Enhanced Life Estate Deed with Trust Question

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Topic Author
solveforx
Posts: 8
Joined: Mon Dec 11, 2023 3:55 pm

Enhanced Life Estate Deed with Trust Question

Post by solveforx »

Hi, Bogleheads. We’re estate planning and I’ve read a bit on Wills vs Trusts on this forum. My spouse (35F) and I (40M) live in Michigan with a paid off house. We have two kids (5 and 7). Our retirement assets (his/her roth ira, his 403b, his 403a), bank accounts, and 529s have beneficiaries leaving little to go to probate. Just the house and two cars.

We visited an estate planning attorney, and she suggests we go with a trust with lady bird deed for the house. She suggested these documents as part of the estate plan:

Family Trust
Pour Over Will for each spouse
Enhanced Life Estate Deed for Real Estate or Lady Bird Deed
General Durable Power of Attorney for each spouse
Durable Power of Attorney for Medical Care Decisions for each spouse
HIPAA Authorization for each spouse
Funeral Representative Designation for each spouse

She said the lady bird deed functions like this here in MI: Upon the death of the survivor (either my wife or I), the homestead is transferred to the trust for the benefit of our kids or other heirs without going through probate.

Two questions…
1) I had no idea the lady bird deed was an option before we saw the lawyer and it through me off. It allows us to keep the house in our names and let it execute (transferring the house to the trust without probate) once we’re both gone. Is it better to move the house to the trust today and avoid the lady bird? I like the simplicity of keeping the home in our name but want to make sure it doesn’t complicate things for the successor trustee once we’re gone.

2) Are there any tax implications or fees after setting up the trust? It would have no assets (while we are alive) if we went the ladybird deed route as the lawyer suggests. The house would transfer to the trust via ladybird when we pass, and the retirement accounts and bank account would transfer to the trust via the beneficiary designations. I’ll definitely ask the lawyer, too.

This seems like overkill for relatively simple assets, and we were originally considering just a will with power of attorney. However, I see the advantages of the trust distributing assets gradually to the kids. Thanks for reading!
Keliot
Posts: 19
Joined: Wed Sep 13, 2023 4:19 pm

Re: Enhanced Life Estate Deed with Trust Question

Post by Keliot »

Of course the usual disclaimer applies, this is neither tax nor legal advice, only sharing my experience.
I did the exact same thing you did.

Lady bird/Enhanced Life Estate Deed is a legitimate, safe, legal way to stay on the deed yet have a 'backup' person that it reverts to upon the death of the primary title holder. NO probate, no legal mess, no nothing.
It's automatic.

I do not understand why you would want a trust, what you would do with it, or how it would help.
The house going into a trust and then right back at you through Lady Bird is just a waste of time and money, essentially spinning wheels for nothing accomplished.

Trusts are expensive and have to be executed by the trust holder who charges, etc. Sounds like someone wants to help you waste some of your money. I do not know what the tax implications are of trusts, my lawyer steered me away from that mess.

Trusts are for people with very complex financial situations that own companies and real estate investments and valuables, etc etc where there are multiple overlapping legal entities and claims to the estate, etc.

Having the beneficiaries designated on you properties and accounts is enough to avoid probate. All the other things you mentions are 100% spot on absolutely necessary and that is exactly what I did, line for line.

Maybe sit your lawyer down and ask them.
1. I have no trust, I have all the documents/beneficiaries lined up, I die, what happens.
2. I have a trust, I have all the documents/beneficiaries lined up, I die, what happens.
If they can explain to you a REAL meaningful LEGAL/Financially sound difference, then maybe there is something to it.
My guy said NO difference, only waste of time and money on the trust but he'd be happy to be the trustee if I wanted to. No thank you. He does it for people that need it. "Simple people" don't need it is what I was told.

Hope this helps.
bsteiner
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Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Enhanced Life Estate Deed with Trust Question

Post by bsteiner »

Is there a reason for the revocable trusts? Is it difficult to probate a Will in Michigan? Michigan has adopted much of the Uniform Probate Code, which generally means simplified probate procedures. In any event, probating the Will is binary -- either you probate the Will or you don't.

What does the lady bird deed accomplish?

If you create the revocable trusts, why would you have the retirement benefits be payable to them? A revocable trust is an administrative trust, which collects and distributes assets. Why not name the spouse as the primary beneficiary of the retirement benefits, and the trusts for the children as the contingent beneficiaries of the retirement benefits?

What do you mean by the trust (I assume you mean each child's trust) "distributing assets gradually to the kids?" Trustees generally make distributions when beneficiaries need money.
legalwriter1
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Re: Enhanced Life Estate Deed with Trust Question

Post by legalwriter1 »

Estate planning lawyer here. Have you also considered life insurance policies?

