Cost of revocable trusts, wills, estate planning

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62nc
Posts: 41
Joined: Mon Jun 27, 2016 3:34 pm

Cost of revocable trusts, wills, estate planning

Post by 62nc » Tue May 12, 2020 8:21 pm

I wanted to see if I could get some guidance from others on the cost of estate planning documents. I understand every situation will vary. In our case it is mostly straightforward - married, two kids, <$2.5M all assets w life insurance included if both die. We wanted wills, POA, healthcare stuff, and we had gone down the path of revocable living trust (but see further down, I’m wondering about that now).

RE: the trust - My goals as I had talked myself into a revocable trust were to (a) catch beneficiary proceeds from life insurance and retirement accounts for minor children by naming the trust, (b) setup constructs for that payout over time, and (c) ease or remove any probate hassles.

Background - I have a benefit at work with some free legal services included, so I called that general number, and asked for the list of attorneys in my area. I called a few and began working with a local attorney. The documents were fine at a glance from what I could tell but a few red flags - there was some residue language in a trust document clearly from the last version that he had used in a template with another client. Other flags were that answers to my questions were not very thorough and his website was super out of date, and he was clearly general practice and not specifically estate planning. I wasn’t getting good vibes.

Fast forward to now. So I have called around to 2-3 other practices in the area, specifically estate planning attorneys. I am wondering if these prices are to be expected, or have I just happened to call 2 expensive practices.

Practice 1
Low cost plan to include basic docs - will, POA, healthcare directives, standby guardian: $2850
Higher cost plan to include revocable trust w things like accidental disinheritance protection, pour over will, all other “basic” docs included, assistance w retitling into trust: $6650

Practice 2
Similar low cost plan: $3300-3750 ($3750 had a will plan w testamentary trust)
Similar high cost plan with revocable trust: $5475

Practice 2 told me they could 10% discount bc I have done a lot of “design” legwork already, meaning we’ve already pick executor, trustee, and know the staged distribution schedule we’d want.

But honestly both places surprised me with the cost. I was expecting about $1800-$2800 for the trust based plan.

Can others comment on what pricing you have seen for these services?

decapod10
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Re: Cost of revocable trusts, wills, estate planning

Post by decapod10 » Tue May 12, 2020 8:49 pm

Ours was around $3400 (5 years ago) for a revocable trust, wills, POA. Retitling an out of state property was extra, I don't remember if the cost of retitling our home was included or not.

RudyS
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Re: Cost of revocable trusts, wills, estate planning

Post by RudyS » Tue May 12, 2020 9:03 pm

Regionally dependent I'm sure. We are in a moderately HCOL area in Massachusetts.

Pair of revocable trusts (mainly for estate tax savings), 2 sets of wills, POA, Health Care proxy, Living Will. Very simple sequence of distributions. Cost from a sole practitioner specializing in estate / elder law, approx. $5000. Seems like pretty straightforward adaptation of software, but it looks like it will do the job. Seems to address all the issues I see in the forums.

NewMoneyMustBeSmart
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Re: Cost of revocable trusts, wills, estate planning

Post by NewMoneyMustBeSmart » Tue May 12, 2020 9:36 pm

62nc wrote:
Tue May 12, 2020 8:21 pm
I wanted to see if I could get some guidance from others on the cost of estate planning documents. I understand every situation will vary. In our case it is mostly straightforward - married, two kids, <$2.5M all assets w life insurance included if both die. We wanted wills, POA, healthcare stuff, and we had gone down the path of revocable living trust (but see further down, I’m wondering about that now).
Seems to me like a revocable trust would make sense.
62nc wrote:
Tue May 12, 2020 8:21 pm
RE: the trust - My goals as I had talked myself into a revocable trust were to (a) catch beneficiary proceeds from life insurance and retirement accounts for minor children by naming the trust, (b) setup constructs for that payout over time, and (c) ease or remove any probate hassles.

Background - I have a benefit at work with some free legal services included, so I called that general number, and asked for the list of attorneys in my area. I called a few and began working with a local attorney. The documents were fine at a glance from what I could tell but a few red flags - there was some residue language in a trust document clearly from the last version that he had used in a template with another client. Other flags were that answers to my questions were not very thorough and his website was super out of date, and he was clearly general practice and not specifically estate planning. I wasn’t getting good vibes.
Run, don't walk. Service industries make money often by oversubscribing, you were oversubscribed and quality suffered.
62nc wrote:
Tue May 12, 2020 8:21 pm
Fast forward to now. So I have called around to 2-3 other practices in the area, specifically estate planning attorneys. I am wondering if these prices are to be expected, or have I just happened to call 2 expensive practices.
$4k for me, blended family, revocable trust, pour over will, living will, power of attorney. Very happy with outcome.
62nc wrote:
Tue May 12, 2020 8:21 pm

Practice 1
Low cost plan to include basic docs - will, POA, healthcare directives, standby guardian: $2850
Higher cost plan to include revocable trust w things like accidental disinheritance protection, pour over will, all other “basic” docs included, assistance w retitling into trust: $6650

Practice 2
Similar low cost plan: $3300-3750 ($3750 had a will plan w testamentary trust)
Similar high cost plan with revocable trust: $5475

Practice 2 told me they could 10% discount bc I have done a lot of “design” legwork already, meaning we’ve already pick executor, trustee, and know the staged distribution schedule we’d want.

But honestly both places surprised me with the cost. I was expecting about $1800-$2800 for the trust based plan.

