. Just set up everything else to be split 50/50, and move on from there.

delamer
Posts: 10117
Joined: Tue Feb 08, 2011 6:13 pm

Re: Will or Trust?

Post by delamer » Mon Jun 18, 2018 3:41 pm

Our two children are a couple years younger than yours. Our assets are roughly the same.

There is no way I’d hand that kind of money over to a couple of young adults, regardless of how responsible they were.

Keep the trusts.

User avatar
Pajamas
Posts: 6015
Joined: Sun Jun 03, 2012 6:32 pm

Re: Will or Trust?

Post by Pajamas » Mon Jun 18, 2018 3:45 pm

Artful Dodger wrote:
Mon Jun 18, 2018 3:30 pm
Our attorney thinks we should continue the trust. She feels it offers more protection to us, my wife and I, than a regular will. If we both pass, the trust will be set up for the girls. I would probably extend the time to for them to take full control by another five years. Our attorney also feels this is some protection to the girls if they get married and it doesn’t work out, the trust will keep some assets out of their marital property.

But, at the same time, maybe having someone look over the money, at least for the kids for a short time, would be a good idea. Plus, anything that would help protect my wife or myself from being scammed in old age is good.
All of this makes a lot of sense.

In particular, 30% of first marriages end in divorce. Having the trust established by you and your wife protects your daughters in a worse-case scenario without the awkwardness of a prenup.

straws46
Posts: 223
Joined: Fri Jul 03, 2015 11:12 am

Re: Will or Trust?

Post by straws46 » Mon Jun 18, 2018 3:54 pm

If you currently have a trust, I assume you were told to make the trust the beneficiary of your insurance policies and your retirement accounts. Having a trust agreement is of little value if you don't fund the trust with all the assets you want controlled by that document. You may want to follow your attorney's advice and maintain the trusts in order to avoid probate and keep your original plan intact. You should revisit the question as soon as you think both children can handle the inheritance. At that time you could look into transfer on death ownership to the extent permitted in your state.

User avatar
FIREchief
Posts: 4576
Joined: Fri Aug 19, 2016 6:40 pm

Re: Will or Trust?

Post by FIREchief » Mon Jun 18, 2018 4:05 pm

Artful Dodger wrote:
Mon Jun 18, 2018 3:30 pm
We met with our attorney a few weeks ago to update our estate. Our attorney thinks we should continue the trust. She feels it offers more protection to us, my wife and I, than a regular will. If we both pass, the trust will be set up for the girls. I would probably extend the time to for them to take full control by another five years. Our attorney also feels this is some protection to the girls if they get married and it doesn’t work out, the trust will keep some assets out of their marital property.

My wife and I are 63 (me) and 65 (her). Total current assets including whole life, investments, and retirement accounts are $2.3 million. House is worth $325,000. We still have an $80,000 mortgage on the house.
With that level of assets, you should absolutely consider keeping them in trust for your heirs. You described the original trust as having mandatory payouts at ages 25 and 30. A more desirable approach (for asset protection purposes) would be to give you children the rights to serve as co or sole trustee upon achieving a defined age, with no mandatory payouts. It sounds like your older child would be ready now. An independent trustee could be appointed to serve during the time prior to 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.

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Mon Jun 18, 2018 5:09 pm

People are conflating two different issues: whether to create a revocable trust, and whether to provide for your children outright or in trust.

You can put the same dispositive provisions (who gets what, and under what terms) either in a Will or in a revocable trust.

Revocable trusts make sense in some cases and in some states, mainly California. But they're overhyped and oversold, and for most people, in most states, aren't necessary. But you already have one. So you could keep it, without regard to whether it was appropriate to begin with.

You used the word "we" in the plural and the word "trust" in the singular. A single trust for a couple fits community property, and is commonly used in California. It tends not to fit in a state that's not a community property state. Are you in California?

By far the more important issue is whether to provide for your children in trust rather than outright. I agree with FIREchief to provide for your children in trust rather than outright. If it's appropriate, you can give each child effective control over her trust at a specified age.

afan
Posts: 4900
Joined: Sun Jul 25, 2010 4:01 pm

Re: Will or Trust?

Post by afan » Mon Jun 18, 2018 5:14 pm

Under Firechief's suggestion the kids could hire Fidelity, or any other corporate trustee, if they wanted one. They should be able to replace the corporate trustee. You would need your lawyer to carefully construct this so that the trust assets are not deemed to be so under their control that they own them, but this is routine for a qualified trusts and estates attorney.

Apparently there was a time when the corporate trust business was extremely stable. But the changes in the industry have brought new companies like Vanguard, Fidelity and Schwab into the field. Many trust companies have been sold and merged. No matter how happy you might be with a company now, it is not reasonable to assume that the features you like will be permanent.

We have our assets going in trust to our kids after our deaths. The kids will be their own trustees. They can hire investment advisors or corporate trustees if they want. At least one would take the typical boglehead amusement at the notion that they need any help.

A major advantage of a revocable trust applies while you are alive. If you become incapacitated it can be far easier for someone, already appointed as co trustee, to take over to manage your affairs. Durable powers of attorney are often ignored by financial institutions. Once you die the trusts set up in a will could be exactly the same as trusts set up in your revocable trust. But while you are alive the will does nothing for you.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

User avatar
cheese_breath
Posts: 9561
Joined: Wed Sep 14, 2011 7:08 pm

Re: Will or Trust?

Post by cheese_breath » Mon Jun 18, 2018 6:52 pm

Both. The will is to catch anything you forgot to put into the trust.
The surest way to know the future is when it becomes the past.

pkay
Posts: 141
Joined: Wed Jan 17, 2018 11:04 am

Re: Will or Trust?

Post by pkay » Mon Jun 18, 2018 7:02 pm

bsteiner wrote:
Mon Jun 18, 2018 5:09 pm

Revocable trusts make sense in some cases and in some states, mainly California. But they're overhyped and oversold, and for most people, in most states, aren't necessary. But you already have one. So you could keep it, without regard to whether it was appropriate to begin with.

You used the word "we" in the plural and the word "trust" in the singular. A single trust for a couple fits community property, and is commonly used in California. It tends not to fit in a state that's not a community property state. Are you in California?

By far the more important issue is whether to provide for your children in trust rather than outright. I agree with FIREchief to provide for your children in trust rather than outright. If it's appropriate, you can give each child effective control over her trust at a specified age.
Following this thread because we are getting ready to do estate planning. We live in VA. Spouse and I have our respective life insurance policies, retirement accounts, Roth IRA accounts, and savings account and one brokerage account. The life insurance policies are for $2mil and $250k. Other accounts total to about $500k. We have children under 5 yo. Also wrestling with if we should set up a trust or just a will. Do you have any thoughts? Based on your response, it seems like people with young children should set up a trust. Welcome discussion and advice.

afan
Posts: 4900
Joined: Sun Jul 25, 2010 4:01 pm

Re: Will or Trust?

Post by afan » Mon Jun 18, 2018 7:05 pm

Not everything you own can go into a trust.
If people owe you money, for example, that may be a debt repaid to you, or your estate, not your trust. The will would indicate that any such things would be added to the trust.

