Marital trust created by will

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b4real
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Marital trust created by will

Post by b4real » Thu Feb 07, 2019 2:01 pm

We are currently reviewing draft estate planning documents. The attorney has recommended re-titling the house to 50/50 tenants in common and, when the first spouse dies, the will specifies that ½ the house, ½ the taxable accounts, and the deceased spouse’s personal property are placed in a marital trust controlled by the surviving spouse. The deceased spouse’s tIRA and Roth will transfer to the surviving spouse’s tIRA/Roth. When the 2nd spouse dies, lifetime trusts are created for the beneficiaries - children or grandchildren if the parent has died. Our children are adults, will be trustee of their trust, and can dissolve their trust if they wish.

The attorney says using the marital trust for the surviving spouse and the lifetime trusts for the children/grandchildren will better protect the assets from creditors and divorce.

We live in Colorado and the estate is currently mid 2m. Estate is fairly simple with no out of state property and financial assets at Vanguard.
Is this arrangement reasonable? Is the use of a marital trust common in this situation?
Thank you.

Horsefly
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Re: Marital trust created by will

Post by Horsefly » Thu Feb 07, 2019 2:28 pm

DW and I are also in Colorado, and are having our estate documents reviewed and amended by a different attorney than did the original about 6 years ago (long story, but we didn't really like the old attorney). We also have two adult kids, and our estate is probably worth something closer to $7M. I don't think that difference ($2M vs $7M) is enough to drive a significant difference in case of the estate docs. I have some interest in a couple of LLC items outside the joint estate, and also don't have any property outside the state of Colorado (at least not yet). So I think our situations are similar.

I'll admit that this stuff makes my head spin, so I'm not certain about it. Also, I'm waiting to see what the new attorney recommends. Having said that, here's the way I *THINK* it works:

We have most non-retirement assets (house, bank accounts, taxable investments) in a family living trust (revocable). When one of us dies, the original docs made the original trust become an irrevocable family trust, and half of the assets go there. The other half goes into a revocable living trust in the name of the surviving spouse.

Our kids are the successor trustees for our trusts, so when the second spouse dies or is incapable, they will - together - be responsible for the trust(s).

Upon the death of the second spouses, all the assets pass equally to revocable trusts in the name of each daughter, with them each as the trustee of their own trust.

Why is mine different from yours? I don't know. On first initial review, the new attorney thought the structure set up by the original attorney was a little over-kill, especially now that the marital exemption for estate tax is over $11M.

Topic Author
b4real
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Re: Marital trust created by will

Post by b4real » Thu Feb 07, 2019 8:31 pm

Thanks horsefly! I'd be interested in your new attorney's recommendations if you'd be willing to post again on this.

6Pack
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Re: Marital trust created by will

Post by 6Pack » Thu Feb 07, 2019 9:00 pm

I’m not a Colorado attorney, but I can’t help but wonder why the complications of unnecessarily passing part of the house through a trust.

It doesn’t look like tenancy by the entireties is available in Colorado (https://law.justia.com/codes/colorado/2 ... 38-31-201/), but joint tenancy with rights of survivorship is an option.

I’d ask your lawyer what advantage this trust has over titling the house as joint tenants with rights of survivorship.

This is my initial “off the cuff” reaction.

Gill
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Re: Marital trust created by will

Post by Gill » Thu Feb 07, 2019 9:04 pm

b4real wrote:
Thu Feb 07, 2019 2:01 pm
We are currently reviewing draft estate planning documents. The attorney has recommended re-titling the house to 50/50 tenants in common and, when the first spouse dies, the will specifies that ½ the house, ½ the taxable accounts, and the deceased spouse’s personal property are placed in a marital trust controlled by the surviving spouse. The deceased spouse’s tIRA and Roth will transfer to the surviving spouse’s tIRA/Roth. When the 2nd spouse dies, lifetime trusts are created for the beneficiaries - children or grandchildren if the parent has died. Our children are adults, will be trustee of their trust, and can dissolve their trust if they wish.