Can others comment on what pricing you have seen for these services?
Don't do basic. Do it right. You'll be thanked when you're dead.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein

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BroIceCream
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Re: Cost of revocable trusts, wills, estate planning

Post by BroIceCream » Wed May 13, 2020 1:35 am

I too have a legal services benefit from work, which covered some of the services. With that I received a revocable trust, POA, wills, health care directive. Also included paperwork to change the property deed. I do my own changes for financial accounts. ~$1300, including notary fees. (my payroll deduction premium for the employer legal plan is additional $250 annually).
I am happy with the result.

afan
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Re: Cost of revocable trusts, wills, estate planning

Post by afan » Wed May 13, 2020 9:26 am

A single person with no dependants could probably do fine with a very simple plan drafted by an attorney with limited experience in estate planning. If you have a spouse or kids who will need the money you leave then it pays to get it dine right, using an expert.
In prior threads on this question the estates and trusts lawyers have said that prices vary. Big shot partner at a big firm in the middle of a big city will charge a high hourly rate. High cost of living areas have high rates.
Get outside the big city and the price drops a lot. Go with someone who is not a famous estate planning expert, but knows enough to do your work and the price drops more.
The lawyers also point out that the big shot might find your situation completely routine and whip it out using relatively little time. A less experienced person might rack up more hours. Even at a lower rate it could end up costing more.

Best solution is to shop. Shop outside the big city, shop smaller firms, etc.
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

fittan
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Re: Cost of revocable trusts, wills, estate planning

Post by fittan » Wed May 13, 2020 9:51 am

The prices you listed are too high. I did one last year (I live in MA) for $3500. This includes a will, revocable trust, health care proxy, power of attorney, etc. In addition because MA estate tax is only $1 million, the attorney also setup an AB trust for me.

The attorney also help (included in price) to move the deed into the trust. As for the other financial assets (checking, savings, investment, etc) I had to move on my own. The firm I used is http://www.maheritagelawcenter.com/

e5116
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Re: Cost of revocable trusts, wills, estate planning

Post by e5116 » Wed May 13, 2020 2:11 pm

I paid ~$2k for 2 pourover wills, family revocable trust, Healthcare POAs, Property POAs, and a TOD instrument (to trust) for the title of house about 3 years ago from an estate planning/real estate attorney. Without the trust/TOD piece, he had quoted me $1200 I believe. So, your quotes seem a bit high to me, but seems to vary greatly.

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FIREchief
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Re: Cost of revocable trusts, wills, estate planning

Post by FIREchief » Wed May 13, 2020 3:02 pm

62nc wrote:
Tue May 12, 2020 8:21 pm
<$2.5M all assets w life insurance included if both die.
Is a significant amount of this in qualified retirement plans (i.e. IRA, 401k, etc.)?
Do you value asset protection for your heirs? (i.e. their inheritance would be protected from lawsuits and divorce)
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
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Re: Cost of revocable trusts, wills, estate planning

Post by bsteiner » Wed May 13, 2020 3:43 pm

62nc wrote:
Tue May 12, 2020 8:21 pm
I wanted to see if I could get some guidance from others on the cost of estate planning documents. I understand every situation will vary. In our case it is mostly straightforward - married, two kids, <$2.5M all assets w life insurance included if both die. We wanted wills, POA, healthcare stuff, and we had gone down the path of revocable living trust (but see further down, I’m wondering about that now).

RE: the trust - My goals as I had talked myself into a revocable trust were to (a) catch beneficiary proceeds from life insurance and retirement accounts for minor children by naming the trust, (b) setup constructs for that payout over time, and (c) ease or remove any probate hassles.

Background - I have a benefit at work with some free legal services included, so I called that general number, and asked for the list of attorneys in my area. I called a few and began working with a local attorney. The documents were fine at a glance from what I could tell but a few red flags - there was some residue language in a trust document clearly from the last version that he had used in a template with another client. Other flags were that answers to my questions were not very thorough and his website was super out of date, and he was clearly general practice and not specifically estate planning. I wasn’t getting good vibes.

Fast forward to now. So I have called around to 2-3 other practices in the area, specifically estate planning attorneys. I am wondering if these prices are to be expected, or have I just happened to call 2 expensive practices.

Practice 1
Low cost plan to include basic docs - will, POA, healthcare directives, standby guardian: $2850
Higher cost plan to include revocable trust w things like accidental disinheritance protection, pour over will, all other “basic” docs included, assistance w retitling into trust: $6650

Practice 2
Similar low cost plan: $3300-3750 ($3750 had a will plan w testamentary trust)
Similar high cost plan with revocable trust: $5475

Practice 2 told me they could 10% discount bc I have done a lot of “design” legwork already, meaning we’ve already pick executor, trustee, and know the staged distribution schedule we’d want.

But honestly both places surprised me with the cost. I was expecting about $1800-$2800 for the trust based plan.

Can others comment on what pricing you have seen for these services?
The cost will depend mainly on the size and level of the law firm, the city, and the efficiency of your decision making. The cost of the same project can vary considerably from one client to another.

Your estate is larger than many but smaller than many. From the figures you mentioned, a large firm in a large city would cost much more than you would want. At the other end of the spectrum, as you pointed out, the free one might not be appropriate for your situation, though there are many people with much smaller estates for which they might be appropriate. There are some lawyers who used to work for good firms and then opened their own offices, often in suburbs, who would probably be adequate for you, and who would probably charge about what you've been quoted (depending on where you are).

Your age is a factor. The older you are, the more likely you are to use the Will you're about to sign. If you're older, you might be willing to pay more for a higher level than if you're younger and likely to revise your Will several times.