People with children should set up trusts to hold the assets for the children if both parents die while the children are minors or adults but too young to manage the money. This sort of trust can be established using a revocable living trust or a will.

The main advantages of the revocable living trust are
Easier for someone to manage your affairs if you become incapacitated.
Can avoid ancillary administration if you own property in more than one state.
Avoids probate, but as bsteiner points out, this may or may not be a major consideration.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

User avatar
Topic Author
Artful Dodger
Posts: 927
Joined: Thu Oct 20, 2016 12:56 pm

Re: Will or Trust?

Post by Artful Dodger » Mon Jun 18, 2018 7:16 pm

afan wrote:
Mon Jun 18, 2018 5:14 pm
Under Firechief's suggestion the kids could hire Fidelity, or any other corporate trustee, if they wanted one. They should be able to replace the corporate trustee. You would need your lawyer to carefully construct this so that the trust assets are not deemed to be so under their control that they own them, but this is routine for a qualified trusts and estates attorney.
I'll check that out with our attorney. Thanks
Apparently there was a time when the corporate trust business was extremely stable. But the changes in the industry have brought new companies like Vanguard, Fidelity and Schwab into the field. Many trust companies have been sold and merged. No matter how happy you might be with a company now, it is not reasonable to assume that the features you like will be permanent
Good point.
We have our assets going in trust to our kids after our deaths. The kids will be their own trustees. They can hire investment advisors or corporate trustees if they want. At least one would take the typical boglehead amusement at the notion that they need any help.
Hopefully, I'll have enough time to educate them in Boglehead principles. Some of the desire for the corporate trustee is if something would happen to the two of us sooner rather than later.
A major advantage of a revocable trust applies while you are alive. If you become incapacitated it can be far easier for someone, already appointed as co trustee, to take over to manage your affairs. Durable powers of attorney are often ignored by financial institutions. Once you die the trusts set up in a will could be exactly the same as trusts set up in your revocable trust. But while you are alive the will does nothing for you.

User avatar
Topic Author
Artful Dodger
Posts: 927
Joined: Thu Oct 20, 2016 12:56 pm

Re: Will or Trust?

Post by Artful Dodger » Mon Jun 18, 2018 7:17 pm

cheese_breath wrote:
Mon Jun 18, 2018 6:52 pm
Both. The will is to catch anything you forgot to put into the trust.
We do have both, plus POAs.

User avatar
Topic Author
Artful Dodger
Posts: 927
Joined: Thu Oct 20, 2016 12:56 pm

Re: Will or Trust?

Post by Artful Dodger » Mon Jun 18, 2018 7:19 pm

bsteiner wrote:
Mon Jun 18, 2018 5:09 pm
People are conflating two different issues: whether to create a revocable trust, and whether to provide for your children outright or in trust.

You can put the same dispositive provisions (who gets what, and under what terms) either in a Will or in a revocable trust.

Revocable trusts make sense in some cases and in some states, mainly California. But they're overhyped and oversold, and for most people, in most states, aren't necessary. But you already have one. So you could keep it, without regard to whether it was appropriate to begin with.

You used the word "we" in the plural and the word "trust" in the singular. A single trust for a couple fits community property, and is commonly used in California. It tends not to fit in a state that's not a community property state. Are you in California?

By far the more important issue is whether to provide for your children in trust rather than outright. I agree with FIREchief to provide for your children in trust rather than outright. If it's appropriate, you can give each child effective control over her trust at a specified age.
There are two wills, sets of POAs, and two revocable trusts. We're in Illinois.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: Will or Trust?

Post by golfCaddy » Mon Jun 18, 2018 7:20 pm

Think about what you're trying to accomplish with the trust.

1) avoid estate taxes - you're well below the federal limits, but there still might be state estate or inheritance taxes to think about
2) control from the grave - you don't trust your kid to invest the money properly or not waste it all on unnecessary spending. If this is your primary motive, it'll dictate how the trust is setup because this purpose is in direct opposition to the idea of giving your kids "effective control of the trust."
3) asset protection - divorce - Divorce rates are 30%+ for first marriages. To me, this is the most compelling reason to leave money in a trust. You don't want your kids future spouses to get half their inheritance in a divorce. In principle, a prenup might be able to accomplish the same goal.
4) asset protection - unintentional torts - Unless your kid is in some high risk profession, ex. neurosurgeon, a reasonable size umbrella policy would provide all the protection they need. The odds of an accident causing more than $5M in damages and the plaintiff being unwilling to settle for the insurance policy limits is extremely low.
Last edited by golfCaddy on Mon Jun 18, 2018 7:27 pm, edited 1 time in total.

User avatar
Topic Author
Artful Dodger
Posts: 927
Joined: Thu Oct 20, 2016 12:56 pm

Re: Will or Trust?

Post by Artful Dodger » Mon Jun 18, 2018 7:22 pm

FIREchief wrote:
Mon Jun 18, 2018 4:05 pm
Artful Dodger wrote:
Mon Jun 18, 2018 3:30 pm
We met with our attorney a few weeks ago to update our estate. Our attorney thinks we should continue the trust. She feels it offers more protection to us, my wife and I, than a regular will. If we both pass, the trust will be set up for the girls. I would probably extend the time to for them to take full control by another five years. Our attorney also feels this is some protection to the girls if they get married and it doesn’t work out, the trust will keep some assets out of their marital property.

My wife and I are 63 (me) and 65 (her). Total current assets including whole life, investments, and retirement accounts are $2.3 million. House is worth $325,000. We still have an $80,000 mortgage on the house.
With that level of assets, you should absolutely consider keeping them in trust for your heirs. You described the original trust as having mandatory payouts at ages 25 and 30. A more desirable approach (for asset protection purposes) would be to give you children the rights to serve as co or sole trustee upon achieving a defined age, with no mandatory payouts. It sounds like your older child would be ready now. An independent trustee could be appointed to serve during the time prior to this.
Thanks. I'll discuss that option with my attorney.

delamer
Posts: 10117
Joined: Tue Feb 08, 2011 6:13 pm

Re: Will or Trust?

Post by delamer » Mon Jun 18, 2018 7:34 pm

My husband and my assets are not currently in a trust, such as the revocable trust that the OP and his wife apparently have.

What my husband and I both have are wills. In those wills are provisions to set up a trust for the surviving spouse if one of us predeceases the other. Should my husband and I die at the same time or at the death of the second spouse, there will be trusts set up for our two children. Each child will get half of our assets in their own trust.

So isn’t the idea of “will versus trust” a false distinction? The question regarding the children is whether they inherit assets directly or in trust, based on the provisions of the will (and how beneficiaries are identified for specific accounts)?

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Mon Jun 18, 2018 9:26 pm

pkay wrote:
Mon Jun 18, 2018 7:02 pm
bsteiner wrote:
Mon Jun 18, 2018 5:09 pm

Revocable trusts make sense in some cases and in some states, mainly California. But they're overhyped and oversold, and for most people, in most states, aren't necessary. But you already have one. So you could keep it, without regard to whether it was appropriate to begin with.

