What criteria warrants a need for Living Revocable Trust?

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FIREchief
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Re: What criteria warrants a need for Living Revocable Trust?

Post by FIREchief » Sun Feb 11, 2018 7:01 pm

JBTX wrote:
Sun Feb 11, 2018 2:56 pm

Would a potential benefit of a living trust be that it would allow potential “donors” to designate the trust directly as beneficiary and not have to worry about changing beneficiaries if the initial beneficiary dies? Presumably a property crafted trust lives in perpetuity and spells out exactly what happens if various designated parties pass away down the road. Can a will do that after the intial beneficiary has died and been fully probated?
This is an outstanding point, and one I believe to be true. I am aware of at least one person who has requested that an elderly relative take this approach. The person was updating their beneficiary designations and asked for a SSN from the target beneficiary. Instead, they provided a certification of trust form and letter of instruction to the bank. The bank was fine with all this (based on a direct phone call), however the elderly relative struggled with the whole concept.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Jill07
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Re: What criteria warrants a need for Living Revocable Trust?

Post by Jill07 » Sun Feb 11, 2018 8:37 pm

ChrisC wrote:
Sun Feb 11, 2018 11:10 am

Not relevant to me as my state does not have estate or inheritance taxes, but I guess in some states there could be a tax avoidance issue; for example, I think PA has an inheritance tax so transfers to heirs in probate (unless I think the transfer is to a spouse) would be taxed, whereas I don't think this might be the case if you re-titled into a Living Trust with heirs as the successor trustees/beneficiaries.
It's my understanding (I'm not lawyer) that a RLT does not avoid PA inheritance tax even though it does avoid probate.


"The inheritance tax is also imposed on a variety of non-probate assets. These include assets owned jointly with someone other than a surviving spouse, assets held in trust or those payable to a named beneficiary (e.g., IRA), or other types of taxable transfers."

See this link for more details...

https://revenue-pa.custhelp.com/app/ans ... /related/1

Just want to update this for any PA residents... interesting discussion.

Jill

JBTX
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Re: What criteria warrants a need for Living Revocable Trust?

Post by JBTX » Sun Feb 11, 2018 8:58 pm

FIREchief wrote:
Sun Feb 11, 2018 7:01 pm
JBTX wrote:
Sun Feb 11, 2018 2:56 pm

Would a potential benefit of a living trust be that it would allow potential “donors” to designate the trust directly as beneficiary and not have to worry about changing beneficiaries if the initial beneficiary dies? Presumably a property crafted trust lives in perpetuity and spells out exactly what happens if various designated parties pass away down the road. Can a will do that after the intial beneficiary has died and been fully probated?
This is an outstanding point, and one I believe to be true. I am aware of at least one person who has requested that an elderly relative take this approach. The person was updating their beneficiary designations and asked for a SSN from the target beneficiary. Instead, they provided a certification of trust form and letter of instruction to the bank. The bank was fine with all this (based on a direct phone call), however the elderly relative struggled with the whole concept.
Most people, including some attorneys, seem to think this is trivial, as they just say the other party (donor, not sure of the correct term here) should just either modify their beneficiary designation, or set up their own will or trust to spell out where they want it to go. But in my case, that has been easier said than done with other parties. Their desire is to use direct beneficiaries vs directing through their own will/trusts, and the beneficiary designations at some companies are somewhat limiting as to what happens if one of the primary beneficiaries passes first. You can often write the fund companies and give them specific instructions on file, but that is a bit of a PITA.

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Epsilon Delta
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Re: What criteria warrants a need for Living Revocable Trust?

Post by Epsilon Delta » Sun Feb 11, 2018 9:39 pm

Note that a trust can also die (be terminated), so you still have to pay a certain amount of attention over long periods of time if you designate somebody else's trust as a beneficiary.

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FIREchief
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Re: What criteria warrants a need for Living Revocable Trust?

Post by FIREchief » Sun Feb 11, 2018 10:45 pm

Epsilon Delta wrote:
Sun Feb 11, 2018 9:39 pm
Note that a trust can also die (be terminated), so you still have to pay a certain amount of attention over long periods of time if you designate somebody else's trust as a beneficiary.
I would never designate somebody else's trust as a beneficiary. I would instead designate my own trust and let the trust identify beneficiaries. This also provides funds for my executor/successor trustee to pay all final bills and expenses before the money "escapes" to any POD beneficiary (individual, trust or otherwise).