Is there a reason to do revocable trusts? They're appropriate in some cases and in some states, but you haven't mentioned anything that would suggest that they would be appropriate in your case. Trusts under your Will could just as easily receive life insurance and retirement benefits, and provide for your children to gain control over their trusts at a specified age. Probating a Will is difficult in a few states (mainly California) but easy in most states.

What is "accidental disinheritance protection?"

Even if you anticipated staged distributions, the lawyers should have known to instead recommend that your children gain control over their trusts at a specified age. That would keep their inheritances out of their estates and continue the protection against their creditors and spouses, and Medicaid.

A few people mentioned Massachusetts. At one time, the probate procedures were complicated. Worse yet, trustees of trusts under a Will had to file periodic accountings with the court. So many people in Massachusetts did revocable trusts. However, in 2012, Massachusetts adopted the Uniform Probate Code, which simplified the probate procedures, and (more important) adopted the Uniform Trust Code which eliminated the need for trustees of trusts under a Will to file periodic court accountings. So there's usually no longer a need for a revocable trust in Massachusetts, though it's likely that lawyers who were familiar with their old forms continue to use them.

Topic Author
62nc
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Joined: Mon Jun 27, 2016 3:34 pm

Re: Cost of revocable trusts, wills, estate planning

Post by 62nc » Wed May 13, 2020 5:05 pm

FIREchief wrote:
Wed May 13, 2020 3:02 pm
62nc wrote:
Tue May 12, 2020 8:21 pm
<$2.5M all assets w life insurance included if both die.
Is a significant amount of this in qualified retirement plans (i.e. IRA, 401k, etc.)?
Do you value asset protection for your heirs? (i.e. their inheritance would be protected from lawsuits and divorce)
There's about $450K in qualified retirement plans.

I'm on the fence about the asset protection for heirs. Part of me sees the value in it. Part of me then says once they're late 20s and beyond and I'm dead - they really need to make their own decisions, good or bad.

Topic Author
62nc
Posts: 41
Joined: Mon Jun 27, 2016 3:34 pm

Re: Cost of revocable trusts, wills, estate planning

Post by 62nc » Wed May 13, 2020 5:14 pm

bsteiner wrote:
Wed May 13, 2020 3:43 pm
Is there a reason to do revocable trusts? They're appropriate in some cases and in some states, but you haven't mentioned anything that would suggest that they would be appropriate in your case. Trusts under your Will could just as easily receive life insurance and retirement benefits, and provide for your children to gain control over their trusts at a specified age. Probating a Will is difficult in a few states (mainly California) but easy in most states.
There may not be a significant legal reason. It may be more emotional or psychological. Me having stuff in place and active during my lifetime with some level of control and flexibility sounded better to me than a fixed thing that happens when I die. Logistically I had read it was easier to retitle and get everything into the trust now so things run smoothly, house can be liquidated quickly, successor trustee has immediate bank access, etc. rather than work their way through probate. Those things sounded appealing to me to help with wife & backup executor.
bsteiner wrote:
Wed May 13, 2020 3:43 pm
What is "accidental disinheritance protection?"
The scenario described by the first practice I talked to was: I die, wife inherits all. Then wife gets remarried to someone else with kids. Then wife dies, new husband gets everything and his heirs are his children and not mine, and my children get nothing of the original inheritance.
bsteiner wrote:
Wed May 13, 2020 3:43 pm
Even if you anticipated staged distributions, the lawyers should have known to instead recommend that your children gain control over their trusts at a specified age. That would keep their inheritances out of their estates and continue the protection against their creditors and spouses, and Medicaid.

A few people mentioned Massachusetts. At one time, the probate procedures were complicated. Worse yet, trustees of trusts under a Will had to file periodic accountings with the court. So many people in Massachusetts did revocable trusts. However, in 2012, Massachusetts adopted the Uniform Probate Code, which simplified the probate procedures, and (more important) adopted the Uniform Trust Code which eliminated the need for trustees of trusts under a Will to file periodic court accountings. So there's usually no longer a need for a revocable trust in Massachusetts, though it's likely that lawyers who were familiar with their old forms continue to use them.
I'm in NC.

Luckywon
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Re: Cost of revocable trusts, wills, estate planning

Post by Luckywon » Wed May 13, 2020 5:22 pm

Redoing ours now. Similar situation to yours. Estate planning for both including revocable living trusts in California. $6000.

bsteiner
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Re: Cost of revocable trusts, wills, estate planning

Post by bsteiner » Wed May 13, 2020 5:50 pm

62nc wrote:
Wed May 13, 2020 5:14 pm
bsteiner wrote:
Wed May 13, 2020 3:43 pm
Is there a reason to do revocable trusts? They're appropriate in some cases and in some states, but you haven't mentioned anything that would suggest that they would be appropriate in your case. ...
There may not be a significant legal reason. It may be more emotional or psychological. ...
There's no harm in creating revocable trusts. But since you're concerned about the cost, you might be better off spending the same amount of money getting Wills at a higher level law firm than Wills and revocable trusts elsewhere.
62nc wrote:
Wed May 13, 2020 5:14 pm
...
bsteiner wrote:
Wed May 13, 2020 3:43 pm
What is "accidental disinheritance protection?"
The scenario described by the first practice I talked to was: I die, wife inherits all. Then wife gets remarried to someone else with kids. Then wife dies, new husband gets everything and his heirs are his children and not mine, and my children get nothing of the original inheritance.
...
It's not accidental. Some clients want their spouse to control who gets what upon his/her subsequent death. Others don't. You could leave your estate to your spouse. Or you could leave your estate in trust for your spouse and give him/her complete control, some control (such as only to or in trust for your issue (descendants), or no control at all, over who gets what at your spouse's death. It's your call. It shouldn't affect the cost of the work.
62nc wrote:
Wed May 13, 2020 5:14 pm
...
I'm in NC.
Probating a Will in North Carolina isn't difficult.

