Vanguard as Trustee of Estate Trust

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Gill
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Re: Vanguard as Trustee of Testamentary Trust

Post by Gill » Tue May 05, 2020 2:57 pm

oldfort wrote:
Tue May 05, 2020 12:01 pm
BuyandHold37 wrote:
Tue May 05, 2020 11:58 am
Another thing you may want to consider, depending on the amount of money we are talking about.

Create trusts that follow the bloodline, in perpetuity.
Some states have rules against perpetuities.
Not so long ago, nearly all states had the common law rule against perpetuities. Some states have now modified or repealed this rule by statute.

By the way, a trust created by a will is known as a testamentary trust, not an estate trust. Meant to mention this earlier upthread.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Tue May 05, 2020 9:32 pm

senex wrote:
Mon May 04, 2020 9:09 pm
Based on boglehead posts, both from experts and the common man, it seems that an ideally structured/managed trust can be strictly better than an outright bequest, but that (a) it's difficult to structure it ideally, (b) it's difficult to know whether you've structured it ideally (until it's too late), and (c) it's difficult to know whether the benefits are worth the costs (because both are difficult to estimate on trust timescales).

Appreciate your discourse.
It's difficult to know whether it will work out the way you think. As a simple example, suppose your spendthrift heirs decide to run up a lot of credit card debt. The debt doesn't go away simply because the money, which would be available to pay it off, is locked away in a trust. It compounds at 20% interest. Creditors can garnish wages, attach to bank accounts outside the trust, put a lien on your house, and a determined creditor in some states could force a sale of your house.

afan
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Re: Vanguard as Trustee of Estate Trust

Post by afan » Wed May 06, 2020 7:53 am

All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.

The difference is that those who do have such trusts have a source of living expenses that is as safe from being taken as it is possible to make it.
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

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Wed May 06, 2020 12:49 pm

afan wrote:
Wed May 06, 2020 7:53 am
All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.
Not true. If the heirs had inherited the money directly and it wasn't locked away inside a trust, they could have paid off their credit card debt and it never would have been sent to collections.

bayview
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Re: Vanguard as Trustee of Estate Trust

Post by bayview » Wed May 06, 2020 7:12 pm

oldfort wrote:
Wed May 06, 2020 12:49 pm
afan wrote:
Wed May 06, 2020 7:53 am
All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.
Not true. If the heirs had inherited the money directly and it wasn't locked away inside a trust, they could have paid off their credit card debt and it never would have been sent to collections.
If they’re the kind of people who run up credit card balances that they can’t pay off monthly (which then go to collections unless the Inheritance Fairy waves her wand), then they are most likely the kind of people who will burn through their inheritance or lottery or other windfall at an astonishing rate, and THEN their credit card balances will go to collections.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

afan
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Re: Vanguard as Trustee of Estate Trust

Post by afan » Thu May 07, 2020 6:25 am

oldfort wrote:
Wed May 06, 2020 12:49 pm
afan wrote:
Wed May 06, 2020 7:53 am
All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.
Not true. If the heirs had inherited the money directly and it wasn't locked away inside a trust, they could have paid off their credit card debt and it never would have been sent to collections.
Not true.

The trustee could pay any debts on behalf of the beneficiary.
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

MikeG62
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Re: Vanguard as Trustee of Estate Trust

Post by MikeG62 » Thu May 07, 2020 7:07 am

afan wrote:
Thu May 07, 2020 6:25 am
oldfort wrote:
Wed May 06, 2020 12:49 pm
afan wrote:
Wed May 06, 2020 7:53 am
All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.
Not true. If the heirs had inherited the money directly and it wasn't locked away inside a trust, they could have paid off their credit card debt and it never would have been sent to collections.
Not true.

The trustee could pay any debts on behalf of the beneficiary.
afan is correct. Trusts typically contain provisions allowing for distributions for the health, education, maintenance and support of the beneficiary.
Real Knowledge Comes Only From Experience

bsteiner
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Re: Vanguard as Trustee of Estate Trust

Post by bsteiner » Thu May 07, 2020 8:18 am

MikeG62 wrote:
Thu May 07, 2020 7:07 am
... Trusts typically contain provisions allowing for distributions for the health, education, maintenance and support of the beneficiary.
The better drafted ones give the trustees complete discretion.

MikeG62
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Re: Vanguard as Trustee of Estate Trust

Post by MikeG62 » Thu May 07, 2020 8:41 am

bsteiner wrote:
Thu May 07, 2020 8:18 am
MikeG62 wrote:
Thu May 07, 2020 7:07 am
... Trusts typically contain provisions allowing for distributions for the health, education, maintenance and support of the beneficiary.
The better drafted ones give the trustees complete discretion.
Absolutely. I did not mean to imply that distributions were or should be at the discretion of the beneficiary.
Real Knowledge Comes Only From Experience

afan
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Re: Vanguard as Trustee of Estate Trust

Post by afan » Thu May 07, 2020 9:25 am

I suspect bsteiner would draft the trust so that the trustee could make distributions to or on behalf of the beneficiary. The trustee could make these distributions for HEMS expenses but would not be required to do so. The trustee could make distributions that were not HEMS. The beneficiary would not be able to require the trustee to make any distributions.
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
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Re: Vanguard as Trustee of Estate Trust

Post by bsteiner » Thu May 07, 2020 10:21 am

afan wrote:
Thu May 07, 2020 9:25 am
I suspect bsteiner would draft the trust so that the trustee could make distributions to or on behalf of the beneficiary. The trustee could make these distributions for HEMS expenses but would not be required to do so. The trustee could make distributions that were not HEMS. The beneficiary would not be able to require the trustee to make any distributions.
Correct (except where something else is needed to get a particular tax benefit, such as the spouse being entitled to all of the income of a marital (QTIP) trust). No one knows what the future will bring.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Thu May 07, 2020 11:15 am

afan wrote:
Thu May 07, 2020 6:25 am
oldfort wrote:
Wed May 06, 2020 12:49 pm
afan wrote:
Wed May 06, 2020 7:53 am
All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.
Not true. If the heirs had inherited the money directly and it wasn't locked away inside a trust, they could have paid off their credit card debt and it never would have been sent to collections.
Not true.

