Need advice will vs trust for my situation

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
RMD3819
Posts: 41
Joined: Wed Mar 27, 2013 3:40 pm

Need advice will vs trust for my situation

Post by RMD3819 » Tue Jul 24, 2018 3:30 pm

Need advice of a will vs trust for my situation.

Wife and I both mid 50s and retired. We live and travel full time in our RV. When we did this we left our long time state of FL, where our latest wills were made, and switched to domicile in SD.

-Own no real estate.
-Own one car and the RV.
-I have a pension that dies with me.
-Wife will have a pension at 62; haven't decided about the spousal benefit yet.
-The majority of our assets are in taxable/IRA/Roth/457/CD spread across multiple brokerages-the big names. $1.4M total
-Combined $500K life insurance

We have one child, a daughter in her 30s. She is married. Both her and her H are awful with money. I have emotionally accepted that when we are both dead whatever they get will be spent in record time.

We need to redo our wills and POA etc since changing our domicile to SD so now is the time to do a trust if that is appropriate.

Concerns:

-The life insurance and all investments have the spouse as beneficiary and her as contingent.
-When the last of us dies, or we die together, she will melt into a puddle. She needs someone to call and get the assets distributed to her, and she will need her hand held every step of the way. Normal life is overwhelming for her now, this will be way too complex on top of her grieving.
-We do not have any other reliable family to do this. We do have a family friend who has agreed to help. She is reliable and level headed but has no specific experience with these issues.

Do we even need a trust?

Ideas?

MichCPA
Posts: 324
Joined: Fri Jul 06, 2018 9:06 pm

Re: Need advice will vs trust for my situation

Post by MichCPA » Tue Jul 24, 2018 3:37 pm

I would argue that your daughter being bad with money is a bigger reason to have a trust. You have more ability to lock things up for specified purposes and lengths of time. You didn't say if you have grand kids, but you could skip straight to them if you have negative feelings about the middle generation. See an attorney. The price difference isn't massive. My trust and will cost about $750 and has specific uses and ages. The will would have been maybe 100-250 separately??

User avatar
knpstr
Posts: 2195
Joined: Thu Nov 20, 2014 8:57 pm
Location: Michigan

Re: Need advice will vs trust for my situation

Post by knpstr » Tue Jul 24, 2018 3:40 pm

Disclaimer: I don't know what I am talking about... seek professional advice.

That said, I don't think you need a trust unless you want to limit how much money your daughter gets. I think with a trust you can have $X per year for X years then after X years all of the money gets distributed -- instead of dumping $1.4M+ all at once. A believe banks will have trust departments too that can handle the trustee duties of distribution?

If you don't want to have control from the grave, a will does the trick.

Also, you don't HAVE to leave your daughter with money. Some times a lot of money makes financially irresponsible people worse off.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Topic Author
RMD3819
Posts: 41
Joined: Wed Mar 27, 2013 3:40 pm

Re: Need advice will vs trust for my situation

Post by RMD3819 » Tue Jul 24, 2018 3:47 pm

No grand kids.

I admit controlling from the grave has some appeal though that is not a primary goal.

One of my concerns is she will need someone to help her with the process. A trust will require someone to help her, even at a cost. Her trying to get things moving waving the will around won't be productive and will leave her vulnerable to scams.

User avatar
FIREchief
Posts: 2768
Joined: Fri Aug 19, 2016 6:40 pm

Re: Need advice will vs trust for my situation

Post by FIREchief » Tue Jul 24, 2018 3:55 pm

Sounds like a clear case for a trust with an independent trustee. I rarely would recommend paying an independent trustee, but this is one of those situations that seems to demand it. Forget the talk about "providing so much money every year with balance at age x." If your daughter and her husband are awful with money, you may wish to give the trustee considerable discretion in how much to distribute and for what purposes. If I were in your situation, I would primarily be concerned about my child reaching retirement age and having nothing to live on. A little control from "beyond the grave" may be just what the doctor ordered.
knpstr wrote:
Tue Jul 24, 2018 3:40 pm
Disclaimer: I don't know what I am talking about... seek professional advice.
+1
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: 3661
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Need advice will vs trust for my situation

Post by bsteiner » Tue Jul 24, 2018 3:59 pm

You're conflating two different issues: whether to provide for her in trust rather than outright, and whether to do so in your Will or in a revocable trust.

From what you've described, you would want to provide for her in trust rather than outright. You can give her effective control over her trust, a lesser degree of control, or no control at all.