I was describing a situation where a very paranoid, suspicious elderly person wanted to name a relative as a POD beneficiary. To the other poster's point, that person would likely have been greatly confused by simple things like checking the "per stirpes" designation on the beneficiary form (and would not have reacted well to the beneficiary trying to explain things). By naming the target individual's trust, it doesn't matter if that person pre-deceases the other or becomes incapacitated. The funds go to the optimal location.
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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FIREchief
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Re: What criteria warrants a need for Living Revocable Trust?

Post by FIREchief » Sun Feb 11, 2018 10:49 pm

JBTX wrote:
Sun Feb 11, 2018 8:58 pm
FIREchief wrote:
Sun Feb 11, 2018 7:01 pm
JBTX wrote:
Sun Feb 11, 2018 2:56 pm

Would a potential benefit of a living trust be that it would allow potential “donors” to designate the trust directly as beneficiary and not have to worry about changing beneficiaries if the initial beneficiary dies? Presumably a property crafted trust lives in perpetuity and spells out exactly what happens if various designated parties pass away down the road. Can a will do that after the intial beneficiary has died and been fully probated?
This is an outstanding point, and one I believe to be true. I am aware of at least one person who has requested that an elderly relative take this approach. The person was updating their beneficiary designations and asked for a SSN from the target beneficiary. Instead, they provided a certification of trust form and letter of instruction to the bank. The bank was fine with all this (based on a direct phone call), however the elderly relative struggled with the whole concept.
Most people, including some attorneys, seem to think this is trivial, as they just say the other party (donor, not sure of the correct term here) should just either modify their beneficiary designation, or set up their own will or trust to spell out where they want it to go.
This is somewhat humorous, as it is like pulling teeth to "encourage" some people to even establish beneficiaries, let alone update them when circumstances change. I'm sure the same lawyers who generate trusts and then see that people are too lazy to transfer assets into the trust fully comprehend this.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

daveydoo
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Re: What criteria warrants a need for Living Revocable Trust?

Post by daveydoo » Sun Feb 11, 2018 11:36 pm

Sandtrap wrote:
Wed Mar 22, 2017 3:33 pm

Reading: "Beyond the Grave", by Candor. (If anything, for family dynamics and interplay)
Good tip -- been reading this today (well, with the Olympics in the background :D ). I initially thought that it would all be "just common sense" and not super-relevant to my generally functional extended family. But I'm learning some things and it has led me to change a few plans.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

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Sandtrap
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Re: What criteria warrants a need for Living Revocable Trust?

Post by Sandtrap » Mon Feb 12, 2018 11:27 am

daveydoo wrote:
Sun Feb 11, 2018 11:36 pm
Sandtrap wrote:
Wed Mar 22, 2017 3:33 pm

Reading: "Beyond the Grave", by Candor. (If anything, for family dynamics and interplay)
Good tip -- been reading this today (well, with the Olympics in the background :D ). I initially thought that it would all be "just common sense" and not super-relevant to my generally functional extended family. But I'm learning some things and it has led me to change a few plans.
That book was priceless when constructing my trust. The greater the assets, the more functional family dynamics turns to dysfunctional. Money is power. And, power and money have an "interesting" effect on most of the human species.
mahalo,
j

JBTX
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Re: What criteria warrants a need for Living Revocable Trust?

Post by JBTX » Mon Feb 12, 2018 12:04 pm

FIREchief wrote:
Sun Feb 11, 2018 10:49 pm
JBTX wrote:
Sun Feb 11, 2018 8:58 pm
FIREchief wrote:
Sun Feb 11, 2018 7:01 pm
JBTX wrote:
Sun Feb 11, 2018 2:56 pm

Would a potential benefit of a living trust be that it would allow potential “donors” to designate the trust directly as beneficiary and not have to worry about changing beneficiaries if the initial beneficiary dies? Presumably a property crafted trust lives in perpetuity and spells out exactly what happens if various designated parties pass away down the road. Can a will do that after the intial beneficiary has died and been fully probated?
This is an outstanding point, and one I believe to be true. I am aware of at least one person who has requested that an elderly relative take this approach. The person was updating their beneficiary designations and asked for a SSN from the target beneficiary. Instead, they provided a certification of trust form and letter of instruction to the bank. The bank was fine with all this (based on a direct phone call), however the elderly relative struggled with the whole concept.
Most people, including some attorneys, seem to think this is trivial, as they just say the other party (donor, not sure of the correct term here) should just either modify their beneficiary designation, or set up their own will or trust to spell out where they want it to go.
This is somewhat humorous, as it is like pulling teeth to "encourage" some people to even establish beneficiaries, let alone update them when circumstances change. I'm sure the same lawyers who generate trusts and then see that people are too lazy to transfer assets into the trust fully comprehend this.

Kind of a different subject. I may or may not be guilty of this.