Life insurance is especially important with minor children. I name my wife as primary beneficiary and my trust as successor beneficiary of life insurance policies. For a couple with young children, life insurance is often one of the biggest assets, or at least it should be.
Topic Author
solveforx
Posts: 8
Joined: Mon Dec 11, 2023 3:55 pm

Re: Enhanced Life Estate Deed with Trust Question

Post by solveforx »

Great questions resulting from my own uncertainty. You're helping me come up with the right questions for the lawyer. Thank you.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm Is there a reason for the revocable trusts? Is it difficult to probate a Will in Michigan? Michigan has adopted much of the Uniform Probate Code, which generally means simplified probate procedures. In any event, probating the Will is binary -- either you probate the Will or you don't.
Because the lawyer advised a trust. We are open and would be happy with just a will if it serves us better. It doesn't matter to us that probate is necessary for the will, but the lawyer still advised a trust since we have young kids.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm What does the lady bird deed accomplish?
It transfers the house to the trust if both my wife and I are gone? I assume the trustee can then liquidate and distribute assets to our children when of age.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm If you create the revocable trusts, why would you have the retirement benefits be payable to them? A revocable trust is an administrative trust, which collects and distributes assets. Why not name the spouse as the primary beneficiary of the retirement benefits, and the trusts for the children as the contingent beneficiaries of the retirement benefits?
You're right. I would have the beneficiary set as my spouse. The contingent beneficiary would be the trust for the children if we're both gone.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm What do you mean by the trust (I assume you mean each child's trust) "distributing assets gradually to the kids?" Trustees generally make distributions when beneficiaries need money.
I was thinking about how the will would give all assets to the kids once they turn 18. We would do 50% to one and 50% to the other. If we went with the trust we could have stages and conditions set (some at age 21, some at age 25, graduating college, etc.).

When we went into this, we thought we just wanted a will. However, the lawyer is advising the trust. I'm open to both and trying to figure out what's best.
Topic Author
solveforx
Posts: 8
Joined: Mon Dec 11, 2023 3:55 pm

Re: Enhanced Life Estate Deed with Trust Question

Post by solveforx »

legalwriter1 wrote: Sun Feb 11, 2024 10:56 pm Estate planning lawyer here. Have you also considered life insurance policies?

Life insurance is especially important with minor children. I name my wife as primary beneficiary and my trust as successor beneficiary of life insurance policies. For a couple with young children, life insurance is often one of the biggest assets, or at least it should be.
Yes! We do have life insurance with my stay at home wife as the primary beneficiary.

If we were to go with a will, would we just name a trusted friend as the successor beneficiary to be able to distribute assets to the kids?

Still trying to decide on whether the trust is necessary based on other replies.
bsteiner
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Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Enhanced Life Estate Deed with Trust Question

Post by bsteiner »

solveforx wrote: Mon Feb 12, 2024 8:48 am Great questions resulting from my own uncertainty. You're helping me come up with the right questions for the lawyer. Thank you.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm Is there a reason for the revocable trusts? Is it difficult to probate a Will in Michigan? Michigan has adopted much of the Uniform Probate Code, which generally means simplified probate procedures. In any event, probating the Will is binary -- either you probate the Will or you don't.
Because the lawyer advised a trust. We are open and would be happy with just a will if it serves us better. It doesn't matter to us that probate is necessary for the will, but the lawyer still advised a trust since we have young kids.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm What does the lady bird deed accomplish?
It transfers the house to the trust if both my wife and I are gone? I assume the trustee can then liquidate and distribute assets to our children when of age.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm If you create the revocable trusts, why would you have the retirement benefits be payable to them? A revocable trust is an administrative trust, which collects and distributes assets. Why not name the spouse as the primary beneficiary of the retirement benefits, and the trusts for the children as the contingent beneficiaries of the retirement benefits?
You're right. I would have the beneficiary set as my spouse. The contingent beneficiary would be the trust for the children if we're both gone.
bsteiner wrote: Sun Feb 11, 2024 10:18 pm What do you mean by the trust (I assume you mean each child's trust) "distributing assets gradually to the kids?" Trustees generally make distributions when beneficiaries need money.
I was thinking about how the will would give all assets to the kids once they turn 18. We would do 50% to one and 50% to the other. If we went with the trust we could have stages and conditions set (some at age 21, some at age 25, graduating college, etc.).

When we went into this, we thought we just wanted a will. However, the lawyer is advising the trust. I'm open to both and trying to figure out what's best.
The lawyer should be the one asking the questions.

Revocable trusts make sense in some cases and in some states. Having young children wouldn't be a reason. But whether to create revocable trusts is probably the least important issue here. You should focus on the substantive issues.

Most people provide for their children in separate trusts, though some people provide for their children in a single trust that divides at a specified point, such as when the youngest living child reaches age 25.

You can put the same dispositive provisions either in a Will or in a revocable trust, so your desired dispositive provisions wouldn't be a factor.

A good lawyer would strongly advise against mandating distibutions at specified ages. You could instead allow each child to control his/her trust upon reaching a specified age. That would keep their inheritances out of their estates for estate tax purposes and protect their inheritances from their creditors and spouses.
bsteiner
Posts: 9061
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Enhanced Life Estate Deed with Trust Question

Post by bsteiner »

solveforx wrote: Mon Feb 12, 2024 8:53 am
legalwriter1 wrote: Sun Feb 11, 2024 10:56 pm Estate planning lawyer here. Have you also considered life insurance policies?