South Dakota has enacted the Uniform Probate Code, which provides simplified procedures. So unless there's some special reason to create a revocable trust in your case, you would probably include the dispositive provisions (who gets what) in your Will.

ETadvisor
Posts: 275
Joined: Tue Jul 04, 2017 1:37 pm

Re: Need advice will vs trust for my situation

Post by ETadvisor » Tue Jul 24, 2018 4:23 pm

RMD3819 wrote:
Tue Jul 24, 2018 3:30 pm
Need advice of a will vs trust for my situation.

Wife and I both mid 50s and retired. We live and travel full time in our RV. When we did this we left our long time state of FL, where our latest wills were made, and switched to domicile in SD.

-Own no real estate.
-Own one car and the RV.
-I have a pension that dies with me.
-Wife will have a pension at 62; haven't decided about the spousal benefit yet.
-The majority of our assets are in taxable/IRA/Roth/457/CD spread across multiple brokerages-the big names. $1.4M total
-Combined $500K life insurance

We have one child, a daughter in her 30s. She is married. Both her and her H are awful with money. I have emotionally accepted that when we are both dead whatever they get will be spent in record time.

We need to redo our wills and POA etc since changing our domicile to SD so now is the time to do a trust if that is appropriate.

Concerns:

-The life insurance and all investments have the spouse as beneficiary and her as contingent.
-When the last of us dies, or we die together, she will melt into a puddle. She needs someone to call and get the assets distributed to her, and she will need her hand held every step of the way. Normal life is overwhelming for her now, this will be way too complex on top of her grieving.
-We do not have any other reliable family to do this. We do have a family friend who has agreed to help. She is reliable and level headed but has no specific experience with these issues.

Do we even need a trust?

Ideas?
Based on your concerns, no need for revocable trust unless you have concerns about either you or your spouse becoming incapacitated during life. Assuming you are correct that all assets are titled with the spouse as beneficiary and no assets are titled in the individual name then the Will/Trust does not govern the transfer of assets upon the first to die. It will pass by operation of law to the surviving spouse. The Will is a catch-all in case you do have assets titled in your sole name. Your stated concerns arise when the 2nd spouse dies, in which case you can set up a testamentary trust for the daughter and name a corporate trustee under a Will. You need to change your contingent beneficiary to the Trust FBO daughter created under the Will.

To eradicate all concerns, you can disinherit your daughter and leave to charity or to whomever you desire.

BigJohn
Posts: 1631
Joined: Wed Apr 02, 2014 11:27 pm

Re: Need advice will vs trust for my situation

Post by BigJohn » Tue Jul 24, 2018 5:40 pm

Like others, I’m no expert and many of these issues are governed by state law so getting expert, local advice is critical. I will mention one other worry that may be an issue depending on state law. If you just give your daughter the money and then she gets divorced, half of your money could end up belonging to her ex-husband’s second wife. This can still happen if the money is left in a trust but there are at least some impediments and speed bumps on that road. Many don’t want to believe their child will get divorced but statistics indicate that’s a misguided assumption. I’d assume the worst and at least talk to an expert about how you might protect your daughter from that potential.

delamer
Posts: 6707
Joined: Tue Feb 08, 2011 6:13 pm

Re: Need advice will vs trust for my situation

Post by delamer » Tue Jul 24, 2018 6:37 pm

Just wanted to point out that while many above note that they are not experts, bsteiner is an expert.

OP, since you have been fortunate enough to have him weigh in, heed his advice.

Zott
Posts: 234
Joined: Fri Jul 31, 2015 10:21 pm

Re: Need advice will vs trust for my situation

Post by Zott » Tue Jul 24, 2018 9:46 pm

I'm not an expert either, but have done a lot of thinking about this since my situation is similar to the OP, except arguably worse since my spouse is as bad as my children with money. :oops: A trust sounds like the way to go (this is what I have done), but as bsteiner said, you don't have to set it up while you and wife are living (that would be a revocable trust). It can be set up in your wills-- a testamentary trust--presumably established after both of you have passed away. You have complete flexibility to name a trustee, and dictate payout provisions (mine include payments to my children over many years). That seems like a sensible way to handle your concerns. See an estate attorney!

