Will or Trust?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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Kanefa
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Will or Trust?

Post by Kanefa » Fri Oct 12, 2018 9:41 am

My mother and I went to an attorney, because she wants a will, durable power of attorney, medical power of attorney, and a directive to physicians. She is now considering a trust. The reasons are that we can avoid probate and my sibling would be protected from potential creditors (liens may exist). All of which seem reasonable. However, my mom’s assets are a house (300k) and a 401k (300k) which seem straightforward. What factors should we consider when deciding between a will and a trust? My mother lives in Texas.

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cheese_breath
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Re: Will or Trust?

Post by cheese_breath » Fri Oct 12, 2018 9:58 am

When you went to the attorney did you ask him or her? What did (s)he say?
The surest way to know the future is when it becomes the past.

bsteiner
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Re: Will or Trust?

Post by bsteiner » Fri Oct 12, 2018 10:06 am

Neither creditor protection nor probate is a factor in deciding whether she should create a revocable trust.

There's no difference in the creditor protection. Your mother can provide for your sister either outright (no creditor protection) or in trust (creditor protection) under either a Will or under a revocable trust.

Probating a Will in Texas is not difficult, expensive or burdensome, so it wouldn't be worth the effort to try to avoid having to probate her Will.

Is there some other reason to create a revocable trust in this case?

Far more important than whether your mother creates a revocable trust is making sure that the trust for your sister that receives her share of the 401(k) benefits (whether under your mother's Will or under a revocable trust) contains the necessary provisions for trusts that receive retirement benefits.

Kanefa
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Re: Will or Trust?

Post by Kanefa » Sat Oct 13, 2018 6:14 pm

@cheese_breath I did not ask them, but I will the next chance I have.

@bsteiner We don't have any additional reasons to create a revocable trust. My mother's motivation was to simplify things for me (executor) and protect my sibling from creditors.

The preliminary documents show the living trust as follows. Home, financial accounts, and insurance policies will be titled in name of the trust. A pour over will exist to transfer assets into the trust. My mother is the trustee and I will be the successor trustee. I will receive my share outright and free of the trust. I will distribute my sibling's share. As it stands it appears that the retirement accounts are following the beneficiary designation (with note to discuss). I will follow up on this.

Greenman72
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Re: Will or Trust?

Post by Greenman72 » Sat Oct 13, 2018 6:18 pm

Kanefa wrote:
Fri Oct 12, 2018 9:41 am
My mother lives in Texas.
Probate in Texas is very, very easy. It is, by far, the easiest in all the states. So, don't let costs or hassle of probate factor into your decision.

Also, you can look into doing a Lady Bird Deed which will protect your house from creditors. And the 401k (which is not probated) would also not be subject to creditors. (You need to make sure she has the right beneficiaries on the 401k.)

In short, I think a simple will is fine. The only downside to a will--it will be public, so anybody in the world can pay the $25 bucks at the courthouse and view it--if that's important to you.

statman
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Re: Will or Trust?

Post by statman » Sat Oct 13, 2018 6:26 pm

You probably need both: A simple will that says all other assets "pour over" into the trust. This cleans up any oversights.

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Peter Foley
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Re: Will or Trust?

Post by Peter Foley » Sat Oct 13, 2018 6:44 pm

One of the reasons to have a trust is a need to have a trustee control assets after death. Is that an issue here?

Does Texas have transfer on death deeds?

bsteiner
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Re: Will or Trust?

Post by bsteiner » Sat Oct 13, 2018 8:37 pm

Kanefa wrote:
Sat Oct 13, 2018 6:14 pm
...
@bsteiner We don't have any additional reasons to create a revocable trust. My mother's motivation was to simplify things for me (executor) and protect my sibling from creditors. ...
It won't make things much simpler. Probating a Will entails having the lawyer (more likely the paralegal under the lawyer's supervision) filling out some forms and filing them with the Will and a death certificate.

It won't make any difference in the level of creditor protection for your sibling. If his/her share is outright, either under a Will or a revocable trust, it won't be protected. If it's in trust, either under a Will or a revocable trust, it will be protected.
Kanefa wrote:
Sat Oct 13, 2018 6:14 pm
... I will receive my share outright and free of the trust. ...
If your share weren't so small, it would make sense for your mother to give you the same protection for your share. You could get divorced, outlive your spouse and remarry, do well and have a taxable estate, have a creditor problem, or go into a nursing home and want Medicaid. But in this case, unless you have some reason to expect one of these events to occur, it might not be worth the effort to administer a trust for your benefit (actually two trusts, one for your share of her retirement benefits and one for your share of her other assets).
Kanefa wrote:
Sat Oct 13, 2018 6:14 pm
... it appears that the retirement accounts are following the beneficiary designation (with note to discuss).
Retirement benefits are payable to the named beneficiaries. You said that your mother's retirement benefits are half of her estate, so it's important to get this right. If her retirement benefits are payable to you and your sibling, that won't accomplish her objective of creditor protection. Your sibling's share should be payable to a trust for his/her benefit, either under your mother's Will or under her revocable trust. That trust would be identical to the trust for his/her share of your mother's other assets, except for the special requirements for trusts that receive retirement benefits.
Greenman72 wrote:
Sat Oct 13, 2018 6:18 pm
[...
Probate in Texas is very, very easy. It is, by far, the easiest in all the states. ...
Probating a Will in New Jersey is equally easy if not easier. The court clerks in New Jersey will fill out the forms for you.

It's easy in most states. I don't know why so many people think it's complicated.
Greenman72 wrote:
Sat Oct 13, 2018 6:18 pm
...
Also, you can look into doing a Lady Bird Deed which will protect your house from creditors. ...
That would add complexity.

How would that increase the creditor protection?
Greenman72 wrote:
Sat Oct 13, 2018 6:18 pm
...
In short, I think a simple will is fine. The only downside to a will--it will be public, so anybody in the world can pay the $25 bucks at the courthouse and view it--if that's important to you.
Most people's Wills are not of any interest to the public, or to the media. In this case, unless she's a celebrity, if her Will says she leaves her estate half to one child and half in trust for the other child, or half in trust for each child, that's unlikely to be of any interest to the public, or to the media.
Peter Foley wrote:
Sat Oct 13, 2018 6:44 pm
One of the reasons to have a trust is a need to have a trustee control assets after death. ...
She can create the same trust for the original poster's sibling in her Will as she can in a revocable trust. That's not a reason to create a revocable trust.

RickBoglehead
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Re: Will or Trust?

Post by RickBoglehead » Sat Oct 13, 2018 8:42 pm

Peter Foley wrote:
Sat Oct 13, 2018 6:44 pm
One of the reasons to have a trust is a need to have a trustee control assets after death. Is that an issue here?

Does Texas have transfer on death deeds?
Yes they do. That's what a Lady Bird deed is.

Florida, Texas, Michigan, Vermont, and West Virginia.

Watsd
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Re: Will or Trust?

Post by Watsd » Tue Oct 16, 2018 2:07 pm

Inherited IRAs from a spouse to a non-spouse are generally not protected from creditors. Texas does have the protection but it has not been challenged in the courts. There was a unanimous US Supreme Court decision (see https://www.supremecourt.gov/opinions/1 ... 9_6k4c.pdf) that stated inherited IRAs from a spouse to a non-spouse does not have creditor protection. You can search for Trusteed IRA but make sure whatever solution that the trustee is custodian neutral and the trustee can be removed and a new one appointed just because the beneficiary wants it.

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