You used the word "we" in the plural and the word "trust" in the singular. A single trust for a couple fits community property, and is commonly used in California. It tends not to fit in a state that's not a community property state. Are you in California?

By far the more important issue is whether to provide for your children in trust rather than outright. I agree with FIREchief to provide for your children in trust rather than outright. If it's appropriate, you can give each child effective control over her trust at a specified age.
Following this thread because we are getting ready to do estate planning. We live in VA. Spouse and I have our respective life insurance policies, retirement accounts, Roth IRA accounts, and savings account and one brokerage account. The life insurance policies are for $2mil and $250k. Other accounts total to about $500k. We have children under 5 yo. Also wrestling with if we should set up a trust or just a will. Do you have any thoughts? Based on your response, it seems like people with young children should set up a trust. Welcome discussion and advice.
The more important thing is to provide for your children in separate trusts for their benefit. Whether you do so in a Will or in a revocable trust is less important.

User avatar
Lieutenant.Columbo
Posts: 1178
Joined: Sat Sep 05, 2015 9:20 pm
Location: Cicely AK

Re: Will or Trust?

Post by Lieutenant.Columbo » Mon Jun 18, 2018 10:14 pm

straws46 wrote:
Mon Jun 18, 2018 3:54 pm
If you currently have a trust, I assume you were told to make the trust the beneficiary of your insurance policies and your retirement accounts.
if grantor is married, trust would/should be secondary beneficiary of insurance policies & retirement accounts, correct?
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

fundseeker
Posts: 835
Joined: Mon Dec 24, 2007 9:02 am

Re: Will or Trust?

Post by fundseeker » Tue Jun 19, 2018 8:36 am

delamer wrote:
Mon Jun 18, 2018 7:34 pm
My husband and my assets are not currently in a trust, such as the revocable trust that the OP and his wife apparently have.

What my husband and I both have are wills. In those wills are provisions to set up a trust for the surviving spouse if one of us predeceases the other. Should my husband and I die at the same time or at the death of the second spouse, there will be trusts set up for our two children. Each child will get half of our assets in their own trust.

So isn’t the idea of “will versus trust” a false distinction? The question regarding the children is whether they inherit assets directly or in trust, based on the provisions of the will (and how beneficiaries are identified for specific accounts)?
I like that arrangement! :) So, is this correct?

If you're planning to leave your large estate to your adult children, you just make a will that, at the passing of the surviving spouse, sets up a separate trust for each child, and make the respective trusts (50% if you have two children) secondary beneficiary on your life insurance, TSP, Roths, etc.

Should both parents have identical wills?

Are the new "trust" documents separate from the wills of the parents?

In the will or trust documents, can you spell out when lump sums come out, or is that just up to the child, if you make the child the Trustee?

Thanks for any replies (OP, hope you don't mind my questions but I thought this was along the lines of your interest as well.)

delamer
Posts: 10117
Joined: Tue Feb 08, 2011 6:13 pm

Re: Will or Trust?

Post by delamer » Tue Jun 19, 2018 9:39 am

fundseeker wrote:
Tue Jun 19, 2018 8:36 am
delamer wrote:
Mon Jun 18, 2018 7:34 pm
My husband and my assets are not currently in a trust, such as the revocable trust that the OP and his wife apparently have.

What my husband and I both have are wills. In those wills are provisions to set up a trust for the surviving spouse if one of us predeceases the other. Should my husband and I die at the same time or at the death of the second spouse, there will be trusts set up for our two children. Each child will get half of our assets in their own trust.

So isn’t the idea of “will versus trust” a false distinction? The question regarding the children is whether they inherit assets directly or in trust, based on the provisions of the will (and how beneficiaries are identified for specific accounts)?
I like that arrangement! :) So, is this correct?

If you're planning to leave your large estate to your adult children, you just make a will that, at the passing of the surviving spouse, sets up a separate trust for each child, and make the respective trusts (50% if you have two children) secondary beneficiary on your life insurance, TSP, Roths, etc.

Should both parents have identical wills?

Are the new "trust" documents separate from the wills of the parents?

In the will or trust documents, can you spell out when lump sums come out, or is that just up to the child, if you make the child the Trustee?

Thanks for any replies (OP, hope you don't mind my questions but I thought this was along the lines of your interest as well.)
There aren’t any trust documents — the trusts for the children are created under the provisions of our wills once we are both dead (I think the term is testamentary trust).

Our children are not the trustees; we have a close friend who is taking that role. We have instructions on distributing the trust assets in our wills. But we will likely make changes to give our children more control once they are older and more established. The existing provisions are based in current circumstances; our children don’t yet have the maturity or knowledge to handle the money themselves.

My husband’s will and mine are identical except that I have an inheritance (in my name only) that will go to the children in trust when I die, even if my husband is still alive. In that case, my husband will be the trustee for the children.

User avatar
Topic Author
Artful Dodger
Posts: 927
Joined: Thu Oct 20, 2016 12:56 pm

Re: Will or Trust?

Post by Artful Dodger » Tue Jun 19, 2018 10:48 am

fundseeker wrote:
Tue Jun 19, 2018 8:36 am
delamer wrote:
Mon Jun 18, 2018 7:34 pm
My husband and my assets are not currently in a trust, such as the revocable trust that the OP and his wife apparently have.

What my husband and I both have are wills. In those wills are provisions to set up a trust for the surviving spouse if one of us predeceases the other. Should my husband and I die at the same time or at the death of the second spouse, there will be trusts set up for our two children. Each child will get half of our assets in their own trust.

So isn’t the idea of “will versus trust” a false distinction? The question regarding the children is whether they inherit assets directly or in trust, based on the provisions of the will (and how beneficiaries are identified for specific accounts)?
I like that arrangement! :) So, is this correct?

If you're planning to leave your large estate to your adult children, you just make a will that, at the passing of the surviving spouse, sets up a separate trust for each child, and make the respective trusts (50% if you have two children) secondary beneficiary on your life insurance, TSP, Roths, etc.

Should both parents have identical wills?

Are the new "trust" documents separate from the wills of the parents?

In the will or trust documents, can you spell out when lump sums come out, or is that just up to the child, if you make the child the Trustee?

Thanks for any replies (OP, hope you don't mind my questions but I thought this was along the lines of your interest as well.)
No problem, fundseeker. As I read these, I'm getting more questions to ask my attorney. I expect what happens is as delamer says. We have a will, then at death, most assets (those listed to make the trust beneficiary) pour over to the trust. I do want to clarify whether for the children there would be separate trusts as that seems to make the most sense.

ras4250
Posts: 137
Joined: Tue Mar 04, 2014 1:25 pm

Re: Will or Trust?

Post by ras4250 » Tue Jun 19, 2018 11:18 am

just make sure you also understand the costs that go into maintaining a trust. You have to pay the trustee (if it is not the kids). Sometimes you have to pay a lawyer if issues arise. You have to pay an accountant to file the trust returns each year. These add up. A trustee will take a commission of the trust value. Unless the assets are very significant the costs might outweigh any benefits. Also think before naming friends or family as trustee. It could become a real pain to administer.