We do have RLT. Really the big potential asset would be the life insurance, and that is named in RLT. Also, home is in RLT (which has some minor downsides). Most of our assets are in retirement accounts and are not in trust (nor should they be), which go directly to spouse, or secondarily to "benefits trusts". Bank accounts are jointly owned, and not in ownership of the trust, but do have trust as contingent beneficiary, in those cases where banks allow it. Taxable investment accounts are set up as TOD, and not in name of trust, but do have trust as contingent beneficiary.

Any problems with this setup?

JBTX
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Re: What criteria warrants a need for Living Revocable Trust?

Post by JBTX » Mon Feb 12, 2018 12:19 pm

FIREchief wrote:
Sun Feb 11, 2018 10:45 pm
Epsilon Delta wrote:
Sun Feb 11, 2018 9:39 pm
Note that a trust can also die (be terminated), so you still have to pay a certain amount of attention over long periods of time if you designate somebody else's trust as a beneficiary.
I would never designate somebody else's trust as a beneficiary. I would instead designate my own trust and let the trust identify beneficiaries. This also provides funds for my executor/successor trustee to pay all final bills and expenses before the money "escapes" to any POD beneficiary (individual, trust or otherwise).

I was describing a situation where a very paranoid, suspicious elderly person wanted to name a relative as a POD beneficiary. To the other poster's point, that person would likely have been greatly confused by simple things like checking the "per stirpes" designation on the beneficiary form (and would not have reacted well to the beneficiary trying to explain things). By naming the target individual's trust, it doesn't matter if that person pre-deceases the other or becomes incapacitated. The funds go to the optimal location.
I can see a situation where it might make sense to designate somebody else's trust, if you assume you assume the person who set up the trust has done a decent job.

In cases, such as ours, it isn't always clear how the parents may want things set up for children, and that could change. There could be special needs situations, or instances where the parent chooses to have a trust setup not to be controlled by a future adult child, because the judgement is made that the adult child will probably not be able manage such substantial sums effectively. If you trust the parents to know best what is for the kids, and also trust them to set up their estate plan to reflect those wishes, then it would seem to make more sense to let it go to their trust, vs you either trying to replicate their wishes in your own will/trust, or else trying to guess what they want to do.

In the case of brokerage designation forms, it is my understanding that sometimes they can be somewhat limited. Say a person wants to designate two adult children 50/50, as primary. If one of the adult children dies, then it all goes to the other adult child, instead of the deceased adult child's children. Designating per stipes should fix that, but I am not sure all forms have per stirpes option. Or per stirpes could end up leaving shares directly to minor children, or adult children that you don't want to have control yet.

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Re: What criteria warrants a need for Living Revocable Trust?

Post by ChrisC » Mon Feb 12, 2018 1:53 pm

JBTX wrote:
Mon Feb 12, 2018 12:04 pm
Kind of a different subject. I may or may not be guilty of this.

We do have RLT. Really the big potential asset would be the life insurance, and that is named in RLT. Not sure I understand this. Is the Trust the policy owner or is it the named beneficary? Or is this a policy designed to pay Federal estate taxes which now has a very high exemption amount? In my case, two of our policies, term policies underwritten by former employers, simply have the trust as a contingent beneficiary if spouse is no longer around. Same deal with homeowner's insurance too, if both of us are not around.

Also, home is in RLT (which has some minor downsides). What are the downsides here? I'm not aware of any, unless you had to pay some transfer/deed tax.

Most of our assets are in retirement accounts and are not in trust (nor should they be), which go directly to spouse, or secondarily to "benefits trusts". Retirement accounts don't go into a trust, but one can name the trust as a contingent beneficiary and have the trust be designed to allow the non-spousal beneficiaries to take advantage of "stretch" RMDs. This might be imporant if you have multiple retirement account beneficiary heirs and the trust grantors want to provide some creditor protection to beneficiaries. Is this what you mean by "benefits trusts."

Bank accounts are jointly owned, and not in ownership of the trust, but do have trust as contingent beneficiary, in those cases where banks allow it. Taxable investment accounts are set up as TOD, and not in name of trust, but do have trust as contingent beneficiary. I'm not sure what you gain by having your accounts set up this way as opposed to simpy re-titling all in the trust's name.
What happens if both joint tenants become incapicitated? As others have pointed out, sometimes DPOAs not prepared on forms generated by an institution are not honored by that institution. Your set up seems to require additional steps for the trustees of the trust to take to claim ownership of these accounts if the joint owners are not around.


Any problems with this setup?

Dottie57
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Re: What criteria warrants a need for Living Revocable Trust?