I don't know why this has been my experience, but every time someone has asked for trusts and estates lawyers in North Carolina I've found it difficult to come up with recommendations. Perhaps it's because while the state's population is about 10 million, there's no city with over 1 million in population.

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FIREchief
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Re: Cost of revocable trusts, wills, estate planning

Post by FIREchief » Wed May 13, 2020 6:10 pm

62nc wrote:
Wed May 13, 2020 5:05 pm
FIREchief wrote:
Wed May 13, 2020 3:02 pm
62nc wrote:
Tue May 12, 2020 8:21 pm
<$2.5M all assets w life insurance included if both die.
Is a significant amount of this in qualified retirement plans (i.e. IRA, 401k, etc.)?
Do you value asset protection for your heirs? (i.e. their inheritance would be protected from lawsuits and divorce)
There's about $450K in qualified retirement plans.
If you expect to grow your retirement plans significantly, than you may wish consider leaving them in trust to your heirs. Most boilerplate revocable trusts allow for this using a conduit trust approach which has never provided good asset protection and now, with the SECURE act, even less. If you desire asset protection for the assets you leave to an heir, than an accumulation trust is called for and that will greatly restrict your choice of attorneys. Only the very top estate attorneys will work with you on these.
I'm on the fence about the asset protection for heirs. Part of me sees the value in it. Part of me then says once they're late 20s and beyond and I'm dead - they really need to make their own decisions, good or bad.
You're mixing two things together here. If a trust is properly drafted, you can provide asset protection while still giving the beneficiary effective control over distributions from the trust. They can make whatever decisions they want, but will not have a significant portion of their financial future at risk to lawsuits or divorce. Please note, the laws vary by state, so what is very robust and straightforward in one state may not be so in another. Leaving assets in such a trust can be a huge benefit to your heirs. Our resident forum expert, bsteiner, routinely makes this recommendation here on the forum.
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
62nc
Posts: 41
Joined: Mon Jun 27, 2016 3:34 pm

Re: Cost of revocable trusts, wills, estate planning

Post by 62nc » Fri May 15, 2020 10:26 pm

FIREchief wrote:
Wed May 13, 2020 6:10 pm
If you expect to grow your retirement plans significantly, than you may wish consider leaving them in trust to your heirs. Most boilerplate revocable trusts allow for this using a conduit trust approach which has never provided good asset protection and now, with the SECURE act, even less. If you desire asset protection for the assets you leave to an heir, than an accumulation trust is called for and that will greatly restrict your choice of attorneys. Only the very top estate attorneys will work with you on these.
FIREchief - it just so happens I had a initial consultation with another attorney today who touched on this very thing (SECURE Act, accumulation trusts). So while I didn't completely follow the details in real time as he was talking, I remembered your mention of it here in the thread, and it made me feel comfortable he was in the right ballpark.

Now - can you explain what benefit the accumulation trust is? I understand the old stretch rules over lifetime, and the new 10 year rules, but how does this accumulation trust concept help? Don't the assets just accumulate and then when they're forced out after 10 years, they get taxed all at once? Help me understand, maybe with an example.

Say I have two kids, wife and $400K 401K. Wife is beneficiary when I die and we have a joint RLT. So the 401K transfers to a taxable IRA in her name. She then dies shortly thereafter, and then the IRA pays out to RLT? Or the Accumulation trust? Then what happens?

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FIREchief
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Re: Cost of revocable trusts, wills, estate planning

Post by FIREchief » Sat May 16, 2020 12:40 am

62nc wrote:
Fri May 15, 2020 10:26 pm
Now - can you explain what benefit the accumulation trust is? I understand the old stretch rules over lifetime, and the new 10 year rules, but how does this accumulation trust concept help? Don't the assets just accumulate and then when they're forced out after 10 years, they get taxed all at once? Help me understand, maybe with an example.
I'm glad you found an attorney who speaks this language. In my experience, they are few and far between. I'll give you the 50,000 foot level summary. In order for the IRS to treat a trust as an individual (i.e. to allow a stretch beyond five years), the trust must be drafted so that it meets the IRS criteria for a "see though" trust. This means that on some level, the beneficiaries of a trust will constitute "individuals" in the eyes of the IRS. There are two types of these qualified trusts:

A "conduit trust" requires that all IRS requirements for minimal distributions must be met and that all distributions from the inherited IRA (owned by the trust) MUST be immediately paid out to the beneficiary(s). This severely limits the asset protections, especially for a non-spouse beneficiary (unless the beneficiary is a minor, special needs person or meets certain other very limited criteria), since the SECURE act requires the inherited IRA to be fully paid out by the end of the tenth year following date of death. In this case, all inherited IRA assets would be distributed to the beneficiary and vulnerable to lawsuits, etc. by the end of the tenth year. A conduit trust can name non-individuals (e.g. a charity) as secondary beneficiary(s) without jeopardizing the stretch for the primary beneficiary.