Kompass
Posts: 168
Joined: Sat Oct 01, 2016 5:42 pm

Re: Will or Trust?

Post by Kompass » Tue Jun 19, 2018 11:52 am

afan wrote:
Mon Jun 18, 2018 5:14 pm
Apparently there was a time when the corporate trust business was extremely stable. But the changes in the industry have brought new companies like Vanguard, Fidelity and Schwab into the field. Many trust companies have been sold and merged. No matter how happy you might be with a company now, it is not reasonable to assume that the features you like will be permanent.
+1

Something to consider if the trust is set up to last the life of the beneficiary eg. special needs etc.
ras4250 wrote:
Tue Jun 19, 2018 11:18 am
just make sure you also understand the costs that go into maintaining a trust. You have to pay the trustee (if it is not the kids). Sometimes you have to pay a lawyer if issues arise. You have to pay an accountant to file the trust returns each year. These add up. A trustee will take a commission of the trust value. Unless the assets are very significant the costs might outweigh any benefits. Also think before naming friends or family as trustee. It could become a real pain to administer.
+1

It is also possible that state laws could be involved or change, worth checking.
The large print giveth and the fine print taketh away.

JBTX
Posts: 6332
Joined: Wed Jul 26, 2017 12:46 pm

Re: Will or Trust?

Post by JBTX » Tue Jun 19, 2018 12:40 pm

We have a revocable living trust, which in retrospect may not be needed but it is helpful in that my parents can make the trust as beneficiary and not worry about having to change beneficiary if I am hit by a bus.

We have separate trusts set up for both kids, via the living trust, and they are set up to hold assets for their lifetime and go through a trusted financially savvy relative. Last iteration we decided that neither one will probably be great with money in early adulthood.

As suggested by others if you feel the kids will be responsible make them the co-trustee or eventually even primary trustee.
Last edited by JBTX on Sat Aug 04, 2018 6:50 pm, edited 2 times in total.

delamer
Posts: 10117
Joined: Tue Feb 08, 2011 6:13 pm

Re: Will or Trust?

Post by delamer » Tue Jun 19, 2018 12:41 pm

Artful Dodger wrote:
Tue Jun 19, 2018 10:48 am
fundseeker wrote:
Tue Jun 19, 2018 8:36 am
delamer wrote:
Mon Jun 18, 2018 7:34 pm
My husband and my assets are not currently in a trust, such as the revocable trust that the OP and his wife apparently have.

What my husband and I both have are wills. In those wills are provisions to set up a trust for the surviving spouse if one of us predeceases the other. Should my husband and I die at the same time or at the death of the second spouse, there will be trusts set up for our two children. Each child will get half of our assets in their own trust.

So isn’t the idea of “will versus trust” a false distinction? The question regarding the children is whether they inherit assets directly or in trust, based on the provisions of the will (and how beneficiaries are identified for specific accounts)?
I like that arrangement! :) So, is this correct?

If you're planning to leave your large estate to your adult children, you just make a will that, at the passing of the surviving spouse, sets up a separate trust for each child, and make the respective trusts (50% if you have two children) secondary beneficiary on your life insurance, TSP, Roths, etc.

Should both parents have identical wills?

Are the new "trust" documents separate from the wills of the parents?

In the will or trust documents, can you spell out when lump sums come out, or is that just up to the child, if you make the child the Trustee?

Thanks for any replies (OP, hope you don't mind my questions but I thought this was along the lines of your interest as well.)
No problem, fundseeker. As I read these, I'm getting more questions to ask my attorney. I expect what happens is as delamer says. We have a will, then at death, most assets (those listed to make the trust beneficiary) pour over to the trust. I do want to clarify whether for the children there would be separate trusts as that seems to make the most sense.

Each of our children will have an individual trust established under the terms of our wills.

User avatar
FIREchief
Posts: 4576
Joined: Fri Aug 19, 2016 6:40 pm

Re: Will or Trust?

Post by FIREchief » Tue Jun 19, 2018 3:13 pm

JBTX wrote:
Tue Jun 19, 2018 12:40 pm
We have a revocable living trust, which in retrospect may not be needed but it is helpful in that my parents can make the trust as beneficiary and not worry about having to change beneficiary if I am hit by a bus.
This is an outstanding point, and it rarely if ever has come up in these Trust threads.

Generations A, B and C. Adults in Generation B establish a revocable trust for the benefit of their children (Generation C) and also to enable simple managment of their affairs when they become incapacitated (reference afan's excellent comments regarding this).

Generation A still has elderly survivors who are not savvy in financial matters and may struggle to remember to update beneficiaries as spouses pass away. They may not understand designations like "per stirpes," and their small town bank may not even offer the option. It is optimal if Generation B can have Generation A designate their revocable trust as beneficiary of their share of Generation A's estate instead of Generation A's adult child.

I've actually seen this happen. Generation A (who has "trust" issues, no pun intended), was initially baffled but apparently was able to provide the certification of trust (along with cover letter from Generation B) to their bank to complete the beneficiary update.
Last edited by FIREchief on Tue Jun 19, 2018 6:44 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.

afan
Posts: 4900
Joined: Sun Jul 25, 2010 4:01 pm

Re: Will or Trust?

Post by afan » Tue Jun 19, 2018 4:23 pm

ras4250 wrote:
Tue Jun 19, 2018 11:18 am
just make sure you also understand the costs that go into maintaining a trust. You have to pay the trustee (if it is not the kids). Sometimes you have to pay a lawyer if issues arise. You have to pay an accountant to file the trust returns each year. These add up. A trustee will take a commission of the trust value. Unless the assets are very significant the costs might outweigh any benefits. Also think before naming friends or family as trustee. It could become a real pain to administer.
Not really.
You would have to pay a lawyer if something arose that required a lawyer. But there is nothing inherent in having a trust that would require an attorney to manage. I managed a revocable living trust for an elderly person for years without involving a lawyer. I now manage the irrevocable trust for a beneficiary, again for years, again without needing a lawyer.

You do not have to pay an accountant to file trust tax returns.
Standard consumer tax software will handle this just fine. If the assets are all in securities, stocks, bonds and mutual funds, the returns will be very simple.

The trustee will only charge for managing the trust if you hire someone to do it. If the kids are their own trustees then there would be no need to send money to anyone else.

Administering the only trust with which I am involved is so simple the notion of hiring someone would be nonsensical. I spend some time periodically touching base with the beneficiary, which I would do trust or no trust. The management of the trust is so easy that it would be hard to estimate the annual time required. Maybe an hour? Maybe less. I set up automatic distributions to the beneficiary and do the taxes. That is it.

Yes, hiring a high fee bank trust department to manage a small trust could be quite expensive. But there would be little reason to do this unless your beneficiaries actually needed the help and you did not have individuals who would do it for free or low cost. If you are in that situation then you need to pay for trust administration and the only challenge would be shopping for a good rate.