I wondered why you and wife have so much life insurance. There doesn't appear (to me) to be a need for it, given your assets and pensions. And possibly you don't want to leave that much more to your daughter, who has no need of it either, unless you've been giving her money all along and she needs it to survive financially.

afan
Posts: 3969
Joined: Sun Jul 25, 2010 4:01 pm

Re: Need advice will vs trust for my situation

Post by afan » Wed Jul 25, 2018 6:43 am

Zott wrote:
Tue Jul 24, 2018 9:46 pm

I wondered why you and wife have so much life insurance. There doesn't appear (to me) to be a need for it, given your assets and pensions. And possibly you don't want to leave that much more to your daughter, who has no need of it either, unless you've been giving her money all along and she needs it to survive financially.
I assumed that was the reason for the life insurance. I suppose it also compensates for the loss of a pension when the first spouse dies.

You are getting good advice about leaving the money to your daughter in trust with an independent trustee. A few points:

I don't know about prices in SD but in my area you would pay an estates and trust expert considerably more than $750 for this. By the time you explained your situation and the attorney explained your options you will have racked up more than that.

Bsteiner says that probate is SD is not burdensome. That being the case the main reason for a revocable trust would be that it greatly simplifies management of your affairs if you become incapacitated. The odds are that this will happen to at least one of you during your lives.

A beneficiary who is overwhelmed by life and bad at managing money is not a situation to choose a friend as trustee. There may be difficult conversations and firm decisions that need to be made. This is what corporate trustees get paid to do. They will know the laws, will NOT be needled into violating the terms of the trust and they will have seen it all before.

Having all your assets collected in as few different places as possible, with simple and clear instructions for how to access them, will also simply managing your affairs while alive and make settling your estate much easier. You don't have to use a revocable trust for this, but it could be part of the plan.

Since you don't own real estate you might be perfect candidates to appoint Vanguard as successor trustee of a revocable trust while you are alive and sole trustee after the second death. For an estate your size Vanguard is likely to be the lowest cost corporate trustee and they can easily handle the paperwork.

I don't know whether Vanguard will settle an estate if everything is in the trust already. They will not serve as executor. Since you don't think your daughter is up to the job, you will need someone responsible to do this. That person can hire a lawyer on an hourly basis and it need not be onerous but they will need to keep on top of things.
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

moehoward
Posts: 270
Joined: Mon Mar 05, 2018 10:16 am

Re: Need advice will vs trust for my situation

Post by moehoward » Wed Jul 25, 2018 8:52 am

"We have one child, a daughter in her 30s. She is married. Both her and her H are awful with money. I have emotionally accepted that when we are both dead whatever they get will be spent in record time."

We did our trust when the kids were early 20s. We didn't want our kids inheriting a lot of money at that age if something happened to us. We settled on 35 years of age for them to receive all the money. When we asked our attorney about the age, he explained that most people come in and increase the age after the initial filing. With some of the stories I see and hear, I understand. Your child could still mature and get better with money. IMHO, set the age at 50 for your daughter. You would be doing her a favor, if she doesn't get it by 50, you tried.

Topic Author
RMD3819
Posts: 41
Joined: Wed Mar 27, 2013 3:40 pm

Re: Need advice will vs trust for my situation

Post by RMD3819 » Wed Jul 25, 2018 11:04 am

bsteiner wrote:
Tue Jul 24, 2018 3:59 pm
You're conflating two different issues: whether to provide for her in trust rather than outright, and whether to do so in your Will or in a revocable trust.

From what you've described, you would want to provide for her in trust rather than outright. You can give her effective control over her trust, a lesser degree of control, or no control at all.

South Dakota has enacted the Uniform Probate Code, which provides simplified procedures. So unless there's some special reason to create a revocable trust in your case, you would probably include the dispositive provisions (who gets what) in your Will.
Clarify please-

The second paragraph suggests a trust (what type?) but the last paragraph suggests a will will suffice.

bsteiner
Posts: 3661
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Need advice will vs trust for my situation

Post by bsteiner » Wed Jul 25, 2018 3:50 pm

RMD3819 wrote:
Wed Jul 25, 2018 11:04 am
bsteiner wrote:
Tue Jul 24, 2018 3:59 pm
You're conflating two different issues: whether to provide for her in trust rather than outright, and whether to do so in your Will or in a revocable trust.

From what you've described, you would want to provide for her in trust rather than outright. You can give her effective control over her trust, a lesser degree of control, or no control at all.

South Dakota has enacted the Uniform Probate Code, which provides simplified procedures. So unless there's some special reason to create a revocable trust in your case, you would probably include the dispositive provisions (who gets what) in your Will.
Clarify please-

The second paragraph suggests a trust (what type?) but the last paragraph suggests a will will suffice.
A trust contained in the Will. This is by far the most common approach.

afan
Posts: 3969
Joined: Sun Jul 25, 2010 4:01 pm

Re: Need advice will vs trust for my situation

Post by afan » Wed Jul 25, 2018 4:07 pm

You can create a trust now, usually a revocable living trust RLT. You would place your assets in the trust now. The trust would contain language defining what will happen at your death. As several have suggested, you would want there to be a trust with your daughter as beneficiary created at the second to die of you and your spouse.