An "accumulation" trust also requires that all IRS requirements for minimal distributions be met, but it allows for distributions from the inherited IRA to be retained within the trust, thus preserving asset protections until ultimately distributed to a beneficiary. The "cost" of this is that ALL potential beneficiary(s) of the trust, including successor beneficiaries such as the primary beneficiary's children, must also qualify as individuals. The details are extremely complex. There is a book written by attorney Natalie Choate (just google it) that is widely regarded as the "bible" of qualified trusts. Its audience is primarily high quality estate attorneys, and rarely individuals such as us. I and several other laymen here on the forum have referenced this book as the only good way to fully understand all of this. I've had several estate attorneys eyes perk up when I mentioned Natalie's book. One told me I was the only client he had ever met who was familiar with this book. Conversely, I've had several attorneys respond with "who??" Not surprisingly, those were the ones selling only boilerplate conduit trusts.

So, what does this all mean after passage of the SECURE act? It means that for most non-spouse beneficiaries, regardless of the type of qualified trust, any taxable inherited IRA distributions will be subjected to greatly accelerated taxation which includes the risk of driving either the beneficiary (either type) or trust (accumulation) into higher tax brackets. The only good solution I'm aware of to this is to aggressively Roth convert qualified assets prior to the Grantor's death. If an accumulation trust inherits 100% Roth assets, it will be in great shape. The inherited IRA can grow tax free for ten years and then be emptied with all proceeds remaining in trust in a tax efficient after-tax equity investment. The only "forced" taxable income would be annual dividends and capital gains distributions, which typically will run in the range of 2% for a domestic total market index fund (such as VTI). That said, in this scenario (100% Roth assets), it invites a further discussion of the trade offs between a) meeting all IRS requirements for an accumulation trust with a ten year payout vs. b) skipping all that and using a non-qualified trust which allows much greater flexibility in terms of beneficiary designations and powers of appointment (at the cost of a five year distribution of the inherited Roth assets). We started this discussion in January and hopefully will extend it as we better understand the impacts of the SECURE act.

I hope that helps. Please review my signature!! Our resident expert bsteiner can answer any questions you might have regarding these types of trusts, both before and after SECURE.
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: Cost of revocable trusts, wills, estate planning

Post by Luckywon » Sat May 16, 2020 2:12 am

FIREchief wrote:
Sat May 16, 2020 12:40 am
62nc wrote:
Fri May 15, 2020 10:26 pm
Now - can you explain what benefit the accumulation trust is? I understand the old stretch rules over lifetime, and the new 10 year rules, but how does this accumulation trust concept help? Don't the assets just accumulate and then when they're forced out after 10 years, they get taxed all at once? Help me understand, maybe with an example.
I'm glad you found an attorney who speaks this language. In my experience, they are few and far between. I'll give you the 50,000 foot level summary. In order for the IRS to treat a trust as an individual (i.e. to allow a stretch beyond five years), the trust must be drafted so that it meets the IRS criteria for a "see though" trust. This means that on some level, the beneficiaries of a trust will constitute "individuals" in the eyes of the IRS. There are two types of these qualified trusts:

A "conduit trust" requires that all IRS requirements for minimal distributions must be met and that all distributions from the inherited IRA (owned by the trust) MUST be immediately paid out to the beneficiary(s). This severely limits the asset protections, especially for a non-spouse beneficiary (unless the beneficiary is a minor, special needs person or meets certain other very limited criteria), since the SECURE act requires the inherited IRA to be fully paid out by the end of the tenth year following date of death. In this case, all inherited IRA assets would be distributed to the beneficiary and vulnerable to lawsuits, etc. by the end of the tenth year. A conduit trust can name non-individuals (e.g. a charity) as secondary beneficiary(s) without jeopardizing the stretch for the primary beneficiary.

An "accumulation" trust also requires that all IRS requirements for minimal distributions be met, but it allows for distributions from the inherited IRA to be retained within the trust, thus preserving asset protections until ultimately distributed to a beneficiary. The "cost" of this is that ALL potential beneficiary(s) of the trust, including successor beneficiaries such as the primary beneficiary's children, must also qualify as individuals. The details are extremely complex. There is a book written by attorney Natalie Choate (just google it) that is widely regarded as the "bible" of qualified trusts. Its audience is primarily high quality estate attorneys, and rarely individuals such as us. I and several other laymen here on the forum have referenced this book as the only good way to fully understand all of this. I've had several estate attorneys eyes perk up when I mentioned Natalie's book. One told me I was the only client he had ever met who was familiar with this book. Conversely, I've had several attorneys respond with "who??" Not surprisingly, those were the ones selling only boilerplate conduit trusts.

So, what does this all mean after passage of the SECURE act? It means that regardless of the type of qualified trust, any taxable inherited IRA distributions will be subjected to greatly accelerated taxation, which includes the risk of driving either the beneficiary (either type) or trust (accumulation) into higher tax brackets. The only good solution I'm aware of to this is to aggressively Roth convert qualified assets prior to the Grantor's death. If an accumulation trust inherits 100% Roth assets, it will be in great shape. The inherited IRA can grow tax free for ten years and then be emptied with all proceeds remaining in trust in a tax efficient after-tax equity investment. The only "forced" taxable income would be annual dividends and capital gains distributions, which typically will run in the range of 2% for a domestic total market index fund (such as VTI). That said, in this scenario (100% Roth assets), it invites a further discussion of the trade offs between a) meeting all IRS requirements for an accumulation with a ten year payout vs. b) skipping all that and using a non-qualified trust which allows much greater flexibility in terms of beneficiary designations and powers of appointment (at the cost of a five year distribution of the inherited Roth assets). We started this discussion in January and hopefully will extend it as we better understand the impacts of the SECURE act.