The trustee could pay any debts on behalf of the beneficiary.
If the trustee does that, it defeats the asset protection purpose of the trust, which is to keep the assets of the trust from ever reaching creditors.

bayview
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Re: Vanguard as Trustee of Estate Trust

Post by bayview » Thu May 07, 2020 1:09 pm

oldfort wrote:
Thu May 07, 2020 11:15 am
afan wrote:
Thu May 07, 2020 6:25 am
oldfort wrote:
Wed May 06, 2020 12:49 pm
afan wrote:
Wed May 06, 2020 7:53 am
All of those things can happen in the same way to people who are not beneficiaries of trusts. Having a trust does not increase the risk of any of these.
Not true. If the heirs had inherited the money directly and it wasn't locked away inside a trust, they could have paid off their credit card debt and it never would have been sent to collections.
Not true.

The trustee could pay any debts on behalf of the beneficiary.
If the trustee does that, it defeats the asset protection purpose of the trust, which is to keep the assets of the trust from ever reaching creditors.
No, the trustee does not have to pay creditors. That’s the whole point.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

Gill
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Re: Vanguard as Trustee of Estate Trust

Post by Gill » Thu May 07, 2020 2:03 pm

The trustee usually has the power to make payments directly to the beneficiary or "apply it for his benefit". That enable the trustee to pay creditors of the beneficiary but certainly doesn't require it.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

senex
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Re: Vanguard as Trustee of Estate Trust

Post by senex » Thu May 07, 2020 2:37 pm

Gill wrote:
Thu May 07, 2020 2:03 pm
The trustee usually has the power to make payments directly to the beneficiary or "apply it for his benefit". That enable the trustee to pay creditors of the beneficiary but certainly doesn't require it.
Gill
Thanks, Gill. I've been trying to understand these topics for a while (particularly, the workings of a trust "in distress").

If a judgement has occurred, giving, say, a creditor the ability to seize (do they call it "attach"?) distributions, does that mean the beneficiary can basically never use trust assets again, unless/until the creditor has been fully paid?

That seems like a bit of a "scorched earth" solution -- the creditor is defeated, but so is the beneficiary. Is the idea that the money would flow to secondary beneficiaries (are those called remaindermen?) instead, thus keeping the money "in the family," even though the beneficiary can never use it again?
Last edited by senex on Thu May 07, 2020 3:53 pm, edited 1 time in total.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Thu May 07, 2020 3:04 pm

bayview wrote:
Thu May 07, 2020 1:09 pm
oldfort wrote:
Thu May 07, 2020 11:15 am
afan wrote:
Thu May 07, 2020 6:25 am
Not true.

The trustee could pay any debts on behalf of the beneficiary.
If the trustee does that, it defeats the asset protection purpose of the trust, which is to keep the assets of the trust from ever reaching creditors.
No, the trustee does not have to pay creditors. That’s the whole point.
I'm not sure what in my post you're disagreeing with. Afan was the one who said the trustee should pay off the creditors. Economically, it doesn't make a difference whether the heirs have their wages garnished and assets outside the trust seized, there is no trust and the heirs can pay off the creditors themselves, or the trustee makes distributions from the trust to pay off the creditors. In all cases, the creditors are paid and the heirs are poorer. The only situation where your spendthrift heirs might be able to get out of paying their creditors completely is if they file for bankruptcy. Trusts can only go so far in protecting an heir from the consequence of their own stupidity.

senex
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Re: Vanguard as Trustee of Estate Trust

Post by senex » Thu May 07, 2020 3:49 pm

oldfort wrote:
Thu May 07, 2020 3:04 pm
Economically, it doesn't make a difference whether the heirs have their wages garnished and assets outside the trust seized, there is no trust and the heirs can pay off the creditors themselves, or the trustee makes distributions from the trust to pay off the creditors. In all cases, the creditors are paid and the heirs are poorer. The only situation where your spendthrift heirs might be able to get out of paying their creditors completely is if they file for bankruptcy.
oldfort, I appreciate your point about the fungibility of money.

I am reminded of a point I read a while ago but had forgotten. Part of the purpose of a trust (or other structures, partnerships, etc) is to add uncertainty and cost to recovery, which typically reduces the creditor's threshold for settlement.

Say person A injures B in car accident. B feels entitled to 300k of med costs and pain & suffering.
Case 1: A has 100k assets + 900k in well-structured trust
Case 2: A has 1000k assets

In case 1, injured person may be willing to settle for 100k, due to difficulty and chance of failure of reaching trust moneys.
In case 2, injured person may not settle for less than 300k. "See you in court"

If B is willing to settle for 50k either way, your fungibility point holds, and trust provided no clear benefit to A.

Gill
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Re: Vanguard as Trustee of Estate Trust

Post by Gill » Thu May 07, 2020 6:05 pm

senex wrote:
Thu May 07, 2020 2:37 pm
Gill wrote:
Thu May 07, 2020 2:03 pm
The trustee usually has the power to make payments directly to the beneficiary or "apply it for his benefit". That enable the trustee to pay creditors of the beneficiary but certainly doesn't require it.
Gill
Thanks, Gill. I've been trying to understand these topics for a while (particularly, the workings of a trust "in distress").