The alternative is to use your will to create a trust. There would be no trust while either of you are alive. Upon the second death, a trust would be established for your daughter with the same provisions as would have been in the RLT.

Once you are both dead there would be a trust on behalf of your daughter and its terms would be the same whether created by your wills or your trusts. The only question is whether to have trusts while you are alive.

In either case, I would suggest NOT having the trust distribute the money to your daughter at some specified age. She is old enough that if she were going to become good at managing her finances it would have happened by now. There are many advantages to having the money in trust for the beneficiary for life.

Bsteiner says that avoiding probate, which a fully funded RLT would do, is not enough of a reason to create one for people who are residents of SD. But, based on my experience and reports from others in similar situations, it is far easier for the trustee of an RLT to take over the affairs of someone who is incapacitated than it is for the same person to do this under a durable power of attorney. Many banks and other financial institutions simply will not recognize perfectly valid DPOAs. But if the accounts are in the name of the trust, all someone would have to do is prove they are the trustee and the financial companies cooperate.

So the suggestions are
1. Leave your assets in trust for your daughter, not to her outright.
2. Have the assets stay in trust for her life, rather than being distributed to her at any age.
3. Although you can do 1 and 2 with a trust created by will and the effect after you are gone will be identical to establishing an RLT, the largest value of the living trust is while you are still living. Avoiding probate might be nice and simplify one aspect of settling your estate, but apparently it is not that hard in SD.

I would note that, although it may not be that difficult, probate is still one more thing to be done. For me, I would rather handle what I can now instead of leaving it to be taken care of by someone else after I die.
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
FIREchief
Posts: 2768
Joined: Fri Aug 19, 2016 6:40 pm

Re: Need advice will vs trust for my situation

Post by FIREchief » Wed Jul 25, 2018 4:13 pm

+1 to afan's recommendations. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Mjar
Posts: 136
Joined: Wed May 23, 2018 5:18 pm

Re: Need advice will vs trust for my situation

Post by Mjar » Wed Jul 25, 2018 4:18 pm

RMD3819 wrote:
Tue Jul 24, 2018 3:30 pm
Need advice of a will vs trust for my situation.

Wife and I both mid 50s and retired. We live and travel full time in our RV. When we did this we left our long time state of FL, where our latest wills were made, and switched to domicile in SD.

-Own no real estate.
-Own one car and the RV.
-I have a pension that dies with me.
-Wife will have a pension at 62; haven't decided about the spousal benefit yet.
-The majority of our assets are in taxable/IRA/Roth/457/CD spread across multiple brokerages-the big names. $1.4M total
-Combined $500K life insurance

We have one child, a daughter in her 30s. She is married. Both her and her H are awful with money. I have emotionally accepted that when we are both dead whatever they get will be spent in record time.

We need to redo our wills and POA etc since changing our domicile to SD so now is the time to do a trust if that is appropriate.

Concerns:

-The life insurance and all investments have the spouse as beneficiary and her as contingent.
-When the last of us dies, or we die together, she will melt into a puddle. She needs someone to call and get the assets distributed to her, and she will need her hand held every step of the way. Normal life is overwhelming for her now, this will be way too complex on top of her grieving.
-We do not have any other reliable family to do this. We do have a family friend who has agreed to help. She is reliable and level headed but has no specific experience with these issues.

Do we even need a trust?

Ideas?
I would. If they are bad with money and they will blow thru it, it teaches them nothing further than they can always get bailed out, why not just donate to a charity in your trust/will with whatever is left over, it will help that charity more than what your daughter/SIL will do with it. My kids are young and if I don't trust them with my money or are financially irresponsible I plan on writing it all charity. Don't reward their financial irresponsibility, because they won't learn unless they have a reason to IMHO.

afan
Posts: 3969
Joined: Sun Jul 25, 2010 4:01 pm

Re: Need advice will vs trust for my situation

Post by afan » Wed Jul 25, 2018 4:38 pm

This depends on one's relationship with one's children and feelings about parenthood.

I would not have taken that attitude if my kids would have inherited money at age 18 and I would not take that attitude at their age 48. No one is perfect. They are my kids. If they cannot handle money responsibly, that is one more burden in their lives. I would like to help them with their burdens.