I hope that helps. Please review my signature!! Our resident expert bsteiner can answer any questions you might have regarding these types of trusts, both before and after SECURE.
FIREchief thanks for that fantastic summary. Kitces has a couple of very good articles here:

https://www.kitces.com/blog/secure-act- ... neficiary/

https://www.kitces.com/blog/qualifying- ... umulation/

which essentially state what you outlined (you outlined it even more clearly) above, along with some other details.

I would be very curious to know your (or anyone else's) opinion of what the RMD implications would be of leaving a Roth IRA to a conduit trust with spouse as sole primary beneficiary. My understanding is that for traditional IRA's, a conduit trust with spouse as sole income beneficiary would have to distribute RMD's stretched out over the spouse's life expectancy. It's not clear to me whether this would also be the case with a Roth IRA, or whether perhaps for a Roth IRA, no distributions would need to be made over the lifetime of a spousal sole income beneficiary.

Also, do you see any issue with leaving a combination of Roth IRA and traditional IRA accounts to a conduit trust with spouse as sole primary beneficiary?

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Re: Cost of revocable trusts, wills, estate planning

Post by bsteiner » Sat May 16, 2020 10:23 am

62nc wrote:
Fri May 15, 2020 10:26 pm
FIREchief wrote:
Wed May 13, 2020 6:10 pm
If you expect to grow your retirement plans significantly, than you may wish consider leaving them in trust to your heirs. Most boilerplate revocable trusts allow for this using a conduit trust approach which has never provided good asset protection and now, with the SECURE act, even less. If you desire asset protection for the assets you leave to an heir, than an accumulation trust is called for and that will greatly restrict your choice of attorneys. Only the very top estate attorneys will work with you on these.
FIREchief - it just so happens I had a initial consultation with another attorney today who touched on this very thing (SECURE Act, accumulation trusts). So while I didn't completely follow the details in real time as he was talking, I remembered your mention of it here in the thread, and it made me feel comfortable he was in the right ballpark.

Now - can you explain what benefit the accumulation trust is? I understand the old stretch rules over lifetime, and the new 10 year rules, but how does this accumulation trust concept help? Don't the assets just accumulate and then when they're forced out after 10 years, they get taxed all at once? Help me understand, maybe with an example.

Say I have two kids, wife and $400K 401K. Wife is beneficiary when I die and we have a joint RLT. So the 401K transfers to a taxable IRA in her name. She then dies shortly thereafter, and then the IRA pays out to RLT? Or the Accumulation trust? Then what happens?
Why would you have a joint revocable trust? They're for couples in community property states, mainly California since it's the largest one by population and probating a Will is said to be difficult in California. You said you're in North Carolina, which is neither a community property state nor a state where probating a Will is difficult.
FIREchief wrote:
Sat May 16, 2020 12:40 am
...
I'll give you the 50,000 foot level summary.
...
There is a book written by attorney Natalie Choate (just google it) that is widely regarded as the "bible" of qualified trusts.
...
Our resident expert bsteiner can answer any questions you might have regarding these types of trusts, both before and after SECURE.
Thanks for the kind words. Your summary is excellent. So is Natalie's book. (Disclosure: I was one of the reviewers.)

For more on trusts as beneficiaries of retirement benefits, see my article on this in the March 2004 issue of BNA Tax Management's Estates, Gifts & Trusts Jounral: https://www.kkwc.com/wp-content/uploads ... 132954.pdf. (The article doesn't reflect the SECURE Act.)

It should't cost any more to include these provisions in a Will. We include them routinely.

For the reasons you pointed out, conduit trusts rarely made sense even before the SECURE Act. I don't know why they got so much attention.

However, they're a possibility for minor children since they allow the life expectancy stretch during minority (including until they finish their education, up to age 26). The 10-year rule begins when they reach minority (or when they finish their education, up to age 26). Nevertheless, while the sample size is small (since the SECURE Act is new) most of our clients with minor children have thus far been willing to limit the stretch to 10 years so as not to have the entire amount distributed by age 36 at the latest.

Another possibility, since the amount of the original poster's retirement benefits is modest, both in dollars and as a percentage of the total assets, is to leave the IRA to the children outright at the surviving spouse's death, with a custodian under the Uniform Transfers to Minors Act while they're minors (which can be up to age 21 or 25 in some states).
Luckywon wrote:
Sat May 16, 2020 2:12 am
...
Kitces has a couple of very good articles ...

I would be very curious to know your (or anyone else's) opinion of what the RMD implications would be of leaving a Roth IRA to a conduit trust with spouse as sole primary beneficiary. My understanding is that for traditional IRA's, a conduit trust with spouse as sole income beneficiary would have to distribute RMD's stretched out over the spouse's life expectancy. It's not clear to me whether this would also be the case with a Roth IRA, or whether perhaps for a Roth IRA, no distributions would need to be made over the lifetime of a spousal sole income beneficiary.

Also, do you see any issue with leaving a combination of Roth IRA and traditional IRA accounts to a conduit trust with spouse as sole primary beneficiary?
I know Michael Kitces. His writings are always excellent.

I'm not aware of anything that would allow a conduit trust for the spouse to avoid having to make distributions from Roth IRA benefits.

The tradeoff of leaving IRA benefits in trust for the spouse is that you give up the additional deferral of the rollover. That's less of a tradeoff than it used to be since the stretch is now generally limited to 10 years following the spouse's death.

Given the benefits of the rollover, most people leave their IRA to the spouse. But occasionally that's not appropriate. In these cases, leaving the IRA in trust for the spouse. In these cases, a conduit trust lets you use the spouse's life expectancy (which is recalculated annually).