If the trust is small enough or shrinking you may find it either difficult or prohibitively expensive to hire a traditional bank trustee. Even the Fidelity/Vanguard/Schwab businesses will not want a trust that is too small. That is the only real drawback I see.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

pkay
Posts: 141
Joined: Wed Jan 17, 2018 11:04 am

Re: Will or Trust?

Post by pkay » Tue Jun 19, 2018 6:35 pm

afan wrote:
Tue Jun 19, 2018 4:23 pm
ras4250 wrote:
Tue Jun 19, 2018 11:18 am
just make sure you also understand the costs that go into maintaining a trust. You have to pay the trustee (if it is not the kids). Sometimes you have to pay a lawyer if issues arise. You have to pay an accountant to file the trust returns each year. These add up. A trustee will take a commission of the trust value. Unless the assets are very significant the costs might outweigh any benefits. Also think before naming friends or family as trustee. It could become a real pain to administer.
Not really.
You would have to pay a lawyer if something arose that required a lawyer. But there is nothing inherent in having a trust that would require an attorney to manage. I managed a revocable living trust for an elderly person for years without involving a lawyer. I now manage the irrevocable trust for a beneficiary, again for years, again without needing a lawyer.

You do not have to pay an accountant to file trust tax returns.
Standard consumer tax software will handle this just fine. If the assets are all in securities, stocks, bonds and mutual funds, the returns will be very simple.

The trustee will only charge for managing the trust if you hire someone to do it. If the kids are their own trustees then there would be no need to send money to anyone else.

Administering the only trust with which I am involved is so simple the notion of hiring someone would be nonsensical. I spend some time periodically touching base with the beneficiary, which I would do trust or no trust. The management of the trust is so easy that it would be hard to estimate the annual time required. Maybe an hour? Maybe less. I set up automatic distributions to the beneficiary and do the taxes. That is it.

Yes, hiring a high fee bank trust department to manage a small trust could be quite expensive. But there would be little reason to do this unless your beneficiaries actually needed the help and you did not have individuals who would do it for free or low cost. If you are in that situation then you need to pay for trust administration and the only challenge would be shopping for a good rate.

If the trust is small enough or shrinking you may find it either difficult or prohibitively expensive to hire a traditional bank trustee. Even the Fidelity/Vanguard/Schwab businesses will not want a trust that is too small. That is the only real drawback I see.
Hi, I've been following this thread and have some questions.
1. Do I have to pay for a trustee? What if it's a family member or a friend who would do it for free?
2. Spouse and I are doing our wills and we want to include in our wills that if we both die, a separate trust will be set up for our children. Our children are under 5 yo. So for three kids, should our wills indicate one trust will be set up for all 3 kids or 3 trusts will be set up, one for each child.
3. If a trust (or multiple trusts) will be set up in the future in the event that we both pass, what beneficiary should we designate in our retirements, IRAs, brokerage accounts and life insurance policies since no trust exists today and our children are minor?
4. For filing tax returns, does a trust file a tax return for itself or does a person include a trust when filing his/her tax returns?

User avatar
FIREchief
Posts: 4576
Joined: Fri Aug 19, 2016 6:40 pm

Re: Will or Trust?

Post by FIREchief » Tue Jun 19, 2018 6:52 pm

pkay wrote:
Tue Jun 19, 2018 6:35 pm
Hi, I've been following this thread and have some questions.
1. Do I have to pay for a trustee? What if it's a family member or a friend who would do it for free?
You do not have to pay a trustee, and in most cases you won't if it is a family member or close friend. Even in those cases, they would likely "charge" much less than a professional independent trustee.
4. For filing tax returns, does a trust file a tax return for itself or does a person include a trust when filing his/her tax returns?
A revocable trust's income is typically reported on the Grantor(s) tax return during their lifetime. After death, the trust will become irrevocable and to the extent it continues to produce income after the administration phase, the trust (or multiple sub trusts) will each require their own EIN and each trust will require it's own tax return.

(see my signature)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

User avatar
cheese_breath
Posts: 9561
Joined: Wed Sep 14, 2011 7:08 pm

Re: Will or Trust?

Post by cheese_breath » Tue Jun 19, 2018 7:28 pm

Something I don't understand in reading this thread. Some have stated their wills are written to direct their assets into trusts after they die. Why?

One of the advantages of a trust is to avoid probate. But taking the approach they're using won't the wills need to be probated before the assets can be put into the trusts? They can put the assets into revocable trusts right now and revoke them if they change their minds.
The surest way to know the future is when it becomes the past.

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Tue Jun 19, 2018 7:37 pm

cheese_breath wrote:
Tue Jun 19, 2018 7:28 pm
Something I don't understand in reading this thread. Some have stated their wills are written to direct their assets into trusts after they die. Why?

One of the advantages of a trust is to avoid probate. But taking the approach they're using won't the wills need to be probated before the assets can be put into the trusts? They can put the assets into revocable trusts right now and revoke them if they change their minds.
In some cases, and in some states, probating a Will may be difficult. But in most cases in most states probating a Will is not difficult, expensive or burdensome, so there’s no reason to “avoid” it.

afan
Posts: 4900
Joined: Sun Jul 25, 2010 4:01 pm

Re: Will or Trust?

Post by afan » Wed Jun 20, 2018 4:50 pm

The wills that direct assets into a trust at death are creating trusts for the benefit of the beneficiaries. As discussed in this thread, this is the best way to provide for minor children or adults who are too young or otherwise unsuitable to manage the money themselves. It also provides some protection against an ex spouse in the case of divorce. For large estates this can save on estate taxes by keeping the money out of the estates of the beneficiaries. It also provides protection against lawsuits againt the beneficiaries. Such a suit could happen to anyone. While your kids are young it will be impossible to predict whether they will be targets of suits arising from their work. If you are setting up your estate plans after they are grown and we'll into their careers, then you could have an idea of the risk.


Whether you create one trust for all three kids or one for each depends on your goals and their needs. While the kids are young most parents would adjust the spending among them based on their needs. Some might set up an initial single trust that splits into one trust for each kid once they are adults.

This is something you discuss with your lawyer or hope that bsteiner will comment. There are a lot of options and the right one for you would require thinking through one's particular situation.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Wed Jun 20, 2018 9:40 pm

pkay wrote:
Tue Jun 19, 2018 6:35 pm
,,,
1. Do I have to pay for a trustee? What if it's a family member or a friend who would do it for free?
2. Spouse and I are doing our wills and we want to include in our wills that if we both die, a separate trust will be set up for our children. Our children are under 5 yo. So for three kids, should our wills indicate one trust will be set up for all 3 kids or 3 trusts will be set up, one for each child.
3. If a trust (or multiple trusts) will be set up in the future in the event that we both pass, what beneficiary should we designate in our retirements, IRAs, brokerage accounts and life insurance policies since no trust exists today and our children are minor?
4. For filing tax returns, does a trust file a tax return for itself or does a person include a trust when filing his/her tax returns?
1. It would be up to the trustee whether to take or waive his/her commissions (fees).