This particular problem can be handled well with a trust and a corporate trustee. I would far rather go that route than abandon my adult children because they suffer from a weakness. Everyone has weaknesses and, as things go, this one has a straightforward solution.

We are lucky in that our kids are quite frugal and at least one of them is so responsible about managing finances that this young adult could easily do the job of trustee for the whole family. Already signed up to be our successor trustee when we are no longer able to manage things ourselves. But disowning my kids because they are not good at something I consider important is not within the realm of possibility.

For those who feel a need to punish their adult children for being bad with money, consider the cost of the corporate trustee to be that punishment.
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
PalmQueen
Posts: 75
Joined: Sun Jul 08, 2018 6:09 pm

Re: Need advice will vs trust for my situation

Post by PalmQueen » Wed Jul 25, 2018 4:55 pm

I concur with those who recommend some type of trust. My caveat, from experiences of many, is that under no circumstances would I name a specific corporate trustee. If no family is available, I'd tap that trusted, level-headed friend. This doesn't mean the friend has to do the work themselves. It means they are free to hire whatever professional assistance they require. But, and this is the important part, the people they hire will have to follow their direction. There are too many stories of corporate trustees putting their profit/interests before those of the people they have been hired to serve.

User avatar
FIREchief
Posts: 2768
Joined: Fri Aug 19, 2016 6:40 pm

Re: Need advice will vs trust for my situation

Post by FIREchief » Wed Jul 25, 2018 4:55 pm

afan wrote:
Wed Jul 25, 2018 4:38 pm
For those who feel a need to punish their adult children for being bad with money, consider the cost of the corporate trustee to be that punishment.
That is a great way to look at this. That 1% annual fee would be a bargain.

In my experience, those who are bad with money are already punishing themselves. No need to pile on.
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
FIREchief
Posts: 2768
Joined: Fri Aug 19, 2016 6:40 pm

Re: Need advice will vs trust for my situation

Post by FIREchief » Wed Jul 25, 2018 5:00 pm

PalmQueen wrote:
Wed Jul 25, 2018 4:55 pm
If no family is available, I'd tap that trusted, level-headed friend.
Unfortunately, these don't exist in many situations. Also, trusted friends can die, become distracted by life, lose interest, etc.
There are too many stories of corporate trustees putting their profit/interests before those of the people they have been hired to serve.
Unfortunately, this is the nature of the beast. Corporate trustees are in it for the profit. That's their job. There's no perfect solution here. In the OPs situation, I think a corporate trustee is likely the lesser of the evils.
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
PalmQueen
Posts: 75
Joined: Sun Jul 08, 2018 6:09 pm

Re: Need advice will vs trust for my situation

Post by PalmQueen » Wed Jul 25, 2018 5:18 pm

FIREchief wrote:
Wed Jul 25, 2018 5:00 pm
PalmQueen wrote:
Wed Jul 25, 2018 4:55 pm
If no family is available, I'd tap that trusted, level-headed friend.
Unfortunately, these don't exist in many situations. Also, trusted friends can die, become distracted by life, lose interest, etc.
There are too many stories of corporate trustees putting their profit/interests before those of the people they have been hired to serve.
Unfortunately, this is the nature of the beast. Corporate trustees are in it for the profit. That's their job. There's no perfect solution here. In the OPs situation, I think a corporate trustee is likely the lesser of the evils.
Daughter could be co-trustee with the authority to replace the corporate trustee for any reason.
What I'd want to avoid is locking in a corporate trustee as sole trustee for all time with no oversight.

BigJohn
Posts: 1631
Joined: Wed Apr 02, 2014 11:27 pm

Re: Need advice will vs trust for my situation

Post by BigJohn » Wed Jul 25, 2018 6:01 pm

PalmQueen wrote:
Wed Jul 25, 2018 4:55 pm
I concur with those who recommend some type of trust. My caveat, from experiences of many, is that under no circumstances would I name a specific corporate trustee. If no family is available, I'd tap that trusted, level-headed friend. This doesn't mean the friend has to do the work themselves. It means they are free to hire whatever professional assistance they require. But, and this is the important part, the people they hire will have to follow their direction. There are too many stories of corporate trustees putting their profit/interests before those of the people they have been hired to serve.
To each his or her own but if were a trusted and level headed friend, why would I ever want to become involved in the ugly situations that will inevitably arise when I tell their daughter she can’t have as much money as she wants? Not sure I’d ever agree to this unless it was for a special needs child trust and I’m 100% sure I’d never ask even my closest and most trusted friend to do this for me i this situation. The only scenario that I think will work for a very adult child with bad money management is to have the “cover” of a corporate trustee who is just following the explicit instructions laid out in the will.