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Re: Cost of revocable trusts, wills, estate planning

Post by Luckywon » Sat May 16, 2020 10:32 am

bsteiner wrote:
Sat May 16, 2020 10:23 am

I know Michael Kitces. His writings are always excellent.

I'm not aware of anything that would allow a conduit trust for the spouse to avoid having to make distributions from Roth IRA benefits.

The tradeoff of leaving IRA benefits in trust for the spouse is that you give up the additional deferral of the rollover. That's less of a tradeoff than it used to be since the stretch is now generally limited to 10 years following the spouse's death.

Given the benefits of the rollover, most people leave their IRA to the spouse. But occasionally that's not appropriate. In these cases, leaving the IRA in trust for the spouse. In these cases, a conduit trust lets you use the spouse's life expectancy (which is recalculated annually).

Many thanks for that bsteiner. A conduit trust for my retirement benefits seems like a good option to me for the purpose of controlling the remainder beneficiaries.

A follow up question: With respect to a Roth IRA left to an IRA Trust with spouse as primary beneficiary, would the RMD schedule for the primary beneficiary be the same as for a traditional IRA left in trust to a spouse as primary beneficiary? If not, what would the RMD's for the primary beneficiary be? Thanks in advance for any light you can shed on this.

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Re: Cost of revocable trusts, wills, estate planning

Post by FIREchief » Sat May 16, 2020 1:19 pm

Luckywon wrote:
Sat May 16, 2020 2:12 am
I would be very curious to know your (or anyone else's) opinion of what the RMD implications would be of leaving a Roth IRA to a conduit trust with spouse as sole primary beneficiary. My understanding is that for traditional IRA's, a conduit trust with spouse as sole income beneficiary would have to distribute RMD's stretched out over the spouse's life expectancy. It's not clear to me whether this would also be the case with a Roth IRA, or whether perhaps for a Roth IRA, no distributions would need to be made over the lifetime of a spousal sole income beneficiary.
This will all depend upon your situation and objective:
a) Spendthrift spouse who needs protection from themselves: A conduit trust might be appropriate if it restricted annual payouts to the RMDs or the RMDs plus additional distributions at the discretion of an independent trustee who would prevent frivolous/excessive distributions. There would be some level of asset protections, but not ideal.
b) Responsible spouse living in an asset protection state: It would likely be much better to just name the spouse as 100% primary beneficiary and have them treat the Roth IRA as their own. This would eliminate the need for any RMDs (current law) and provide maximum asset protection (if living in an asset protection state, IRA assets are typically provided full protection from creditors).
c) Responsible spouse living in a state without robust asset protection laws: This might call for an accumulation trust with an independent trustee to shield the Roth assets from creditors. Upon distribution of the annual RMDs, they could be retained in trust in efficient after-tax equity investments.

Please see my signature!!
Also, do you see any issue with leaving a combination of Roth IRA and traditional IRA accounts to a conduit trust with spouse as sole primary beneficiary?
I don't think it would make any difference. Both sets of RMDs would be forced out to the spouse each year and the tIRA assets would be taxed at the spouse's rates.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Cost of revocable trusts, wills, estate planning

Post by Luckywon » Sat May 16, 2020 2:01 pm

FIREchief wrote:
Sat May 16, 2020 1:19 pm
Luckywon wrote:
Sat May 16, 2020 2:12 am
I would be very curious to know your (or anyone else's) opinion of what the RMD implications would be of leaving a Roth IRA to a conduit trust with spouse as sole primary beneficiary. My understanding is that for traditional IRA's, a conduit trust with spouse as sole income beneficiary would have to distribute RMD's stretched out over the spouse's life expectancy. It's not clear to me whether this would also be the case with a Roth IRA, or whether perhaps for a Roth IRA, no distributions would need to be made over the lifetime of a spousal sole income beneficiary.
This will all depend upon your situation and objective:
a) Spendthrift spouse who needs protection from themselves: A conduit trust might be appropriate if it restricted annual payouts to the RMDs or the RMDs plus additional distributions at the discretion of an independent trustee who would prevent frivolous/excessive distributions. There would be some level of asset protections, but not ideal.
b) Responsible spouse living in an asset protection state: It would likely be much better to just name the spouse as 100% primary beneficiary and have them treat the Roth IRA as their own. This would eliminate the need for any RMDs (current law) and provide maximum asset protection (if living in an asset protection state, IRA assets are typically provided full protection from creditors).
c) Responsible spouse living in a state without robust asset protection laws: This might call for an accumulation trust with an independent trustee to shield the Roth assets from creditors. Upon distribution of the annual RMDs, they could be retained in trust in efficient after-tax equity investments.

Please see my signature!!
Many thanks for these insights FIREchief. The objectives I'm trying to address with a retirement benefits trust are:

-Control of the remainder beneficiaries. Neither my spouse nor I have children. I would like the benefits to go to my relatives after both my spouse and I are deceased.
-Provide the option to stretch the distributions as far as possible.

Asset and spendthrift protection are issues I am less worried about. Therefore a conduit trust seems the best choice for me. There would be some loss of stretch as my spouse would lose the option to roll the IRA's into his own but he still would have a decent stretch over his lifetime. Would you share my opinion that the Roth and traditional IRA RMD's would both be on the same schedule? This is what I'm thinking would be the case but I can't find clear guidance on this online.

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Re: Cost of revocable trusts, wills, estate planning

Post by FIREchief » Sat May 16, 2020 2:15 pm

Luckywon wrote:
Sat May 16, 2020 2:01 pm
The objectives I'm trying to address with a retirement benefits trust are:

-Control of the remainder beneficiaries. Neither my spouse nor I have children. I would like the benefits to go to my relatives after both my spouse and I are deceased.
-Provide the option to stretch the distributions as far as possible.

