Minimum Net Worth for a Trust

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A-Commoner
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Minimum Net Worth for a Trust

Post by A-Commoner »

What is a minimum net worth where estate planning and setting up a trust are worth it?
bsteiner
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Re: Minimum Net Worth for a Trust

Post by bsteiner »

In most cases when you expect to have a taxable estate. Otherwise you would probably hold on to your assets to get a basis step-up at death.
sport
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Re: Minimum Net Worth for a Trust

Post by sport »

bsteiner wrote: Wed Apr 07, 2021 9:13 pm In most cases when you expect to have a taxable estate. Otherwise you would probably hold on to your assets to get a basis step-up at death.
Doesn't a Living Revocable Trust get a step-up at death?
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A-Commoner
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Re: Minimum Net Worth for a Trust

Post by A-Commoner »

bsteiner wrote: Wed Apr 07, 2021 9:13 pm In most cases when you expect to have a taxable estate. Otherwise you would probably hold on to your assets to get a basis step-up at death.
Thank you. My question has to do with the minimum amount of the estate needed where setting up a trust starts to make sense. If one only has $10,000 to his name, probably not worth the bother. But what about 100k? 1 million?
cacophony
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Re: Minimum Net Worth for a Trust

Post by cacophony »

In California probate costs a lot more than what most trusts would cost, even with a modest estate.

A $200k estate would result in $14k in probate fees according to an online calculator I tried. A $1MM estate is $46k in fees.

Setting up a simple trust is what a few thousand? Seems worth it even for a small estate, especially given the other benefits.
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dmcmahon
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Re: Minimum Net Worth for a Trust

Post by dmcmahon »

cacophony wrote: Wed Apr 07, 2021 9:47 pm In California probate costs a lot more than what most trusts would cost, even with a modest estate.

A $200k estate would result in $14k in probate fees according to an online calculator I tried. A $1MM estate is $46k in fees.

Setting up a simple trust is what a few thousand? Seems worth it even for a small estate, especially given the other benefits.
Almost any middle class estate will benefit from having a revocable living trust set up to hold assets. This is not the same as setting up irrevocable trust funds or other more complex strategies. JMHO.
euphonious
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Re: Minimum Net Worth for a Trust

Post by euphonious »

The biggest hit to a large inheritance usually comes from estate tax. Federal estate tax used to kick in at 5.49 million, but the Tax Cuts and Jobs Act raised that to 11.7 million. The increase is temporary though and set to revert back after 2025 if it's not extended or made permanent.

Some states also have an estate tax, the details of which vary by state.
senex
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Re: Minimum Net Worth for a Trust

Post by senex »

A-Commoner wrote: Wed Apr 07, 2021 9:06 pm What is a minimum net worth where estate planning and setting up a trust are worth it?
OP, are you asking about setting up:
(a) a revocable trust while living
(b) an irrevocable trust while living
(c) a testamentary trust (created by your will, after you die, to hold the bequests made to your heirs) ?

If (a), it mostly depends on whether you live in a costly/difficult probate state, and how much you worry about your own dementia etc (how someone could manage your money, for your benefit, while you are alive).

If (b), it mostly depends on whether you expect to be over the estate tax exemption amount (federal or your state) when you die.

If (c), it depends on the amount, the situation of the heir, and your personal preference regarding control, simplicity, and protections. I've heard of examples where a few 100k were left in trust, and others where a few million were not. There are lots of factors at play.
Bobby206
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Re: Minimum Net Worth for a Trust

Post by Bobby206 »

cacophony wrote: Wed Apr 07, 2021 9:47 pm In California probate costs a lot more than what most trusts would cost, even with a modest estate.

A $200k estate would result in $14k in probate fees according to an online calculator I tried. A $1MM estate is $46k in fees.

Setting up a simple trust is what a few thousand? Seems worth it even for a small estate, especially given the other benefits.
Yes this is pretty accurate. Although half of the costs is the executor fee and many family members would decline it but still the costs of probate greatly outweigh the costs of a trust. Plus, the above calculator is only attorney fee and executor fee. Court costs are separate. Some are variable in California but for a simple target figure $2k in costs for a standard probate. Just those court costs alone might be the cost of a trust.

In California, by example, a full probate is required when property exceeds $166,250 in GROSS value. However, when real estate is owned probate court is required for ANY value. There are simpler procedures when the value of property is under $166k and even simpler under $55k (not too many pieces of real property worth under $55k in California except timeshares and slivers of land) but even those abbreviated procedures cost more than the cost to prepare a trust.
DBrown3
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Re: Minimum Net Worth for a Trust

Post by DBrown3 »

Generally, the purpose of a trust is to avoid probate. Each state has a minimum estate value to avoid having to use the probate court. My state has exceptions or short procedures for a spouse with estate value limits but we're over those limits. I didn't feel the need for a trust until my husband and I started traveling together with the risk of us both dying at the same time. The only asset we need in the trust is the house (real estate) since all other assets are covered by by beneficiary statements on file and our wills. The house value pushes our estate value over the probate minimum. In my state, the estate value determination is before mortgages are deducted for equity value, so a house worth at least the minimum probate requirement would have to go through probate regardless of any liens attached.

We did the trust ourselves with software purchased online. We had to get permission from our bank holding the mortgage and sign a simple, one page contract with them. Then we transferred the house title to the trust ourselves. The state has some time limits and requirements for processing the paperwork once the trust is signed. The whole cost was less then $100. The time investment was about 6 hours which included hassles with the bank and going to the county recorder's office.

I worked in the mortgage industry so I can tell you that not all mortgage companies will allow a house title to be held in a trust, and those that do will require that the trust be revocable. Should a revocable trust become irrevocable after a trustor's death (some do), then the beneficiary won't be able to use the real estate as collateral for a new mortgage.
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ipdiddly
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Re: Minimum Net Worth for a Trust

Post by ipdiddly »

The short answer is there is no minimum net worth. That said, as a practical matter it probably doesn't make sense for a very small estate. Much depends on what assets make up the estate. If the person only has a bank account or brokerage account, you can avoid probate by simply adding a joint owner (with right of survivorship) or including a TOD (transfer on death).

Setting up a living revocable trust need not be complicated and can greatly simplify handling the estate after death. The trust can include bequest terms that specify what assets go to what beneficiaries (much like a will). It also greatly simplifies handling the grantor's assets while alive. As a person ages and has health issues, it is important that someone step in and manage the finances. This is perfectly suited to a Trustee, who can be a relative (e.g., adult child of the grantor). Once the trust document is created, the Trustee then needs to move all the assets into the trust. This means creating a bank account and/or brokerage account in the name of the trust into which financial assets are placed, and retitling the house in the trust. If the house is retitled in the trust, this will enable the trustee to sell the house if it becomes necessary.

While the grantor is alive, any income is reported under the grantor's SSN. After death, the trust will need to add its EIN to the accounts (or create new accounts in some cases) so that future income is taxed to the trust. If you go this route, be sure to maintain at least one small bank account in the name of the person (preferably with a joint owner). You will need this account to deposit any checks that are payable to that person, whether before or after death. An example would be a tax refund or an insurance payment or a variety of other possible payment sources. (In this regard, I had a small hospital refund paid two years after death.)

Obviously, every situation is different and highly dependent on a person's circumstances.
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