User avatar
FIREchief
Posts: 2768
Joined: Fri Aug 19, 2016 6:40 pm

Re: Need advice will vs trust for my situation

Post by FIREchief » Wed Jul 25, 2018 6:11 pm

PalmQueen wrote:
Wed Jul 25, 2018 5:18 pm
FIREchief wrote:
Wed Jul 25, 2018 5:00 pm
PalmQueen wrote:
Wed Jul 25, 2018 4:55 pm
If no family is available, I'd tap that trusted, level-headed friend.
Unfortunately, these don't exist in many situations. Also, trusted friends can die, become distracted by life, lose interest, etc.
There are too many stories of corporate trustees putting their profit/interests before those of the people they have been hired to serve.
Unfortunately, this is the nature of the beast. Corporate trustees are in it for the profit. That's their job. There's no perfect solution here. In the OPs situation, I think a corporate trustee is likely the lesser of the evils.
Daughter could be co-trustee with the authority to replace the corporate trustee for any reason.
What I'd want to avoid is locking in a corporate trustee as sole trustee for all time with no oversight.
I'm not sure how this would work. If daughter could replace co-trustee wouldn't daughter just find somebody who would give her all the money?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Topic Author
RMD3819
Posts: 41
Joined: Wed Mar 27, 2013 3:40 pm

Re: Need advice will vs trust for my situation

Post by RMD3819 » Thu Jul 26, 2018 4:51 pm

Wow! So many fantastic comments giving me things to think about.

FireChief-Your post in particular hit me in the head. Given her employment patterns I doubt DD will earn enough credits for SS and if she does it will be the minimum amount. The trust may be a way to provide support when she retires (or before).

The other point I did not think about is if/when the last of us is incapacitated. We have LTCI so that will need to be managed also if we can't do it.

I'll try and answer the questions:

The life insurance is because we are living off my pension which dies with me. The wife's pension at 62 is only $8K/year. Don't need the policy on her but continue to pay it because it is $600/year for $300K. The term has expired so if the premium rises drastically I'll cancel it.

I acknowledge the points made with disinheriting her but neither one of us would consider that. I don't like the "enabling" aspect of this but we'll both be dead so might as well let DD have it.

I assume a trust could be set up in perpetuity? When DD dies the beneficiary could be someone "next in line" named by us (and not DD)?

We will be in SD in a few months and will speak with an attorney.

Keep the ideas coming.

Topic Author
RMD3819
Posts: 41
Joined: Wed Mar 27, 2013 3:40 pm

Re: Need advice will vs trust for my situation-UPDATE

Post by RMD3819 » Thu Oct 04, 2018 12:26 pm

Update-

We met with a SD estate planning lawyer. Wills, POA and healthcare package is $1400 (which he said he thought was high) or $2200 for a trust with the wills etc. Trust charges 1% per year when activated.

This was a no cost consultation with no monies due until we are happy with the final documents. Wife and I were are comfortable with this firm. Much of what he said aligned with the advice of others in this thread.

We are going with the trust with pour over wills. I would like to save the money by saying screw it give all to the daughter at once but their are other things we would like to do with OUR money and she simply cannot be relied upon to do this. Additionally she could never handle probate.

What we decided:
-Spouse beneficiary on life insurance, 401Ks etc with trust as secondary beneficiary. Trust instructed to give X amount to specified charities before daughter.
-Daughter gets a lump sum plus X% per year for her lifetime. She can ask for more for medical bills.
-When daughter dies if there is anything left it goes to our niece (now 8) when she is 25 under similar terms.
-We will transfer title of our two vehicles to the trust.
-When the last of us dies she has a single point of contact-the trustee-to handle things. This is a key point.
-DD will be our healthcare POA as we feel she can handle this and follow through on our wishes.
-Family friend agrees to be financial POA as she is level headed and trusted.

Questions for the group here on things I didn't think about until the meeting was over:

The lawyer talked about probate and how messy it can become. Doesn't a will avoid probate?

He also echoed bsteiner about SD having good laws on these things and we need to choose a SD bank to be the trustee so SD law will govern the distribution. If we choose a SD bank as trustee and we establish residency in another state do we have to redo this all over again? Any advice on choosing a bank/trustee?

afan
Posts: 3969
Joined: Sun Jul 25, 2010 4:01 pm

Re: Need advice will vs trust for my situation

Post by afan » Thu Oct 04, 2018 4:39 pm

Trust charges 1% per year when activated.
The trust should not state the trustee fee. That would depend on the corporate trustee you use.