The attorney says using the marital trust for the surviving spouse and the lifetime trusts for the children/grandchildren will better protect the assets from creditors and divorce.

We live in Colorado and the estate is currently mid 2m. Estate is fairly simple with no out of state property and financial assets at Vanguard.
Is this arrangement reasonable? Is the use of a marital trust common in this situation?
Thank you.
I haven’t been involved recently with current techniques of estate planning, but this all seems unnecessarily complex. There are no Federal estate taxes involved, so why a marital trust? Also, putting personal property in a marital trust? Do you realize the decedent’s clothing, jewelry, automobile and furniture will all become trust assets? Also, splitting the ownership of the house seems unnecessary and complicated. Why not just leave everything outright to the survivor with the survivor’s estate being held in trust for the children?
Gill
...just “chiming in” as described by Livesoft

engineerartist
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Re: Marital trust created by will

Post by engineerartist » Fri Feb 08, 2019 3:12 pm

We moved from California (community property state), where we had created a revocable trust to include our joint assets to Georgia (common law state) in 2016 where our attorney here recommended exactly the same scenario as the OP. Perhaps the only difference is that I understand the testamentary trusts to be irrevocable.

In our case, this solution was recommended because we each have children (and now grandchildren) from previous marriages and wanted to codify our desires for the eventual distribution of our estate. Probate costs and potential delays are significantly lower here than in California, so testamentary trusts actually simplify our estate plans and re-titling our assets as Tenants in Common doesn't seem to provide any impediments.
Retired - dividend growth investor

bsteiner
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Re: Marital trust created by will

Post by bsteiner » Fri Feb 08, 2019 5:26 pm

engineerartist wrote:
Fri Feb 08, 2019 3:12 pm
We moved from California (community property state), where we had created a revocable trust to include our joint assets to Georgia (common law state) in 2016 where our attorney here recommended exactly the same scenario as the OP. Perhaps the only difference is that I understand the testamentary trusts to be irrevocable.

In our case, this solution was recommended because we each have children (and now grandchildren) from previous marriages and wanted to codify our desires for the eventual distribution of our estate. Probate costs and potential delays are significantly lower here than in California, so testamentary trusts actually simplify our estate plans and re-titling our assets as Tenants in Common doesn't seem to provide any impediments.
You might want to keep your California revocable trust to track your community property since it will receive a full basis step-up at the first spouse's death.

Except for that, you are correct that probate is simple in Georgia but not in California.

Notwithstanding the name of it, a revocable trust becomes irrevocable at death since after you die if you revoke it we won't know about it. Likewise, your Will is revocable during your lifetime but becomes irrevocable at your death.

Topic Author
b4real
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Re: Marital trust created by will

Post by b4real » Fri Feb 08, 2019 5:43 pm

Gill wrote:
Thu Feb 07, 2019 9:04 pm
b4real wrote:
Thu Feb 07, 2019 2:01 pm
We are currently reviewing draft estate planning documents. The attorney has recommended re-titling the house to 50/50 tenants in common and, when the first spouse dies, the will specifies that ½ the house, ½ the taxable accounts, and the deceased spouse’s personal property are placed in a marital trust controlled by the surviving spouse. The deceased spouse’s tIRA and Roth will transfer to the surviving spouse’s tIRA/Roth. When the 2nd spouse dies, lifetime trusts are created for the beneficiaries - children or grandchildren if the parent has died. Our children are adults, will be trustee of their trust, and can dissolve their trust if they wish.

The attorney says using the marital trust for the surviving spouse and the lifetime trusts for the children/grandchildren will better protect the assets from creditors and divorce.