Life insurance is especially important with minor children. I name my wife as primary beneficiary and my trust as successor beneficiary of life insurance policies. For a couple with young children, life insurance is often one of the biggest assets, or at least it should be.
Yes! We do have life insurance with my stay at home wife as the primary beneficiary.

If we were to go with a will, would we just name a trusted friend as the successor beneficiary to be able to distribute assets to the kids?

Still trying to decide on whether the trust is necessary based on other replies.
Successor beneficiary? The trustees of each child's trust would decide on distributions to that child.

Your trust? You'll be dead. Wouldn't the trusts for your children be the contingent beneficiaries of your life insurance?
Topic Author
solveforx
Posts: 8
Joined: Mon Dec 11, 2023 3:55 pm

Re: Enhanced Life Estate Deed with Trust Question

Post by solveforx »

bsteiner wrote: Mon Feb 12, 2024 8:56 am The lawyer should be the one asking the questions.

Revocable trusts make sense in some cases and in some states. Having young children wouldn't be a reason. But whether to create revocable trusts is probably the least important issue here. You should focus on the substantive issues.

Most people provide for their children in separate trusts, though some people provide for their children in a single trust that divides at a specified point, such as when the youngest living child reaches age 25.

You can put the same dispositive provisions either in a Will or in a revocable trust, so your desired dispositive provisions wouldn't be a factor.

A good lawyer would strongly advise against mandating distibutions at specified ages. You could instead allow each child to control his/her trust upon reaching a specified age. That would keep their inheritances out of their estates for estate tax purposes and protect their inheritances from their creditors and spouses.
bsteiner, I appreciate the time you're taking to share your expertise. You're suggesting that I consider a will over a revocable trust (I believe). I agree and like the simplicity of a will.

My lawyer is still suggesting a revocable trust. She says it is indeed better to use a revocable trust if you have minor children (frustrating conflict with your statement). When I brought up that you can put the same dispositive provisions either in a will or in a revocable trust, I believe she said that a testamentary trust can accomplish this within the will. She was not a fan because assets may have to go through probate to get them into the trust. She advised a revocable trust being set up while we are alive.

Are there any questions you recommend I follow up with? I found these: viewtopic.php?p=7427574#p7427574

from a past discussion you were involved with, but they do not seem to apply.

What we want is simple. If my spouse and I both pass... we want the money and house to go to the kids in their 20s. We want someone to take care of the kids and give them assets as they need until then.
bsteiner
Posts: 9061
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Enhanced Life Estate Deed with Trust Question

Post by bsteiner »

solveforx wrote: Wed Feb 14, 2024 1:56 pm
bsteiner wrote: Mon Feb 12, 2024 8:56 am The lawyer should be the one asking the questions.

Revocable trusts make sense in some cases and in some states. Having young children wouldn't be a reason. But whether to create revocable trusts is probably the least important issue here. You should focus on the substantive issues.

Most people provide for their children in separate trusts, though some people provide for their children in a single trust that divides at a specified point, such as when the youngest living child reaches age 25.

You can put the same dispositive provisions either in a Will or in a revocable trust, so your desired dispositive provisions wouldn't be a factor.

A good lawyer would strongly advise against mandating distributions at specified ages. You could instead allow each child to control his/her trust upon reaching a specified age. That would keep their inheritances out of their estates for estate tax purposes and protect their inheritances from their creditors and spouses.
bsteiner, I appreciate the time you're taking to share your expertise. You're suggesting that I consider a will over a revocable trust (I believe). I agree and like the simplicity of a will.

My lawyer is still suggesting a revocable trust. She says it is indeed better to use a revocable trust if you have minor children (frustrating conflict with your statement). When I brought up that you can put the same dispositive provisions either in a will or in a revocable trust, I believe she said that a testamentary trust can accomplish this within the will. She was not a fan because assets may have to go through probate to get them into the trust. She advised a revocable trust being set up while we are alive.

Are there any questions you recommend I follow up with? I found these: viewtopic.php?p=7427574#p7427574

from a past discussion you were involved with, but they do not seem to apply.

What we want is simple. If my spouse and I both pass... we want the money and house to go to the kids in their 20s. We want someone to take care of the kids and give them assets as they need until then.
The lawyer should be the one asking the questions.

The lawyer should strongly advise against mandating distributions to the children in their 20s (or at any other age) when you could instead allow each child to gain control over his/her trust upon reaching that age. For this purpose, control means the right to become a trustee, the power to remove and replace his/her co-trustee (provided the replacement trustee is not a close relative or subordinate employee), and the power to appoint (give or leave) the trust assets to anyone he/she wants (other than the child or his/her estate or creditors). What if a child does well and has a taxable estate? What if a child gets divorced? What if a child outlives his/her spouse and remarries? What if a child has a creditor problem? What if a child goes into a nursing home and wants Medicaid?

There are issues that are far more important than whether you create revocable trusts. You should focus on those. What degree of control should the surviving spouse have? If there may be a credit shelter trust or a disclaimer trust, who would be the surviving spouse's co-trustee? Who will be the trustee(s) for each child? At what age should each child gain control over his/her trust? Who should be the guardians for your minor children?
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