If a judgement has occurred, giving, say, a creditor the ability to seize (do they call it "attach"?) distributions, does that mean the beneficiary can basically never use trust assets again, unless/until the creditor has been fully paid?

That seems like a bit of a "scorched earth" solution -- the creditor is defeated, but so is the beneficiary. Is the idea that the money would flow to secondary beneficiaries (are those called remaindermen?) instead, thus keeping the money "in the family," even though the beneficiary can never use it again?
Most trusts are designed as spendthrift trusts preventing the beneficiary from assigning his interest in the trust and denying creditors the ability to attach the beneficiary’s interest in the trust. Also, when payments are discretionary the trustee can control how and when distributions are made.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

bayview
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Re: Vanguard as Trustee of Estate Trust

Post by bayview » Thu May 07, 2020 8:30 pm

oldfort wrote:
Thu May 07, 2020 3:04 pm
bayview wrote:
Thu May 07, 2020 1:09 pm
oldfort wrote:
Thu May 07, 2020 11:15 am
afan wrote:
Thu May 07, 2020 6:25 am
Not true.

The trustee could pay any debts on behalf of the beneficiary.
If the trustee does that, it defeats the asset protection purpose of the trust, which is to keep the assets of the trust from ever reaching creditors.
No, the trustee does not have to pay creditors. That’s the whole point.
I'm not sure what in my post you're disagreeing with. Afan was the one who said the trustee should pay off the creditors. Economically, it doesn't make a difference whether the heirs have their wages garnished and assets outside the trust seized, there is no trust and the heirs can pay off the creditors themselves, or the trustee makes distributions from the trust to pay off the creditors. In all cases, the creditors are paid and the heirs are poorer. The only situation where your spendthrift heirs might be able to get out of paying their creditors completely is if they file for bankruptcy. Trusts can only go so far in protecting an heir from the consequence of their own stupidity.
My disagreement with your post is with the concept that a trustee “should” “must” “has to” pay anything presented. What I was trying to say is that a trustee has the discretion to pay any presented bills.

The whole point of having this kind of trust, with a separate trustee in addition to the beneficiary, is that the trustee has the right to independently decide which bills to pay, within the constraints of the trust. Bruce Steiner has described a specific form of trust where the beneficiary is co-trustee with someone else. When things move smoothly, the beneficiary in effect has control over investment decisions AND distribution decisions. If things get “interesting “, the beneficiary (heir) can resign as co-trustee, allowing the other co-trustee to say, “Sorry, I am not authorizing a payment for this particular claim.”

I have no doubt I am grossly oversimplifying this, so I hope that Mr. Steiner will pull on his hip boots and clean up my mess. :D
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Thu May 07, 2020 8:34 pm

bayview wrote:
Thu May 07, 2020 8:30 pm
My disagreement with your post is with the concept that a trustee “should” “must” “has to” pay anything presented. What I was trying to say is that a trustee has the discretion to pay any presented bills.
Then, your disagreement is with Afan, not me. Nowhere did I claim a trustee “should” “must” “has to” pay anything presented.

afan
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Re: Vanguard as Trustee of Estate Trust

Post by afan » Fri May 08, 2020 9:06 am

Read my posts again.

I did not say that the trustee MUST pay the bills. I said that the trustee COULD pay bills.
The trustee could pay any debts on behalf of the beneficiary.

Then I elaborated
.. the trustee could make distributions to or on behalf of the beneficiary. The trustee could make these distributions for HEMS expenses but would not be required to do so. The trustee could make distributions that were not HEMS. The beneficiary would not be able to require the trustee to make any distributions.

Words matter.

Oldfort, you seem to have acquired a lot of misinformation about how trusts work.
You may want to read through the many threads on this subject.
The "problems" you raise are not problems at all. They are just reflections of not understanding what actually happens.
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

senex
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Re: Vanguard as Trustee of Estate Trust

Post by senex » Fri May 08, 2020 2:29 pm

Gill wrote:
Thu May 07, 2020 6:05 pm
Most trusts are designed as spendthrift trusts preventing the beneficiary from assigning his interest in the trust and denying creditors the ability to attach the beneficiary’s interest in the trust. Also, when payments are discretionary the trustee can control how and when distributions are made.
Gill
Gill, I am learning that the non-attachment seems true today for most creditors (including, surprisingly-to-me, people you cripple while drunk driving; not sure how that is in the public interest, or how likely it is to survive into the future?).

But the UTC section 503 seems to explicitly *allow* spouses, ex-spouses, etc to bypass the spendthrift provision and attach to distributions. And some states allow broader groups to attach to distributions. I was asking, in the case attachment happens, does it essentially become scorched-earth? That the beneficiary can never benefit from trust again, until creditor has been repaid?

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Fri May 08, 2020 2:34 pm

afan wrote:
Fri May 08, 2020 9:06 am
Read my posts again.

I did not say that the trustee MUST pay the bills. I said that the trustee COULD pay bills.
The trustee could pay any debts on behalf of the beneficiary.

Then I elaborated
.. the trustee could make distributions to or on behalf of the beneficiary. The trustee could make these distributions for HEMS expenses but would not be required to do so. The trustee could make distributions that were not HEMS. The beneficiary would not be able to require the trustee to make any distributions.

Words matter.