A will does not avoid probate. Probate is the process of settling an estate according to the terms of the will.

Bsteiner says that probate in SD is not that bad. I would take his word for it.

What could get messy would be if your daughter wanted to challenge the will and get her money outright. You know her and are the best predictor of what she might do.

If she did want to fight I don't know whether it would matter having funded a living trust or leaving everything to be taken care of by your will. But bsteiner will be able to answer that.

If the trust is going to be the beneficiary of the retirement accounts then it needs to be specially drafted to be an accumulation trust eligible to stretch required minimum distributions over your daughter's lifetime. You will want to check that this is what the lawyer plans to do. An alternative trust that could stretch the RMDs over her life could maintain that option but would immediately pay that money to your daughter, which sounds like a bad idea.

I don't think you need to choose a South Dakota bank as trustee, but that is an option. There is a big trustee business there because of asset protection laws. Vanguard could do it as well. Their fees might be lower.

Vanguard will not settle the estate. It seems you do not have someone who would be a good choice for that job. So a bank could be a good fallback.

Your trust should say that it is governed by the laws of SD and that would not change if you move.

However, a different state might have different laws that would make changing your plans advisable. Some states have estate taxes and others do not, for example.
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

smackboy1
Posts: 1032
Joined: Wed Mar 14, 2007 9:41 pm

Re: Need advice will vs trust for my situation-UPDATE

Post by smackboy1 » Fri Oct 05, 2018 9:39 am

RMD3819 wrote:
Thu Oct 04, 2018 12:26 pm
We are going with the trust with pour over wills. I would like to save the money by saying screw it give all to the daughter at once but their are other things we would like to do with OUR money and she simply cannot be relied upon to do this. Additionally she could never handle probate.

What we decided:
-Spouse beneficiary on life insurance, 401Ks etc with trust as secondary beneficiary. Trust instructed to give X amount to specified charities before daughter.
-Daughter gets a lump sum plus X% per year for her lifetime. She can ask for more for medical bills.
-When daughter dies if there is anything left it goes to our niece (now 8) when she is 25 under similar terms.
-We will transfer title of our two vehicles to the trust.
-When the last of us dies she has a single point of contact-the trustee-to handle things. This is a key point.
-DD will be our healthcare POA as we feel she can handle this and follow through on our wishes.
-Family friend agrees to be financial POA as she is level headed and trusted.

Questions for the group here on things I didn't think about until the meeting was over:

The lawyer talked about probate and how messy it can become. Doesn't a will avoid probate?

He also echoed bsteiner about SD having good laws on these things and we need to choose a SD bank to be the trustee so SD law will govern the distribution. If we choose a SD bank as trustee and we establish residency in another state do we have to redo this all over again? Any advice on choosing a bank/trustee?
There seems to be some confusion so let me help, but you should go back to your lawyer for the definitive answers.

Almost any responsible and stable adult can be an executor, it's not difficult. They can and should hire a lawyer and accountant who will handle all the technicalities. A lawyer or accountant could be named as executor or listed in the line of succession. What would be extremely helpful is writing down a list of where to find all the legal documents, accounts, and assets.

Probate is the state court process where a will is proved and an estate raised. In order to be given effect, a will must go through probate. Not sure why your lawyer said it could be "messy". It could be, but in most straight forward situations it's simple and quick.

It sounds like what you have is a revocable trust(s) with a pour over will(s). Unlike a testamentary trust, a revocable trust bypasses probate. The pour over will has to go through probate. A pour over will is just a simple catch-all to gather up any assets that you have not retitled in the revocable trust's name, and transfer them to the trust. At death the revocable trust becomes irrevocable and it's the trust that controls what happens to the assets. Properly done, there should be almost nothing going through the pour over will except personal items, maybe a small bank account or a car. Probate of a pour over will should be quick and easy. The most common failure of a revocable trust is that people never get around to to retitling their assets and everything goes through the pour over will :oops:

I'm a little unclear but are you are hiring a trustee right now? In most situations similar to described you would be your own trustee for your revocable trust during your lifetime. While you are alive the trust is revocable it's treated the same as if you still own the assets. You have full control. It's as if the trust doesn't exist except in name. There's no extra trustee fees and no extra costs to maintain a revocable trust. It doesn't make any sense to pay a professional trustee while you are alive and presumably decades to live. The professional trustee comes into play when you die and the trust becomes irrevocable.