We live in Colorado and the estate is currently mid 2m. Estate is fairly simple with no out of state property and financial assets at Vanguard.
Is this arrangement reasonable? Is the use of a marital trust common in this situation?
Thank you.
I haven’t been involved recently with current techniques of estate planning, but this all seems unnecessarily complex. There are no Federal estate taxes involved, so why a marital trust? Also, putting personal property in a marital trust? Do you realize the decedent’s clothing, jewelry, automobile and furniture will all become trust assets? Also, splitting the ownership of the house seems unnecessary and complicated. Why not just leave everything outright to the survivor with the survivor’s estate being held in trust for the children?
Gill
Thanks for your input. Our concern with the complexity of the marital trust for the surviving spouse is why we posted here for opinions from those who understand this better than we do. We will follow up with our attorney to discuss the pros and cons of this structure, especially for the surviving spouse.

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celia
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Re: Marital trust created by will

Post by celia » Fri Feb 08, 2019 6:25 pm

Gill wrote:
Thu Feb 07, 2019 9:04 pm
b4real wrote:
Thu Feb 07, 2019 2:01 pm
We are currently reviewing draft estate planning documents. The attorney has recommended re-titling the house to 50/50 tenants in common and, when the first spouse dies, the will specifies that ½ the house, ½ the taxable accounts, and the deceased spouse’s personal property are placed in a marital trust controlled by the surviving spouse. The deceased spouse’s tIRA and Roth will transfer to the surviving spouse’s tIRA/Roth. When the 2nd spouse dies, lifetime trusts are created for the beneficiaries - children or grandchildren if the parent has died. Our children are adults, will be trustee of their trust, and can dissolve their trust if they wish.

The attorney says using the marital trust for the surviving spouse and the lifetime trusts for the children/grandchildren will better protect the assets from creditors and divorce.

We live in Colorado and the estate is currently mid 2m. Estate is fairly simple with no out of state property and financial assets at Vanguard.
Is this arrangement reasonable? Is the use of a marital trust common in this situation?
Thank you.
I haven’t been involved recently with current techniques of estate planning, but this all seems unnecessarily complex. There are no Federal estate taxes involved, so why a marital trust? Also, putting personal property in a marital trust? Do you realize the decedent’s clothing, jewelry, automobile and furniture will all become trust assets? Also, splitting the ownership of the house seems unnecessary and complicated. Why not just leave everything outright to the survivor with the survivor’s estate being held in trust for the children?
Gill
This is to protect the kids and grandkids. If the survivor remarries, and the new spouse survives the original survivor, the relatives of the second spouse could end up with everything.

Trusts are also useful for specifying successor trustees who can then act (decide on most things) if the original trustees are still alive but their cognitive skills have diminished. They can decide which assets to use for your living expenses, pay for house repairs, represent you in court, etc.

FBN2014
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Re: Marital trust created by will

Post by FBN2014 » Fri Feb 08, 2019 10:17 pm

celia wrote:
Fri Feb 08, 2019 6:25 pm
Gill wrote:
Thu Feb 07, 2019 9:04 pm
b4real wrote:
Thu Feb 07, 2019 2:01 pm
We are currently reviewing draft estate planning documents. The attorney has recommended re-titling the house to 50/50 tenants in common and, when the first spouse dies, the will specifies that ½ the house, ½ the taxable accounts, and the deceased spouse’s personal property are placed in a marital trust controlled by the surviving spouse. The deceased spouse’s tIRA and Roth will transfer to the surviving spouse’s tIRA/Roth. When the 2nd spouse dies, lifetime trusts are created for the beneficiaries - children or grandchildren if the parent has died. Our children are adults, will be trustee of their trust, and can dissolve their trust if they wish.

The attorney says using the marital trust for the surviving spouse and the lifetime trusts for the children/grandchildren will better protect the assets from creditors and divorce.