Oldfort, you seem to have acquired a lot of misinformation about how trusts work.
You may want to read through the many threads on this subject.
The "problems" you raise are not problems at all. They are just reflections of not understanding what actually happens.
Then, complain to bayview, not me. He or she is the one who claimed someone said the trust must pay the creditors. I never said that and if you never said that, bayview must have invented a straw man argument. I understand quite well how trusts work, at least as well as anyone who hasn't passed the bar exam. I understand quite well trust distributions can be made discretionary, and didn't need your condescending post to tell me that. However, money is fungible and unless your heirs file for bankruptcy, eventually their creditors will be paid. Like I said earlier, economically, it doesn't make a difference whether there is a trust and the heirs have their wages garnished and assets outside the trust seized, there is no trust and the heirs can pay off the creditors themselves out of their inheritance, or the trustee makes distributions from the trust to pay off the creditors. In all cases, the creditors are paid and the heirs are poorer. Our disagreement is more about whether money is fungible than how trusts are drafted.
Last edited by oldfort on Fri May 08, 2020 3:11 pm, edited 1 time in total.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Fri May 08, 2020 3:00 pm

senex wrote:
Thu May 07, 2020 3:49 pm
Say person A injures B in car accident. B feels entitled to 300k of med costs and pain & suffering.
...
Possibly, although anyone who cares about asset protection should have an umbrella policy.

Gill
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Re: Vanguard as Trustee of Estate Trust

Post by Gill » Fri May 08, 2020 3:00 pm

senex wrote:
Fri May 08, 2020 2:29 pm
But the UTC section 503 seems to explicitly *allow* spouses, ex-spouses, etc to bypass the spendthrift provision and attach to distributions. And some states allow broader groups to attach to distributions. I was asking, in the case attachment happens, does it essentially become scorched-earth? That the beneficiary can never benefit from trust again, until creditor has been repaid?
No, not any more than a creditor could garnishee wages and seek 100% of the wages until satisfied. The UTC provides, "A claimant against which a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances." This provision would seem to prompt the court to limit the attachment to some degree, perhaps 10-20% of any distributions. It would not make sense to require 100% of any distributions to be paid to the judgment creditor.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

afan
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Re: Vanguard as Trustee of Estate Trust

Post by afan » Fri May 08, 2020 5:28 pm

Even in those circumstances, the trustee could make distributions on behalf of the beneficiary.

As others have pointed out, not all attempts to take money from a beneficiary would occur after the beneficiary has lost a civil suit. The threat of taking much of someone's money can be used to coerce them into paying money they may not owe.

As discussed above, not all attempts to get at the assets are for reasons that would be covered by umbrella insurance. In addition to divorce, there can be claims based on business deals that went bad. Long before such a case reaches court, the person suing could try to intimidate the beneficiary into paying when they owed nothing at all.
The trusts are useful for these sorts of situations. Not everything is covered by insurance.

Trusts also can provide for the next generation. If the grantors goal is to provide for grandchildren as well as children, then leaving all money outright to the children might lead to the grandchildren not benefiting at all.

Depending on circumstances, a trust may avoid state estate or inheritance taxes. These have much lower thresholds than federal estate taxes.
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

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Sat May 09, 2020 4:20 pm

senex wrote:
Thu May 07, 2020 3:49 pm
I am reminded of a point I read a while ago but had forgotten. Part of the purpose of a trust (or other structures, partnerships, etc) is to add uncertainty and cost to recovery, which typically reduces the creditor's threshold for settlement.

Say person A injures B in car accident. B feels entitled to 300k of med costs and pain & suffering.
Case 1: A has 100k assets + 900k in well-structured trust
Case 2: A has 1000k assets

In case 1, injured person may be willing to settle for 100k, due to difficulty and chance of failure of reaching trust moneys.
In case 2, injured person may not settle for less than 300k. "See you in court"

If B is willing to settle for 50k either way, your fungibility point holds, and trust provided no clear benefit to A.
One potential problem with this is person B may not be able to get a statement of assets from person A until after a case goes to trial and a verdict is rendered. So person B may not know person A received an inheritance at all, or the amount, assuming the estate could have been kept out of probate. This is not to say person B won't have clues as to person A's net worth. If person A was driving a 911, the plaintiff may assume person A is wealthy and has recoverable assets.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Sun May 10, 2020 9:13 pm

afan wrote:
Fri May 08, 2020 5:28 pm
As discussed above, not all attempts to get at the assets are for reasons that would be covered by umbrella insurance. In addition to divorce, there can be claims based on business deals that went bad.
Yes, I was reading a well known attorney giving examples of why people need trusts. One of his client personally guaranteed a $20 million dollar loan for a business which failed. Shortly, thereafter, his client inherited a $20 million dollar New York apartment outright, which had to be sold to pay off the creditors. Some people might look at this as a prime example of why people need trusts. My view is the much bigger problem is personally guaranteeing the loan in the first place. People can have differing views on the need to shield heirs from the consequences of every bad decision they might make in life.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Thu May 21, 2020 9:00 pm

afan wrote:
Fri May 01, 2020 8:34 pm
In some states avoiding loss of assets in divorce is not nearly that simple.
What states consider inheritances, not commingled, as marital property? I can't find any examples.

smackboy1
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Re: Vanguard as Trustee of Estate Trust

Post by smackboy1 » Fri May 22, 2020 2:53 pm

senex wrote:
Thu May 07, 2020 2:37 pm
If a judgement has occurred, giving, say, a creditor the ability to seize (do they call it "attach"?) distributions, does that mean the beneficiary can basically never use trust assets again, unless/until the creditor has been fully paid?