The trust is located and governed by the laws of where the trustee is. If you like SD then choose only SD trustees and successors. However, laws and situations change so I would not recommend making it a hard requirement. In the future DE might have better laws or Vanguard (PA) might be the best choice of trustee. A well written trust should not need to be completely rewritten just because you change residency or if the trustee relocates to a different state. A well written trust should contain clauses that allow modifications to fix any state law conflicts as well as process for firing and hiring trustees. It's also might be worth including a decanting provision to allow trust assets to be transferred to another trust. That being said, estate plans are not meant to last forever. They should be periodically revised when new laws or family situations arise.

Be wary of only planning for your "best case scenario". Hope for the best but prepare for the worst. Give the trust flexibility and resilience to handle many different risks such as:
- What if your daughter has a large creditor (e.g. ex spouse)? Any mandatory distributions given to her might be taken.
- What if you have grandchildren one day?
- What if you or your spouse dies and the other gets remarried and then dies? What if the new spouse is hostile to your daughter?
- What if a beneficiary has a large $ need that is not a medical cost? Legal costs? Education? Ransom?
- Make sure there is a line of successors for each role e.g. executor might not be needed for decades.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

User avatar
FIREchief
Posts: 2768
Joined: Fri Aug 19, 2016 6:40 pm

Re: Need advice will vs trust for my situation-UPDATE

Post by FIREchief » Fri Oct 05, 2018 1:24 pm

smackboy1 wrote:
Fri Oct 05, 2018 9:39 am
It sounds like what you have is a revocable trust(s) with a pour over will(s). Unlike a testamentary trust, a revocable trust bypasses probate. The pour over will has to go through probate.
It looks like SD has a small estate limit of $50,000; so if the pour over assets are less than $50,000, they can be transferred by affidavit and not have to go through a formal probate process.
The professional trustee comes into play when you die and the trust becomes irrevocable.
Isn't it also possible that a person becomes incapacitated and desires an independent trustee to control their assets?
Be wary of only planning for your "best case scenario". Hope for the best but prepare for the worst. Give the trust flexibility and resilience to handle many different risks such as:
- What if your daughter has a large creditor (e.g. ex spouse)? Any mandatory distributions given to her might be taken.
- What if you have grandchildren one day?
- What if you or your spouse dies and the other gets remarried and then dies? What if the new spouse is hostile to your daughter?
- What if a beneficiary has a large $ need that is not a medical cost? Legal costs? Education? Ransom?
- Make sure there is a line of successors for each role e.g. executor might not be needed for decades.
Excellent points.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

nyc212
Posts: 3
Joined: Mon Oct 22, 2018 12:06 pm

Re: Need advice will vs trust for my situation

Post by nyc212 » Mon Oct 22, 2018 12:40 pm

Upon the death of both spouses, there are three choices: (1) distribute outright, (2) distribute through a trust for which you will incur trustee fees and the trustee might not perform according to your wishes, and (3) purchase an annuity that would pay out a certain amount of money based upon the annuity purchased.

Topic Author
RMD3819
Posts: 41
Joined: Wed Mar 27, 2013 3:40 pm

Re: Need advice will vs trust for my situation

Post by RMD3819 » Fri Jan 11, 2019 5:24 pm

Update-

Finally got everything done and signed. We are comfortable that the trust will distribute things as we wish. Our daughter (now 33) gets payments for her lifetime the our niece (now 8) then gets it for the rest of her life and then to specific charities when she dies.

A few more things for the group-

Documents are asking for the trust ID which is my SS number. I would rather not have that floating around. Can I put "RMD3819's SS" instead of the actual number?

We have to distribute documents to the beneficiaries and am wondering how much to actually share with them. The trust lists details of the distribution, including a lump sum amount and would rather keep that confidential.

I wish I didn't think this way but I can foresee my daughter and/or my SIL/BIL (niece's parents) calling the bank now and try to get some advance or loan or something off the future "inheritance". I know that can't be done-no money in the trust until we die-but want to avoid fodder for that situation.

I am thinking the following:

1.Family friend-all documents (wills, POAs, trust)
2. Daughter and SIL/BIL- all documents except trust papers with instructions on what/who to call when we die. Let the bank explain the details then.

Finally the documents collectively are too large for a single email and I don't want to send multiple emails or print and mail. I am considering a usb drive for everyone. Anyone see a problem with that?

Thoughts?

Post Reply