2. Most people set up a separate trust for each child so that distributions to or for a child will come out of that child's share, and so the trusts can be invested differently. But some people create a single trust that divides into separate trusts when the last child reaches a specified age, so that if they die after having paid for the older child's education but not the younger child's education, the younger child's education will be paid for out of the pot. (You could do that with separate trusts by providing that the separate trusts will contribute pro rata to education for any of the children.)

3. You would leave these assets to the trusts for your children instead of to your children.

4. A trust files its own income tax returns. In general, to the extent a trust distributes its income, the income is taxable to the recipient, and to the extent the trust retains its income, the trust pays the tax on the income it retains.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: Will or Trust?

Post by golfCaddy » Wed Jun 20, 2018 9:52 pm

There seems to be some cognitive dissonance on this board, regarding trusts. It seems to recommend everyone leave their assets to their kids in an irrevocable trust, even when their assets are well below the estate tax exemption. Yet, it almost never recommends that people establish DAPTs to protect their own assets, "unless their net worth is in the eight figures and the first digit isn't a one," even when living in a DAPT state.

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Wed Jun 20, 2018 10:05 pm

golfCaddy wrote:
Wed Jun 20, 2018 9:52 pm
There seems to be some cognitive dissonance on this board, regarding trusts. It seems to recommend everyone leave their assets to their kids in an irrevocable trust, even when their assets are well below the estate tax exemption. Yet, it almost never recommends that people establish DAPTs to protect their own assets, "unless their net worth is in the eight figures and the first digit isn't a one."
It's easy to provide for your children in trust rather than outright. Most people with young children already do this. It's not for everyone. Absent a disability people won't set up trusts for children if each child's share is too small to warrant administering a trust, or if the trustees think that the likelihood that a child will have a taxable estate, get divorced, outlive his/her spouse and remarry, have a creditor problem, or ever want Medicaid, is sufficiently small so as not to warrant setting up trusts for the child. We'll draft the Will to provide for the children in trust, and leave it to the trustees when the time comes to decide whether to set up the trusts or to direct the executors not to set them up and to instead distribute the assets to the children outright.

Creating an asset protection trust is more effort. You have to set it up in a state whose trust law permits it, such as Alaska, Delaware, Nevada or South Dakota. If you don't have a friend or family member in that state, you have to use a trust company in that state, which will cost several thousand dollars a year. The trust company will have some requirements in order to accept the trust. Depending on which state, you may need local co-counsel in that state. You'll also probably need to create and maintain an LLC to hold the assets, since the trust company doesn't want to hold the securities or be involved in trading them. There's also the question as to whether they're effective, though the argument in favor is that having one may get you a better settlement. The clients who've created these have mainly been well to do people for whom the cost isn't a concern, and who want to protect against the small chance of a large loss that they can't insure against.

User avatar
FIREchief
Posts: 4576
Joined: Fri Aug 19, 2016 6:40 pm

Re: Will or Trust?

Post by FIREchief » Wed Jun 20, 2018 10:05 pm

golfCaddy wrote:
Wed Jun 20, 2018 9:52 pm
There seems to be some cognitive dissonance on this board, regarding trusts. It seems to recommend everyone leave their assets to their kids in an irrevocable trust, even when their assets are well below the estate tax exemption. Yet, it almost never recommends that people establish DAPTs to protect their own assets, "unless their net worth is in the eight figures and the first digit isn't a one," even when living in a DAPT state.
cognitive dissonance: "the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change."

Maybe you can educate us a bit more on this? I don't believe I live in a DAPT state. I also understand that my ERISA retirement assets, as well as IRAs, are already protected from creditors under my state's laws. We also have some homestead protections for our house. Umbrella insurance can provide an additional level of protection for non-qualified assets.

How does recommending assets be left in a trust for children in order to provide asset protection have anything to do with the estate tax exemption?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: Will or Trust?

Post by golfCaddy » Wed Jun 20, 2018 10:20 pm

FIREchief wrote:
Wed Jun 20, 2018 10:05 pm
golfCaddy wrote:
Wed Jun 20, 2018 9:52 pm
There seems to be some cognitive dissonance on this board, regarding trusts. It seems to recommend everyone leave their assets to their kids in an irrevocable trust, even when their assets are well below the estate tax exemption. Yet, it almost never recommends that people establish DAPTs to protect their own assets, "unless their net worth is in the eight figures and the first digit isn't a one," even when living in a DAPT state.
cognitive dissonance: "the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change."

Maybe you can educate us a bit more on this? I don't believe I live in a DAPT state.
You might not live in one, but there are now seventeen states that allow for the formation of DAPTs. Currently, 17 states — Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming — have enacted DAPT-enabling legislation. Hence, a lot of people have the option of setting up a DAPT in their state of residence. It's not something just available in Delaware and Alaska anymore.

User avatar
FIREchief
Posts: 4576
Joined: Fri Aug 19, 2016 6:40 pm

Re: Will or Trust?

Post by FIREchief » Wed Jun 20, 2018 10:26 pm

golfCaddy wrote:
Wed Jun 20, 2018 10:20 pm
FIREchief wrote:
Wed Jun 20, 2018 10:05 pm
golfCaddy wrote:
Wed Jun 20, 2018 9:52 pm
There seems to be some cognitive dissonance on this board, regarding trusts. It seems to recommend everyone leave their assets to their kids in an irrevocable trust, even when their assets are well below the estate tax exemption. Yet, it almost never recommends that people establish DAPTs to protect their own assets, "unless their net worth is in the eight figures and the first digit isn't a one," even when living in a DAPT state.
cognitive dissonance: "the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change."

Maybe you can educate us a bit more on this? I don't believe I live in a DAPT state.
You might not live in one, but there are now seventeen states that allow for the formation of DAPTs. Currently, 17 states — Alaska, Delaware, Hawaii, Michigan, Mississippi, Missouri, Nevada, New Hampshire, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Virginia, West Virginia and Wyoming — have enacted DAPT-enabling legislation. Hence, a lot of people have the option of setting up a DAPT in their state of residence. It's not something just available in Delaware and Alaska anymore.
That's interesting stuff. I'm all for aggressive asset protection, and if I sometime find myself with a larger amount of exposed assets, I may look into it. I'm guessing that a person could look at the cost of umbrella insurance in comparison to the cost of setting up a DAPT and perhaps identify a break even point. Does that sound right? In other words, if a person could cancel (or reduce) umbrella and divert five years worth of premiums to setting up a DAPT, there might not be anything left to sue for. Nothing better for chasing away an ambulance chaser than zero exposed assets! :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

pkay
Posts: 141
Joined: Wed Jan 17, 2018 11:04 am

Re: Will or Trust?

Post by pkay » Thu Jun 21, 2018 2:06 am

bsteiner wrote:
Wed Jun 20, 2018 9:40 pm
pkay wrote:
Tue Jun 19, 2018 6:35 pm
,,,

3. If a trust (or multiple trusts) will be set up in the future in the event that we both pass, what beneficiary should we designate in our retirements, IRAs, brokerage accounts and life insurance policies since no trust exists today and our children are minor?
4. For filing tax returns, does a trust file a tax return for itself or does a person include a trust when filing his/her tax returns?
3. You would leave these assets to the trusts for your children instead of to your children.