That seems like a bit of a "scorched earth" solution -- the creditor is defeated, but so is the beneficiary. Is the idea that the money would flow to secondary beneficiaries (are those called remaindermen?) instead, thus keeping the money "in the family," even though the beneficiary can never use it again?
Not quite.

The trustee could still provide beneficiary with a similar lifestyle to which they are accustomed, outside of a creditor's reach. A house could be owned by the trust for the beneficiary to live in. Or it could be leased and lease payments made directly to the landlord by the trustee. Cars could be leased. Trustee could pay directly for almost everything that beneficiary needs e.g. medical insurance, food, vacations, clothing, furniture, electronics, Netflix, utilities, legal fees, etc..

If the debtor beneficiary's children are also beneficiaries then the trust could pay for their needs separately. If not and the trust has a provision allowing it to be modified to add beneficiaries, the children could be added.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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FIREchief
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Re: Vanguard as Trustee of Estate Trust

Post by FIREchief » Fri May 22, 2020 3:10 pm

smackboy1 wrote:
Fri May 22, 2020 2:53 pm
senex wrote:
Thu May 07, 2020 2:37 pm
If a judgement has occurred, giving, say, a creditor the ability to seize (do they call it "attach"?) distributions, does that mean the beneficiary can basically never use trust assets again, unless/until the creditor has been fully paid?

That seems like a bit of a "scorched earth" solution -- the creditor is defeated, but so is the beneficiary. Is the idea that the money would flow to secondary beneficiaries (are those called remaindermen?) instead, thus keeping the money "in the family," even though the beneficiary can never use it again?
Not quite.

The trustee could still provide beneficiary with a similar lifestyle to which they are accustomed, outside of a creditor's reach. A house could be owned by the trust for the beneficiary to live in. Or it could be leased and lease payments made directly to the landlord by the trustee. Cars could be leased. Trustee could pay directly for almost everything that beneficiary needs e.g. medical insurance, food, vacations, clothing, furniture, electronics, Netflix, utilities, legal fees, etc..
Just a hypothetical. Let's assume this beneficiary who has a judgement against them lives in an asset protection state and has most of their net worth tied up in qualified retirement accounts (i.e. they are unreachable in a lawsuit). Let's further assume that this beneficiary is entitled to distributions from a trust that has a $2M current worth. Otherwise, just $100K equity in a house and other minor assets. Could said beneficiary just declare bankruptcy to get out from under any attachment of future trust distributions? They might max out their HELOC prior to that point to replace delayed trust distributions. I'm not sure that using HELOC funds to pay the bills would be considered sheltering assets. I'm just curious.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

smackboy1
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Re: Vanguard as Trustee of Estate Trust

Post by smackboy1 » Fri May 22, 2020 3:29 pm

oldfort wrote:
Thu May 21, 2020 9:00 pm
afan wrote:
Fri May 01, 2020 8:34 pm
In some states avoiding loss of assets in divorce is not nearly that simple.
What states consider inheritances, not commingled, as marital property? I can't find any examples.
The $64 question is how to keep separate property segregated and accidentally commingled in any of the possible legal jurisdictions the couple may find themselves in - domestic or overseas. It may not be as simple as just keeping it all in a separate account.

- Have any joint money been added to the account? A paycheck? A gift meant for both spouses?
- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
- Have any joint money used improve the separate property? Who paid the taxes and tax preparation on the separate property? How about costs of investing advice?
- What about capital appreciation and income earned by the separate property during the marriage?
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

bayview
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Re: Vanguard as Trustee of Estate Trust

Post by bayview » Fri May 22, 2020 4:40 pm

smackboy1 wrote:
Fri May 22, 2020 3:29 pm
oldfort wrote:
Thu May 21, 2020 9:00 pm
afan wrote:
Fri May 01, 2020 8:34 pm
In some states avoiding loss of assets in divorce is not nearly that simple.
What states consider inheritances, not commingled, as marital property? I can't find any examples.
The $64 question is how to keep separate property segregated and accidentally commingled in any of the possible legal jurisdictions the couple may find themselves in - domestic or overseas. It may not be as simple as just keeping it all in a separate account.

- Have any joint money been added to the account? A paycheck? A gift meant for both spouses?
- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
- Have any joint money used improve the separate property? Who paid the taxes and tax preparation on the separate property? How about costs of investing advice?
- What about capital appreciation and income earned by the separate property during the marriage?
You can use funds from the separate account for joint expenses without it being commingled.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

bsteiner
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Re: Vanguard as Trustee of Estate Trust

Post by bsteiner » Fri May 22, 2020 4:47 pm

oldfort wrote:
Sun May 10, 2020 9:13 pm
afan wrote:
Fri May 08, 2020 5:28 pm
As discussed above, not all attempts to get at the assets are for reasons that would be covered by umbrella insurance. In addition to divorce, there can be claims based on business deals that went bad.
Yes, I was reading a well known attorney giving examples of why people need trusts. One of his client personally guaranteed a $20 million dollar loan for a business which failed. Shortly, thereafter, his client inherited a $20 million dollar New York apartment outright, which had to be sold to pay off the creditors. Some people might look at this as a prime example of why people need trusts. My view is the much bigger problem is personally guaranteeing the loan in the first place. People can have differing views on the need to shield heirs from the consequences of every bad decision they might make in life.
I know the writer very well. I don't know if this was an actual case or whether he just uses it as an illustration. In either case, given the size of the decedent's estate (at a minimum, $20 million net of estate taxes, and likely greater if the decedent had a $20 million apartment) he/she could have afforded counsel who would have explained not only that providing for the beneficiary in trust would provide creditor protection but would also keep the beneficiary's inheritance out of his estate for estate tax purposes.

