Wanted: Trust theory and administration book recommendation

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heartwood
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Wanted: Trust theory and administration book recommendation

Post by heartwood » Sun Jun 24, 2018 8:27 am

Can you recommend a book or similar that provides an overview of trusts? We’ve had a irrevocable trust for several years. I’m looking for general guidance on how to think about trust investments, how to manage the trust to minimize capital gains when making distributions, how much to keep in cash-like assets and similar rules of thumb. Are there different thought processes while the grantors are alive and paying the taxes, versus after the grantors are gone?

I’ve checked the Wiki and didn’t find what I want. I see there’s an Estate and Trust Administration for Dummies book, anyone familiar with it?
https://www.amazon.com/dp/1118412257/re ... 792&sr=8-7

bsteiner
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Re: Wanted: Trust theory and administration book recommendation

Post by bsteiner » Sun Jun 24, 2018 9:49 am

heartwood wrote:
Sun Jun 24, 2018 8:27 am
Can you recommend a book or similar that provides an overview of trusts? We’ve had a irrevocable trust for several years. I’m looking for general guidance on how to think about trust investments, how to manage the trust to minimize capital gains when making distributions, how much to keep in cash-like assets and similar rules of thumb. Are there different thought processes while the grantors are alive and paying the taxes, versus after the grantors are gone?
...
It's hard to write a book that will be comprehensive.

The asset allocation will depend on the beneficiaries' situations, including their current and expected future needs for distributions. A GST exempt trust for a beneficiary who doesn't need any distributions will probably be invested differently from a trust for a surviving spouse who needs distributions for his/her living expenses.

While the grantor is living, there's an estate tax benefit to having the grantor pay the income taxes on the trust's income and gains. Each time the grantor makes an income tax payment, the grantor is effectively shifting additional wealth out of his/her estate, free of transfer taxes. The grantor can then purchase appreciated assets from the trust tax-free, thus getting a basis step-up at death for the appreciated assets. Marty Shenkman and I wrote an article on this for the December 2015 issue of Trusts & Estates: https://www.kkwc.com/wp-content/uploads ... states.pdf.

Once the grantor dies, the trust will become its own taxpayer. Trusts reach the top tax rate at a low level of income. However, except for retirement benefits, trusts can be invested for qualified dividends and tax-exempt income. The trustees can consider income taxes (in other words, whether the beneficiaries are in lower tax brackets) in deciding on distributions, though the trustees should also consider any other relevant factors in deciding on distributions.

You can minimize capital gains by investing in low-turnover mutual funds such as index funds.

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heartwood
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Re: Wanted: Trust theory and administration book recommendation

Post by heartwood » Sun Jun 24, 2018 4:11 pm

Thank you for your comments and suggestions. I'll take a look at your article.

The trust investments are currently low turn-over index funds as you suggest to minimize capital gains distributions. As grantors we are paying the taxes on the trust income and gains.

While perhaps it is hard to write a comprehensive book, I still need to develop a holistic understanding of the matter. I was hoping there was one or more books that would further that understanding. I think we understand the details and rationales for now, but have started thinking about how it might be administered after we die. I want to be able to suggest perspectives to the trustee and to the beneficiary. We're currently using a relative as trustee. Beyond annual premiums on a 2nd to die policy owned by the trust, there have been no distributions until this year. That will probably change as the beneficiary's family situation changes. Hence the desire to plan for perhaps annual distributions by keeping some monies in a money market v. invested in mutual funds.

We've learned some lessons by not having that understanding. Such as making annual gifts to the trust and investing it all in funds rather than reserving the portion needed in less than a year for the insurance premium and then incurring capital gains to get to the money. Luckily most times it was gains. Another lesson was investing in a balanced fund for several years and paying taxes on the distributions. All rookie mistakes and perhaps not unique to trusts. Another is the dawning realization that the trust is separate from it all. It's not the trustee. It's not the beneficiary. Yes, we've filed the trust tax return with its own EIN and knew they was no longer our assets, but its finally sunk in that its really a separate entity. So, I'm looking for that holistic overview that will provide all "the wisdom" in one place.

bsteiner
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Re: Wanted: Trust theory and administration book recommendation

Post by bsteiner » Sun Jun 24, 2018 4:18 pm

heartwood wrote:
Sun Jun 24, 2018 4:11 pm
...
Beyond annual premiums on a 2nd to die policy owned by the trust, there have been no distributions until this year. That will probably change as the beneficiary's family situation changes. ...
Do you need an insurance trust? Are you rich enough to pay estate taxes but poor enough to need life insurance? Is there some other need for life insurance?
heartwood wrote:
Sun Jun 24, 2018 4:11 pm
... we've filed the trust tax return with its own EIN ....
Isn't is a grantor trust? (It's possible, but hard, for an insurance trust not to be a grantor trust.) If it's a grantor trust, why does it file tax returns?

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heartwood
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Re: Wanted: Trust theory and administration book recommendation

Post by heartwood » Sun Jun 24, 2018 4:42 pm

bsteiner wrote:
Sun Jun 24, 2018 4:18 pm
heartwood wrote:
Sun Jun 24, 2018 4:11 pm
...
Beyond annual premiums on a 2nd to die policy owned by the trust, there have been no distributions until this year. That will probably change as the beneficiary's family situation changes. ...
Do you need an insurance trust? Are you rich enough to pay estate taxes but poor enough to need life insurance? Is there some other need for life insurance?
heartwood wrote:
Sun Jun 24, 2018 4:11 pm
... we've filed the trust tax return with its own EIN ....
Isn't is a grantor trust? (It's possible, but hard, for an insurance trust not to be a grantor trust.) If it's a grantor trust, why does it file tax returns?
The trust is a grantor trust set up several years before the federal and my state exclusions were raised. No, we're not rich enough to pay estate taxes under the current much higher exclusions.

Re tax filings, we file a Form 1041 for the trust with a statement that the income is included on the donors return. We were advised to do so by our estate attorney.

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Earl Lemongrab
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Re: Wanted: Trust theory and administration book recommendation

Post by Earl Lemongrab » Mon Jun 25, 2018 12:27 pm

The Nolo books by Denis Clifford are a typical recommendation. A few years ago I found a number of them available at the public library. If yours doesn't have any, they could probably be obtained through inter-library loan.
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FBN2014
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Re: Wanted: Trust theory and administration book recommendation

Post by FBN2014 » Mon Jun 25, 2018 9:56 pm

There is a book that many attorneys offer to their clients called the "Successor Trustee Manual". If you send me a private message I can direct you to an attorney website where you can purchase.
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