Post by Dottie57 » Mon Feb 12, 2018 2:14 pm

My Dad had dementia. I woried about my parents if one of them chewed up all money in a care facility, so I set up a revocable living trust. If I died, my brother would be trustee and be able to make sure both parents were cared for appropriately and no one would be destitute.

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FIREchief
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Re: What criteria warrants a need for Living Revocable Trust?

Post by FIREchief » Mon Feb 12, 2018 2:30 pm

JBTX wrote:
Mon Feb 12, 2018 12:04 pm
Kind of a different subject. I may or may not be guilty of this.

We do have RLT. Really the big potential asset would be the life insurance, and that is named in RLT. Also, home is in RLT (which has some minor downsides). Most of our assets are in retirement accounts and are not in trust (nor should they be), which go directly to spouse, or secondarily to "benefits trusts". Bank accounts are jointly owned, and not in ownership of the trust, but do have trust as contingent beneficiary, in those cases where banks allow it. Taxable investment accounts are set up as TOD, and not in name of trust, but do have trust as contingent beneficiary.

Any problems with this setup?
Retirement accounts are a different matter. If the assets are large enough, it is often wise to establish separate trusts that will serve as primary or contingent beneficiaries of those accounts. The "accumulation" version is the only type that really provides asset protection, and those need to meet very specific criteria to be acceptable to the IRS for stretch payouts. If a spouse is primary beneficiary of the retirment account, they will have the option to disclaim the assets and allow them to flow directly to the trust.

Placing your bank accounts under the trust is very simple and a wise thing to do in the event you become incapacitated. By having your taxable accounts TOD, you prevent the executor of your estate from accessing those funds to pay bills and final expenses. Also, as with bank acocunts, if you become incapacitated your trustee will not have access to those accounts.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

Dianne
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Re: What criteria warrants a need for Living Revocable Trust?

Post by Dianne » Mon Feb 12, 2018 4:20 pm

afan wrote:
Sun Feb 11, 2018 2:12 pm
You are missing my point. Putting the assets in trust has nothing to do with the complexity of the assets. It has nothing to do with hiring professional management. The issue is being permitted to do the management. Many financial institutions refuse to accept durable powers of attorney. Even when perfectly valid. Even when state law requires them to do so.

Having the assets inside a trust means the institutions only need to recognize the trustee. They have far less problem with that.

Either way you need to identify all the assets. If you don't know what and where they are then you are in the same boat, with or without a trust.

All of the gathering information, account numbers, deeds and other proof of ownership has to happen, with or without a trust.

Without a trust, at incapacity your attorney in fact has to get each entity to accept a durable power of attorney. When I had to help an elderly person with accounts at over a dozen institutions, not one would accept the DPOA. NOT ONE.

For assets that were in the trust it was simple. Fortunately, there was enough money in the trust that I was able to pay bills while getting the money out of the individual accounts. Did this by having the person transfer money from the individual accounts into the trust. She was running out of steam but still able to do that. If she had not been able to do it the only alternative would have been to hire a lawyer to fight with the companies. One at a time with the meter running.

After death bills have to be paid, real estate sold and so forth. If all the assets are already in trust, put there by the decedent while alive and healthy, then the trustee just handles these chores with immediate, uninterrupted, access to the funds.

After death if the assets were held outside of the trust then someone has to be appointed executor before they can do anything. They cannot be appointed executor until they file the will and get a death certificate. All this takes time and someone's effort. Until it happens the person who will be executor has no power to do anything. If all assets were held individually then the executor, once appointed, has to go around to each institution, present the death certificate and letters of administration and get control of the assets.

If the assets were already in trust none of this would be necessary.

Note: none of the above has anything to do with probate.

Probate is only part of settling an estate. All of the work of settling an estate has to happen. Avoiding probate hardly means there is nothing to do after someone dies. But leaving things to be done after incapacity or death when they could be done now means more work and more hassle for someone.

Collecting and organizing the assets has to happen, one way or another. One way is to do it yourself, put it all in trust and get this taken care of while alive and healthy.

The other way is to leave it hanging and expect someone esle to clean it up, either when you are alive but unable to do it yourself or after your death. I cannot see an advantage to putting it off. I can see lots of advantages to doing it now.
I agree that revocable trusts often address lifetime incapacity better than powers of attorney. However, tax-deferred assets such as 401(k)s and IRAs cannot be transferred to a trust without triggering income taxation on the pre-tax amounts and losing all future tax deferral. So if the bulk of your assets are in tax-deferred accounts (which is probably true of many longtime Bogleheads), you cannot use a revocable trust for lifetime management, and your agent will have to convince Vanguard and other institutions to accept your power of attorney when the time comes. Even if your agent has to open a guardianship, that will likely be less expensive than giving up all of your tax deferral. But this means that you are back at square one and you don't receive this benefit of a lifetime revocable trust.