Luckywon
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Re: Vanguard as Trustee of Estate Trust

Post by Luckywon » Fri May 22, 2020 5:29 pm

smackboy1 wrote:
Fri May 22, 2020 3:29 pm

- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
Was advised by an attorney in California that paying joint expenses from a separate account does not "taint" the account. Adding to it from joint assets (including as you mention paying tax liabilities arising from it with joint assets) does.

smackboy1
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Re: Vanguard as Trustee of Estate Trust

Post by smackboy1 » Fri May 22, 2020 6:39 pm

Luckywon wrote:
Fri May 22, 2020 5:29 pm
smackboy1 wrote:
Fri May 22, 2020 3:29 pm

- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
Was advised by an attorney in California that paying joint expenses from a separate account does not "taint" the account. Adding to it from joint assets (including as you mention paying tax liabilities arising from it with joint assets) does.
This would be fine if the couple are: 1) in CA, and; 2) will never leave CA, and; 3) the divorce law in CA never changes. Without a crystal ball, an heir has to be very diligent and conservative to protect against their separate property from ever being deemed commingled.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

Luckywon
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Re: Vanguard as Trustee of Estate Trust

Post by Luckywon » Fri May 22, 2020 10:09 pm

smackboy1 wrote:
Fri May 22, 2020 6:39 pm
Luckywon wrote:
Fri May 22, 2020 5:29 pm
smackboy1 wrote:
Fri May 22, 2020 3:29 pm

- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
Was advised by an attorney in California that paying joint expenses from a separate account does not "taint" the account. Adding to it from joint assets (including as you mention paying tax liabilities arising from it with joint assets) does.
This would be fine if the couple are: 1) in CA, and; 2) will never leave CA, and; 3) the divorce law in CA never changes. Without a crystal ball, an heir has to be very diligent and conservative to protect against their separate property from ever being deemed commingled.
Do you or does anyone know of a jurisdiction where spending money from an individual account on joint expenses taints the individual account? Seems unlikely to me but please prove me wrong, I'm genuinely interested to know if this is the case.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Sat May 23, 2020 12:04 am

smackboy1 wrote:
Fri May 22, 2020 3:29 pm
The $64 question is how to keep separate property segregated and accidentally commingled in any of the possible legal jurisdictions the couple may find themselves in - domestic or overseas. It may not be as simple as just keeping it all in a separate account.

- Have any joint money been added to the account? A paycheck? A gift meant for both spouses?
- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
- Have any joint money used improve the separate property? Who paid the taxes and tax preparation on the separate property? How about costs of investing advice?
In what jurisdiction is paying for a tax return considered sufficient to commingle the property?

afan
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Re: Vanguard as Trustee of Estate Trust

Post by afan » Sat May 23, 2020 2:02 pm

Exactly what constitutes commingling would depend on the law of the state and the circumstances in a given case. It is not easy to avoid commingling. Trusting that one's heirs can avoid commingling is at best a gamble.
Paying taxes on a separate property asset from marital assets or using a separate property account to pay joint expenses both could be commingling.
Remember, there will be attorneys on the other side trying to prove commingling and searching for any way to characterize something as no longer separate property.
Considering this and the uncertainty as to where heirs might live, counting on maintaining separate property is not a plan.
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

Luckywon
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Re: Vanguard as Trustee of Estate Trust

Post by Luckywon » Sat May 23, 2020 2:43 pm

afan wrote:
Sat May 23, 2020 2:02 pm
Exactly what constitutes commingling would depend on the law of the state and the circumstances in a given case. It is not easy to avoid commingling. Trusting that one's heirs can avoid commingling is at best a gamble.
Paying taxes on a separate property asset from marital assets or using a separate property account to pay joint expenses both could be commingling.
Remember, there will be attorneys on the other side trying to prove commingling and searching for any way to characterize something as no longer separate property.
Considering this and the uncertainty as to where heirs might live, counting on maintaining separate property is not a plan.
I agree that it's not easy to avoid commingling. IMO the best way to keep nonmarital property separate is through a prenuptial or postmarital agreement. (Just stating my opinion on this, not seeking comments on the utility or morality of these agreements.)

I am interested in your statement that using separate property to pay joint expenses could be commingling the separate property. It's certainly true that the money put toward joint expenses becomes marital property, but would the nonmarital account that it comes from become commingled too? The attorney whom I spoke with in California said it does not in California. I thought it unlikely that this would not be true in any jurisdiction and I have searched online for a source that suggests it would and have been unable to find any. Can you point me toward anything that supports this?

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FIREchief
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Re: Vanguard as Trustee of Estate Trust

Post by FIREchief » Sat May 23, 2020 2:53 pm

Luckywon wrote:
Sat May 23, 2020 2:43 pm
I agree that it's not easy to avoid commingling. IMO the best way to keep nonmarital property separate is through a prenuptial or postmarital agreement.
I'm not certain of the context you are envisioning here. If I'm a parent and trying to determine the safest way to leave assets to my adult children, are you suggesting that instead of using a trust to guarantee separation of those assets, I should instead ask my adult children to propose a prenup to any future spouse?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Luckywon
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Re: Vanguard as Trustee of Estate Trust

Post by Luckywon » Sat May 23, 2020 3:27 pm

FIREchief wrote:
Sat May 23, 2020 2:53 pm
Luckywon wrote:
Sat May 23, 2020 2:43 pm
I agree that it's not easy to avoid commingling. IMO the best way to keep nonmarital property separate is through a prenuptial or postmarital agreement.
I'm not certain of the context you are envisioning here. If I'm a parent and trying to determine the safest way to leave assets to my adult children, are you suggesting that instead of using a trust to guarantee separation of those assets, I should instead ask my adult children to propose a prenup to any future spouse?
Hi FIREchief. No, I believe a trust is the appropriate vehicle to protect the estate you leave to your heirs from their spouses or creditors.