We live in Colorado and the estate is currently mid 2m. Estate is fairly simple with no out of state property and financial assets at Vanguard.
Is this arrangement reasonable? Is the use of a marital trust common in this situation?
Thank you.
I haven’t been involved recently with current techniques of estate planning, but this all seems unnecessarily complex. There are no Federal estate taxes involved, so why a marital trust? Also, putting personal property in a marital trust? Do you realize the decedent’s clothing, jewelry, automobile and furniture will all become trust assets? Also, splitting the ownership of the house seems unnecessary and complicated. Why not just leave everything outright to the survivor with the survivor’s estate being held in trust for the children?
Gill
This is to protect the kids and grandkids. If the survivor remarries, and the new spouse survives the original survivor, the relatives of the second spouse could end up with everything.

Trusts are also useful for specifying successor trustees who can then act (decide on most things) if the original trustees are still alive but their cognitive skills have diminished. They can decide which assets to use for your living expenses, pay for house repairs, represent you in court, etc.
Only the assets in the marital trust would be protected for the kids and grandkids, correct? The survivor's assets could still go to the second spouse. How do your prevent that from happening?
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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celia
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Re: Marital trust created by will

Post by celia » Mon Feb 11, 2019 12:05 am

FBN2014 wrote:
Fri Feb 08, 2019 10:17 pm
Only the assets in the marital trust would be protected for the kids and grandkids, correct? The survivor's assets could still go to the second spouse. How do your prevent that from happening?
Put EVERYTHING in the trust except your vehicles (to minimize expense lawsuits should you be in an accident). Some people think "trust" means there is lots of money hidden somewhere.

The trust can split into the survivor's trust and deceased's trust upon the death of the first person.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

FBN2014
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Re: Marital trust created by will

Post by FBN2014 » Mon Feb 11, 2019 7:54 am

celia wrote:
Mon Feb 11, 2019 12:05 am
FBN2014 wrote:
Fri Feb 08, 2019 10:17 pm
Only the assets in the marital trust would be protected for the kids and grandkids, correct? The survivor's assets could still go to the second spouse. How do your prevent that from happening?
Put EVERYTHING in the trust except your vehicles (to minimize expense lawsuits should you be in an accident). Some people think "trust" means there is lots of money hidden somewhere.

The trust can split into the survivor's trust and deceased's trust upon the death of the first person.
So is the survivor's trust also protected from creditors and a second spouse? How can that work if the surviving spouse is trustee of their own trust and the decedent's trust? Are new EIN numbers necessary? What would be the nomenclature for these trusts? I would think you would want the option of a marital trust in the event that the federal estate tax exemption is lowered in the future. Some of the current Democrat candidates are talking about rolling it back significantly.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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celia
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Re: Marital trust created by will

Post by celia » Mon Feb 11, 2019 2:09 pm

FBN2014 wrote:
Mon Feb 11, 2019 7:54 am
So is the survivor's trust also protected from creditors and a second spouse? How can that work if the surviving spouse is trustee of their own trust and the decedent's trust? Are new EIN numbers necessary? What would be the nomenclature for these trusts? I would think you would want the option of a marital trust in the event that the federal estate tax exemption is lowered in the future. Some of the current Democrat candidates are talking about rolling it back significantly.
You should talk to a lawyer in your own state. I am not a lawyer, but live in California which is a community property state. People here tend to not activate trusts at the time of their death. They activate them as part of their estate planning and put everything in them right away (except cars).

The survivor can always do what they want with their half and, if they need more money for living expenses, they can usually spend from the deceased's half. They can even make another trust with their new spouse. Ownership of the house does not need to be split in half at the time of the first death, just the value of all the assets. But you could re-title the house as half of the deceased's trust and half of the survivor, if you want. There are other variations of splits depending on the overall assets.

Protection from creditors is probably not what you are thinking. There's nothing to stop the survivor from taking out loans they can't afford or maxing out their credit cards. The purpose of "creditor protection" is that the trustee wouldn't/shouldn't allow the trust of the survivor to be used as collateral for the loan. It is meant for necessary living expenses of the beneficiary. Think of it more as protection for someone who is mentally incapacitated and the trustee needs to make wise financial decisions on their behalf so the money can last the beneficiary's lifetime.

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