4. A trust files its own income tax returns. In general, to the extent a trust distributes its income, the income is taxable to the recipient, and to the extent the trust retains its income, the trust pays the tax on the income it retains.
Thank you for weighing in, bsteiner. Spouse and I are trying to DIY estate planning hence the questions.
Based on your answer to #3, it sounds like we can put a trust that doesn't exist today as beneficiary of our assets (because a trust would only be created should spouse and i both pass away while our children are still minors). -- Am I on the right track?

Regarding #4, since the subject hypothetical trust would created in the future should spouse and I both pass away, there is technically no assets held in the hypothetical trust today so no income tax return is needed for the trust. --Am I on the right track?

Regarding DAFT, it sounds more complicated. Is it worth making it one if assets (and potential assets) are less than $3mil?

Thanks in advance!

pkay
Posts: 141
Joined: Wed Jan 17, 2018 11:04 am

Re: Will or Trust?

Post by pkay » Thu Jun 21, 2018 2:09 am

afan wrote:
Wed Jun 20, 2018 4:50 pm
The wills that direct assets into a trust at death are creating trusts for the benefit of the beneficiaries. As discussed in this thread, this is the best way to provide for minor children or adults who are too young or otherwise unsuitable to manage the money themselves. It also provides some protection against an ex spouse in the case of divorce. For large estates this can save on estate taxes by keeping the money out of the estates of the beneficiaries. It also provides protection against lawsuits againt the beneficiaries. Such a suit could happen to anyone. While your kids are young it will be impossible to predict whether they will be targets of suits arising from their work. If you are setting up your estate plans after they are grown and we'll into their careers, then you could have an idea of the risk.


Whether you create one trust for all three kids or one for each depends on your goals and their needs. While the kids are young most parents would adjust the spending among them based on their needs. Some might set up an initial single trust that splits into one trust for each kid once they are adults.

This is something you discuss with your lawyer or hope that bsteiner will comment. There are a lot of options and the right one for you would require thinking through one's particular situation.
Thank you, afan. Spouse and I are trying to DIY our estate planning, hence the questions. Thank you and everyone for helping us think through this process.

denovo
Posts: 4476
Joined: Sun Oct 13, 2013 1:04 pm

Re: Will or Trust?

Post by denovo » Thu Jun 21, 2018 3:01 am

golfCaddy wrote:
Mon Jun 18, 2018 7:20 pm
Think about what you're trying to accomplish with the trust.

1) avoid estate taxes - you're well below the federal limits, but there still might be state estate or inheritance taxes to think about
2) control from the grave - you don't trust your kid to invest the money properly or not waste it all on unnecessary spending. If this is your primary motive, it'll dictate how the trust is setup because this purpose is in direct opposition to the idea of giving your kids "effective control of the trust."
3) asset protection - divorce - Divorce rates are 30%+ for first marriages. To me, this is the most compelling reason to leave money in a trust. You don't want your kids future spouses to get half their inheritance in a divorce. In principle, a prenup might be able to accomplish the same goal.
4) asset protection - unintentional torts - Unless your kid is in some high risk profession, ex. neurosurgeon, a reasonable size umbrella policy would provide all the protection they need. The odds of an accident causing more than $5M in damages and the plaintiff being unwilling to settle for the insurance policy limits is extremely low.
This should go in the wiki or something, this is straight to the point here. There are very cheap and efficient ways for intelligent heirs to protect assets i.e. umbrella policy and a prenup.

A lot of people who want a trust for their children simply want to control from the grave and they should admit it. Also, OP, you should specify what kind of trust you mean, there's multiple types, but I am sure what you're describing is a HEMS trust.
"Don't trust everything you read on the Internet"- Abraham Lincoln

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Thu Jun 21, 2018 11:26 am

pkay wrote:
Thu Jun 21, 2018 2:06 am
bsteiner wrote:
Wed Jun 20, 2018 9:40 pm
pkay wrote:
Tue Jun 19, 2018 6:35 pm
,,,

3. If a trust (or multiple trusts) will be set up in the future in the event that we both pass, what beneficiary should we designate in our retirements, IRAs, brokerage accounts and life insurance policies since no trust exists today and our children are minor?
4. For filing tax returns, does a trust file a tax return for itself or does a person include a trust when filing his/her tax returns?
3. You would leave these assets to the trusts for your children instead of to your children.

4. A trust files its own income tax returns. In general, to the extent a trust distributes its income, the income is taxable to the recipient, and to the extent the trust retains its income, the trust pays the tax on the income it retains.
Thank you for weighing in, bsteiner. Spouse and I are trying to DIY estate planning hence the questions.
Based on your answer to #3, it sounds like we can put a trust that doesn't exist today as beneficiary of our assets (because a trust would only be created should spouse and i both pass away while our children are still minors). -- Am I on the right track?

Regarding #4, since the subject hypothetical trust would created in the future should spouse and I both pass away, there is technically no assets held in the hypothetical trust today so no income tax return is needed for the trust. --Am I on the right track?

Regarding DAFT, it sounds more complicated. Is it worth making it one if assets (and potential assets) are less than $3mil?
Your Will doesn't take effect until your death.

It's up to you to decide how much is enough, but most people who create asset protection trusts have a much higher net worth.

It may not be worth the effort for you to learn how to do this any more than it would be worth the effort for me to learn how to handle a patent litigation or prepare a lease for the anchor tenant in a shopping center or do a root canal on a tooth.
denovo wrote:
Thu Jun 21, 2018 3:01 am
...
A lot of people who want a trust for their children simply want to control from the grave and they should admit it. Also, OP, you should specify what kind of trust you mean, there's multiple types, but I am sure what you're describing is a HEMS trust.
I hope he's not describing HEMS (mandating distributions for, or limiting distribution to, health, maintenance, support and education). It's generally not a good idea to mandate or limit distributions (except when required to obtain a tax benefit, such as giving the spouse all the income in a marital trust).

afan
Posts: 4900
Joined: Sun Jul 25, 2010 4:01 pm

Re: Will or Trust?

Post by afan » Fri Jun 22, 2018 4:22 am

For the goal of asset protection leaving the money to your heirs is much more reliable than creating a DAPT for yourself. That is why bsteiner noted that the effectiveness of the DAPT is a topic of debate.

If you leave money to heirs but out of their estate by leaving it in trust for them then, no matter how much money they make or how the exclusion amounts may change in the future, this money will not face estate taxes.

If you give money to a DAPT that does not escape gift taxes.
There is an inherent conflict of goals for a DAPT. You want it not to belong to you, so people cannot go after this money. But you want to control the money and spend it on yourself if you want. The effort to have it both ways creates the problems.

For the trust left to your kids, the can be their own trustees and maintain the advantages of the trust. For a DAPT, being your own trustee would ruin it.

For the poster who is planning to DIY, all I can say is "please reconsider."

Bsteiner explains things so clearly that it creates an illusion of simplicity. This stuff is simple to him because he is an expert. For someone who is not an attorney there is so much they don't know that I would worry about screwing up and never realizing it until your heirs are stuck with the mess.