What I am referring to above is protecting one's separate assets from becoming commingled in a marriage, even before they go to your heirs, and so that you can ensure they go to your heirs, and not your spouse's. In that case, I believe a premarital agreement is advisable because, as mentioned upstream, it's very difficult to keep property separate otherwise.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Sat May 23, 2020 3:39 pm

afan wrote:
Sat May 23, 2020 2:02 pm
Exactly what constitutes commingling would depend on the law of the state and the circumstances in a given case. It is not easy to avoid commingling. Trusting that one's heirs can avoid commingling is at best a gamble.
Paying taxes on a separate property asset from marital assets or using a separate property account to pay joint expenses both could be commingling.
Remember, there will be attorneys on the other side trying to prove commingling and searching for any way to characterize something as no longer separate property.
Considering this and the uncertainty as to where heirs might live, counting on maintaining separate property is not a plan.
In what state is either paying joint expenses from a separate account or paying taxes on separate property considered sufficient to convert the separate investment assets to marital property?

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FIREchief
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Re: Vanguard as Trustee of Estate Trust

Post by FIREchief » Sat May 23, 2020 4:46 pm

Luckywon wrote:
Sat May 23, 2020 3:27 pm
FIREchief wrote:
Sat May 23, 2020 2:53 pm
Luckywon wrote:
Sat May 23, 2020 2:43 pm
I agree that it's not easy to avoid commingling. IMO the best way to keep nonmarital property separate is through a prenuptial or postmarital agreement.
I'm not certain of the context you are envisioning here. If I'm a parent and trying to determine the safest way to leave assets to my adult children, are you suggesting that instead of using a trust to guarantee separation of those assets, I should instead ask my adult children to propose a prenup to any future spouse?
Hi FIREchief. No, I believe a trust is the appropriate vehicle to protect the estate you leave to your heirs from their spouses or creditors.

What I am referring to above is protecting one's separate assets from becoming commingled in a marriage, even before they go to your heirs, and so that you can ensure they go to your heirs, and not your spouse's. In that case, I believe a premarital agreement is advisable because, as mentioned upstream, it's very difficult to keep property separate otherwise.
Thanks. That makes sense. I've seen posts on the forum where folks seem to suggest that they will recommend pre-nups for their unmarried adult children. I can't imagine a worse way to start off as in-laws in the eyes of a future SIL/DIL. That said, there is likely much less "harm" done in educating an unmarried, adult child in the basics of keeping their pre-marital property separate to whatever extent makes sense to them.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

illumination
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Re: Vanguard as Trustee of Estate Trust

Post by illumination » Sat May 23, 2020 5:57 pm

FIREchief wrote:
Sat May 23, 2020 4:46 pm
Luckywon wrote:
Sat May 23, 2020 3:27 pm
FIREchief wrote:
Sat May 23, 2020 2:53 pm
Luckywon wrote:
Sat May 23, 2020 2:43 pm
I agree that it's not easy to avoid commingling. IMO the best way to keep nonmarital property separate is through a prenuptial or postmarital agreement.
I'm not certain of the context you are envisioning here. If I'm a parent and trying to determine the safest way to leave assets to my adult children, are you suggesting that instead of using a trust to guarantee separation of those assets, I should instead ask my adult children to propose a prenup to any future spouse?
Hi FIREchief. No, I believe a trust is the appropriate vehicle to protect the estate you leave to your heirs from their spouses or creditors.

What I am referring to above is protecting one's separate assets from becoming commingled in a marriage, even before they go to your heirs, and so that you can ensure they go to your heirs, and not your spouse's. In that case, I believe a premarital agreement is advisable because, as mentioned upstream, it's very difficult to keep property separate otherwise.
Thanks. That makes sense. I've seen posts on the forum where folks seem to suggest that they will recommend pre-nups for their unmarried adult children. I can't imagine a worse way to start off as in-laws in the eyes of a future SIL/DIL. That said, there is likely much less "harm" done in educating an unmarried, adult child in the basics of keeping their pre-marital property separate to whatever extent makes sense to them.

Considering how risk averse most bogleheads are, it really should get the seal of approval. I sort of look at it like fire insurance, you're not getting it because you want your house to burn down. Except the divorce rate is around 50% and the odds your home burning down is like .001%. But getting a prenup is labeled as unusual. I think it's worth the short term awkwardness.

And a prenup can basically say anything and can just exclude separate "family" money in the event of a divorce. It doesn't mean one person takes everything and the other is broke and homeless. If I was marrying someone that had a large family estate, I wouldn't hesitate to sign off on something like that. Is it really fair for someone to walk away from a marriage, remarry, and take that family money with them? I don't think it is, but obviously it's something people attempt all the time.