Asset and spendthrift protection are issues I am less worried about. Therefore a conduit trust seems the best choice for me. There would be some loss of stretch as my spouse would lose the option to roll the IRA's into his own but he still would have a decent stretch over his lifetime. Would you share my opinion that the Roth and traditional IRA RMD's would both be on the same schedule? This is what I'm thinking would be the case but I can't find clear guidance on this online.
That makes your questions clearer. Keep in mind that while a conduit trust would require RMD based annual distributions, it might not restrict the distributions any further. In other words, if the primary beneficiary were provided significant control over distributions, he/she might take additional distributions so that the successor beneficiaries never receive anything. That said, I believe that a conduit trust could be drafted that would allow only the RMDs to be distributed each year. That would (potentially) preserve a significant portion of the trust assets for the remainder beneficiaries. I believe that their distributions would continue on the original beneficiary's RMD schedule, but you may want to verify that. Bruce or Gill can likely tell us.

I agree with you that either Roth or tIRA would be on the same schedule and there may not be a compelling case for Roth conversions during your lifetime.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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Re: Cost of revocable trusts, wills, estate planning

Post by J295 » Sat May 16, 2020 2:27 pm

As I understand it, first marriage and two children and a comfortable asset amount.

In that situation we used “I love you” wills with testamentary trusts, along with general durable powers of attorney and powers of attorney for healthcare.

Ultimately I think it comes down to your objectives and how aggressively you want to be in addressing certain situations, even those that may be quite statistically improbable.

Without going into chapter and verse, I’ll give you some examples of our thought process at that time.

1. All of our assets were jointly owned or had a payable on death or beneficiary designation, so the only way there was going to be probate was if we had a near simultaneous death, or a death where the survivor didn’t modify his/her plans. Even then, probates not that big of a deal so the lack of revocable trusts did not concern us.

2. At the time when we had younger children, we wanted their shares to be managed in trust after the second death with distributions at ages 30, 35, and 40. These trusts were created in the wills, so job accomplished. No revocable trust needed.

3. The survivor can always create a revocable trust to avoid probate if he/she chooses following the first death.

To be clear, I’m not advocating for or against a revocable trust. In fact, now that we are 60 and our children are all grown and independent we have revocable trusts (cost wasn’t a factor because I’m a retired lawyer and we put these in place while I was practicing —- i’m assuming cost is a factor for OP). What I would advocate is refining objectives and getting a plan that works for you and your family.

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Re: Cost of revocable trusts, wills, estate planning

Post by Luckywon » Sat May 16, 2020 3:23 pm

Many thanks again FIREchief. With respect to:
FIREchief wrote:
Sat May 16, 2020 2:15 pm
I believe that their distributions would continue on the original beneficiary's RMD schedule, but you may want to verify that. Bruce or Gill can likely tell us.
I think that in this post in this thread:
bsteiner wrote:
Sat May 16, 2020 10:23 am
The tradeoff of leaving IRA benefits in trust for the spouse is that you give up the additional deferral of the rollover. That's less of a tradeoff than it used to be since the stretch is now generally limited to 10 years following the spouse's death.
bsteiner is stating the remainder beneficiaries would be subject to the ten year rule. Perhaps I am not quite interpreting what he is saying correctly but in this article by Michael Kitces

https://www.kitces.com/blog/secure-act- ... neficiary/

Kitces does state the 10 year rule is applicable in this situation. I wanted to call attention to this because It occurs to me that that this might be a significant consideration with respect to the issue you raise of considering whether to limit distributions to the Trust to RMD's. If this is written into the Trust, it appears this could result in a forced withholding of distributions for 9 years after the surviving spouse's death followed by a forced distribution of the remainder of the IRA in the tenth year. This would be unlikely to be favorable from a taxation point of view. This is moot for me as I do plan to give discretion to the Trustee to take distributions greater than RMD's.

Appreciate your input regarding the schedule of RMD's for a Roth IRA left to a retirement trust with an eligible designated beneficiary. I am working with a trust and estates attorney, but it is always good to get additional perspectives-many thanks.

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Re: Cost of revocable trusts, wills, estate planning

Post by FIREchief » Sat May 16, 2020 3:32 pm

Luckywon wrote:
Sat May 16, 2020 3:23 pm
Many thanks again FIREchief. With respect to:
FIREchief wrote:
Sat May 16, 2020 2:15 pm
I believe that their distributions would continue on the original beneficiary's RMD schedule, but you may want to verify that. Bruce or Gill can likely tell us.
I think that in this post in this thread:
bsteiner wrote:
Sat May 16, 2020 10:23 am
The tradeoff of leaving IRA benefits in trust for the spouse is that you give up the additional deferral of the rollover. That's less of a tradeoff than it used to be since the stretch is now generally limited to 10 years following the spouse's death.
bsteiner is stating the remainder beneficiaries would be subject to the ten year rule.
:oops: I was still thinking pre-SECURE with that comment. You are correct.
I wanted to call attention to this because It occurs to me that that this might be a significant consideration with respect to the issue you raise of considering whether to limit distributions to the Trust to RMD's. If this is written into the Trust, it appears this could result in a forced withholding of distributions for 9 years after the surviving spouse's death followed by a forced distribution of the remainder of the IRA in the tenth year. This would be unlikely to be favorable from a taxation point of view. This is moot for me as I do plan to give discretion to the Trustee to take distributions greater than RMD's.
Excellent point! The SECURE act continues to confuse the situation.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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