If you start writing trusts for yourself you have to accept that you have no idea what you are doing. If you get a trust template you have to convince yourself that what is says is appropriate for your situation. You are on your own in making this decision.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

pkay
Posts: 141
Joined: Wed Jan 17, 2018 11:04 am

Re: Will or Trust?

Post by pkay » Fri Jun 22, 2018 1:05 pm

afan wrote:
Fri Jun 22, 2018 4:22 am
For the poster who is planning to DIY, all I can say is "please reconsider."

Bsteiner explains things so clearly that it creates an illusion of simplicity. This stuff is simple to him because he is an expert. For someone who is not an attorney there is so much they don't know that I would worry about screwing up and never realizing it until your heirs are stuck with the mess.

If you start writing trusts for yourself you have to accept that you have no idea what you are doing. If you get a trust template you have to convince yourself that what is says is appropriate for your situation. You are on your own in making this decision.
Thank you. We just purchased Quicken Willmaker and was trying to buy other Nolo product to set up the trust. That's what I meant by DIY. But will certainly read more and reconsider our approach. Thanks for your time.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: Will or Trust?

Post by golfCaddy » Fri Jun 22, 2018 1:17 pm


There's also the question as to whether they're[DAPT] effective, though the argument in favor is that having one may get you a better settlement.
They may not work for everyone or in all circumstances, but they are powerful tools. The Nevada Supreme Court upheld them even against child support claims.

https://law.justia.com/cases/nevada/sup ... 66772.html

User avatar
FIREchief
Posts: 4576
Joined: Fri Aug 19, 2016 6:40 pm

Re: Will or Trust?

Post by FIREchief » Fri Jun 22, 2018 1:23 pm

I will STRONGLY second afan's comments against DIY. While I can somewhat understand the DIY Will approach, I would never consider DIY trusts. A Will serves it's purpose while it is being probated, and then is finished. A trust can live on for decades, and the legal costs of "fixing" a problematic trust could exceed the up front costs to "do it right" by ten fold. One need look no further than the various threads here on the forum to understand that there are many ways to draft a trust (or several trusts) and the concept of "one size fits all" just doesn't apply. On top of that, are the varying state laws that heavily influence how a trust should be written. Are you in an asset protection state? Then it may be fine to allow your adult heir to serve as their own trustee. Not? Then if you draft it wrong you may have just effectively eliminated any asset protection. There is no way that a mass marketed DIY product is going to accurately capture all of these nuances.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

golfCaddy
Posts: 728
Joined: Wed Jan 10, 2018 10:02 pm

Re: Will or Trust?

Post by golfCaddy » Fri Jun 22, 2018 3:16 pm

FIREchief wrote:
Wed Jun 20, 2018 10:05 pm
cognitive dissonance: "the state of having inconsistent thoughts, beliefs, or attitudes, especially as relating to behavioral decisions and attitude change."

Maybe you can educate us a bit more on this? I don't believe I live in a DAPT state. I also understand that my ERISA retirement assets, as well as IRAs, are already protected from creditors under my state's laws. We also have some homestead protections for our house. Umbrella insurance can provide an additional level of protection for non-qualified assets.

How does recommending assets be left in a trust for children in order to provide asset protection have anything to do with the estate tax exemption?
The point I was trying to make was some people seem far more worried about asset protection for their kids than asset protection for themselves.

Counterpoint
Posts: 76
Joined: Sun Jun 05, 2016 1:42 pm

Re: Will or Trust?

Post by Counterpoint » Fri Jun 22, 2018 6:49 pm

bsteiner wrote:
Mon Jun 18, 2018 5:09 pm
People are conflating two different issues: whether to create a revocable trust, and whether to provide for your children outright or in trust.

You can put the same dispositive provisions (who gets what, and under what terms) either in a Will or in a revocable trust.

Revocable trusts make sense in some cases and in some states, mainly California. But they're overhyped and oversold, and for most people, in most states, aren't necessary. But you already have one. So you could keep it, without regard to whether it was appropriate to begin with.

You used the word "we" in the plural and the word "trust" in the singular. A single trust for a couple fits community property, and is commonly used in California. It tends not to fit in a state that's not a community property state. Are you in California?

By far the more important issue is whether to provide for your children in trust rather than outright. I agree with FIREchief to provide for your children in trust rather than outright. If it's appropriate, you can give each child effective control over her trust at a specified age.
I'm curious, bsteiner, about your comment (which I put in bold above) that the child can have effective control over her trust. I also noticed that afan has a similar provision where his children will be the trustees. We're revisiting our wills and are looking at asset protection options for the next decade or so for our adult unmarried daughter in the event of marriage+divorce (and of course our unexpected death as a result of which she would inherit our assets).

If an adult child is both the beneficiary and the trustee, wouldn't that significantly dilute the asset protection of the trust in the event of divorce? I don't know if that is dependent on the laws of the state where the will + testamentary trust is drawn up (we live in Maryland).

And thanks bsteiner (as well as other knowledgeable contributors like afan, golfcaddy and Firechief) - I've learnt a lot from your posts.

bsteiner
Posts: 4909
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Will or Trust?

Post by bsteiner » Sat Jun 23, 2018 9:28 pm

Counterpoint wrote:
Fri Jun 22, 2018 6:49 pm
bsteiner wrote:
Mon Jun 18, 2018 5:09 pm
...
By far the more important issue is whether to provide for your children in trust rather than outright. I agree with FIREchief to provide for your children in trust rather than outright. If it's appropriate, you can give each child effective control over her trust at a specified age.
I'm curious, bsteiner, about your comment (which I put in bold above) that the child can have effective control over her trust. I also noticed that afan has a similar provision where his children will be the trustees. We're revisiting our wills and are looking at asset protection options for the next decade or so for our adult unmarried daughter in the event of marriage+divorce (and of course our unexpected death as a result of which she would inherit our assets).

If an adult child is both the beneficiary and the trustee, wouldn't that significantly dilute the asset protection of the trust in the event of divorce? I don't know if that is dependent on the laws of the state where the will + testamentary trust is drawn up (we live in Maryland).

And thanks bsteiner (as well as other knowledgeable contributors like afan, golfcaddy and Firechief) - I've learnt a lot from your posts.
Absent a disability, where the client would have provided for the child outright but for the desire for asset protection, we generally recommend giving the child the power to control his/her trust upon reaching a specified age.

In other words, upon reaching a specified age (the age when the trust would otherwise end), the child has the right to become a trustee, the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and the power to appoint (give) the trust assets to anyone he/she wants (other than the child or his/her estate or creditors).

Some lawyers instead let the child become sole trustee at that point, with the power to withdraw for health, maintenance, support and education, and the right to add a co-trustee if he/she ever wants distributions other than health, maintenance, support or education. That might expose the trust assets to creditors with respect to health, maintenance, support and education in some states, though some states provide that it won't exposes. It might also expose the trust assets to Medicaid. It also increases the likelihood that the child will inadvertently use the trust assets when it might be better to use other assets first. For these reasons, I prefer the method set forth in the previous paragraph.

Post Reply