Luckywon
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Re: Vanguard as Trustee of Estate Trust

Post by Luckywon » Sat May 23, 2020 6:12 pm

FIREchief wrote:
Sat May 23, 2020 4:46 pm
Luckywon wrote:
Sat May 23, 2020 3:27 pm
FIREchief wrote:
Sat May 23, 2020 2:53 pm
Luckywon wrote:
Sat May 23, 2020 2:43 pm
I agree that it's not easy to avoid commingling. IMO the best way to keep nonmarital property separate is through a prenuptial or postmarital agreement.
I'm not certain of the context you are envisioning here. If I'm a parent and trying to determine the safest way to leave assets to my adult children, are you suggesting that instead of using a trust to guarantee separation of those assets, I should instead ask my adult children to propose a prenup to any future spouse?
Hi FIREchief. No, I believe a trust is the appropriate vehicle to protect the estate you leave to your heirs from their spouses or creditors.

What I am referring to above is protecting one's separate assets from becoming commingled in a marriage, even before they go to your heirs, and so that you can ensure they go to your heirs, and not your spouse's. In that case, I believe a premarital agreement is advisable because, as mentioned upstream, it's very difficult to keep property separate otherwise.
Thanks. That makes sense. I've seen posts on the forum where folks seem to suggest that they will recommend pre-nups for their unmarried adult children. I can't imagine a worse way to start off as in-laws in the eyes of a future SIL/DIL. That said, there is likely much less "harm" done in educating an unmarried, adult child in the basics of keeping their pre-marital property separate to whatever extent makes sense to them.
100 % agree on that. The one thing that would have turned me off getting a prenup was hearing from my spouse that his parents had demanded it!

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FIREchief
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Re: Vanguard as Trustee of Estate Trust

Post by FIREchief » Sat May 23, 2020 7:05 pm

illumination wrote:
Sat May 23, 2020 5:57 pm
Considering how risk averse most bogleheads are, it really should get the seal of approval. I sort of look at it like fire insurance, you're not getting it because you want your house to burn down. Except the divorce rate is around 50% and the odds your home burning down is like .001%. But getting a prenup is labeled as unusual. I think it's worth the short term awkwardness.

And a prenup can basically say anything and can just exclude separate "family" money in the event of a divorce. It doesn't mean one person takes everything and the other is broke and homeless. If I was marrying someone that had a large family estate, I wouldn't hesitate to sign off on something like that. Is it really fair for someone to walk away from a marriage, remarry, and take that family money with them? I don't think it is, but obviously it's something people attempt all the time.
Yeah, I didn't really mean to suggest that pre-nups are bad. I'm sure there are many situations where they are appropriate and shouldn't cause any hard feelings. I was just drilling down on the scenario where parents "encourage" their adult children to ask prospective spouses for them to protect the inheritance. Some have advocated that here, perhaps as an alternative to establishing a trust.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

smackboy1
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Re: Vanguard as Trustee of Estate Trust

Post by smackboy1 » Sat May 23, 2020 9:49 pm

Luckywon wrote:
Fri May 22, 2020 10:09 pm
smackboy1 wrote:
Fri May 22, 2020 6:39 pm
Luckywon wrote:
Fri May 22, 2020 5:29 pm
smackboy1 wrote:
Fri May 22, 2020 3:29 pm

- Have any joint expenses been paid out of the separate account? Mortgage payment? Home repair? Children's expenses? Family vacation? Family car? Joint taxes?
Was advised by an attorney in California that paying joint expenses from a separate account does not "taint" the account. Adding to it from joint assets (including as you mention paying tax liabilities arising from it with joint assets) does.
This would be fine if the couple are: 1) in CA, and; 2) will never leave CA, and; 3) the divorce law in CA never changes. Without a crystal ball, an heir has to be very diligent and conservative to protect against their separate property from ever being deemed commingled.
Do you or does anyone know of a jurisdiction where spending money from an individual account on joint expenses taints the individual account? Seems unlikely to me but please prove me wrong, I'm genuinely interested to know if this is the case.
I'm not an expert on divorce law in any jurisdiction. However, my personal philosophy is that an ounce of prevention is not only better than a pound of cure, it's often a lot cheaper too. The point is not if it would definitely commingle the separate property, but that if it has any possibility of doing so, it would be better to be cautious and diligent. Furthermore, even the law is in one's favor today, it could change in the ensuing years by the time a divorce is underway.

A quick Google will find several lawyers recommending to avoid paying household bills or joint debt from a separate inheritance account that they want to avoid being deemed commingled. Here's one from TX:

https://www.cokerlegal.com/blog/2018/no ... my-rights/

Here's a WA lawyer's blog about a case where an inherited mutual fund was deemed community property by virtue of using part of it towards a down payment on the family home:

https://www.seattleattorneysblog.com/co ... rce-cases/
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Sat May 23, 2020 10:20 pm

smackboy1 wrote:
Sat May 23, 2020 9:49 pm
Here's a WA lawyer's blog about a case where an inherited mutual fund was deemed community property by virtue of using part of it towards a down payment on the family home:

https://www.seattleattorneysblog.com/co ... rce-cases/
The trial court awarded the entirety of the remaining mutual fund account balance to the husband, so this isn't an example of the part of the inheritance, kept separate, being distributed to the other party.
The trial court awarded the remaining $4,149.49 in the GE Mutual Fund account to Robert.

oldfort
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Re: Vanguard as Trustee of Estate Trust

Post by oldfort » Sat May 23, 2020 10:30 pm

smackboy1 wrote:
Sat May 23, 2020 9:49 pm
A quick Google will find several lawyers recommending to avoid paying household bills or joint debt from a separate inheritance account that they want to avoid being deemed commingled. Here's one from TX:

https://www.cokerlegal.com/blog/2018/no ... my-rights/
It's not clear to me exactly what the coker link is saying. If someone has a $1M inheritance and spends $2k of this to pay for a paint job on their marital home, does the entire $1M become commingled or only the $2k used for the paint job? I lean toward the latter interpretation.

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