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FIREchief
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Re: What criteria warrants a need for Living Revocable Trust?

Post by FIREchief » Mon Feb 12, 2018 4:40 pm

Dianne wrote:
Mon Feb 12, 2018 4:20 pm
I agree that revocable trusts often address lifetime incapacity better than powers of attorney. However, tax-deferred assets such as 401(k)s and IRAs cannot be transferred to a trust without triggering income taxation on the pre-tax amounts and losing all future tax deferral. So if the bulk of your assets are in tax-deferred accounts (which is probably true of many longtime Bogleheads), you cannot use a revocable trust for lifetime management,
You can still benefit from a revocable trust for management during incapacitation. You just still need a POA who can withdraw from qualified plans as necessary to replenish the trust assets. In this scenario, I believe it is prudent to have the DPOA document reviewed and approved by a person's brokerage prior to becoming incapacitated. Some don't believe this is possible, but I am aware of two people who have done this successfully.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

JBTX
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Re: What criteria warrants a need for Living Revocable Trust?

Post by JBTX » Mon Feb 12, 2018 5:15 pm

ChrisC wrote:
Mon Feb 12, 2018 1:53 pm
JBTX wrote:
Mon Feb 12, 2018 12:04 pm
Kind of a different subject. I may or may not be guilty of this.

We do have RLT. Really the big potential asset would be the life insurance, and that is named in RLT. Not sure I understand this. Is the Trust the policy owner or is it the named beneficary? Or is this a policy designed to pay Federal estate taxes which now has a very high exemption amount? In my case, two of our policies, term policies underwritten by former employers, simply have the trust as a contingent beneficiary if spouse is no longer around. Same deal with homeowner's insurance too, if both of us are not around.
pretty sure trust is owner of policy. I’ll have to go back and check.

Also, home is in RLT (which has some minor downsides). What are the downsides here? I'm not aware of any, unless you had to pay some transfer/deed tax.
If you refinance you have to take it out and put it back in. Quicken loans handled that pretty easily.


Most of our assets are in retirement accounts and are not in trust (nor should they be), which go directly to spouse, or secondarily to "benefits trusts". Retirement accounts don't go into a trust, but one can name the trust as a contingent beneficiary and have the trust be designed to allow the non-spousal beneficiaries to take advantage of "stretch" RMDs. This might be imporant if you have multiple retirement account beneficiary heirs and the trust grantors want to provide some creditor protection to beneficiaries. Is this what you mean by "benefits trusts."
I think so. They are sub trusts within RLT to handle retirement accounts. I think they are what is elsewhere called “Ira trusts”.
Bank accounts are jointly owned, and not in ownership of the trust, but do have trust as contingent beneficiary, in those cases where banks allow it. Taxable investment accounts are set up as TOD, and not in name of trust, but do have trust as contingent beneficiary. I'm not sure what you gain by having your accounts set up this way as opposed to simpy re-titling all in the trust's name.
What happens if both joint tenants become incapicitated? As others have pointed out, sometimes DPOAs not prepared on forms generated by an institution are not honored by that institution. Your set up seems to require additional steps for the trustees of the trust to take to claim ownership of these accounts if the joint owners are not around.


Any problems with this setup?

afan
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Re: What criteria warrants a need for Living Revocable Trust?

Post by afan » Tue Feb 13, 2018 5:18 am

You cannot put the retirement plans into the living trust, so your trustee cannot manage it. For this you would have to get the plan sponsors to accept a DPOA. As Firechief says, it is best to do this while you are competent and using the forms the sponsors want. You CAN simplify things by consolidating all your retirement assets in as few accounts as possible. Roll your traditional accounts together. You may not be able to do much if you have pensions.


Since there are caps to how much money one can put into retirement plans one should have a large share of money outside retirement accounts. That can be in the trust.

Holding your home in trust can be a disadvantage if your state grants special asset protection to the family home if held as tenants by the entirety by a married couple. In that case it can be best to have the home as tenants by the entirety and move it into the trust after the first death.

I don't know about inheritance tax in PA. In some states holding real estate in an LLC will avoid such taxes and probate fees. In CT, as noted, your estate would owe probate fees even if your real estate were held in a trust and there was no probate.
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Nowizard
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Re: What criteria warrants a need for Living Revocable Trust?

Post by Nowizard » Tue Feb 13, 2018 5:34 pm

Ultimately, nothing more than the desire to avoid probate and the willingness to pay related fees to establish it and transfer assets to the Trust.

Tim

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