Newbie question on trusts and estate planning

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ctuser1
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Newbie question on trusts and estate planning

Post by ctuser1 » Thu Mar 14, 2019 6:20 am

Apologies in advance for a newbie question!!

Wife and me, in our late 30s, are both frugal. We have around $700k (primarily in equities, so moves up and down by quite a bit) socked away. We save @$70k/year, and I hope to increase that to $100k/year within a few years, assuming both me and DW can make some higher paying jumps at our jobs. The assets are primarily in retirement accounts, but any potential increase in savings will go towards taxable accounts.

We have two kids, one typical child and another one autistic. We would like to leave a sizable SSNT for the autistic child. To be fair to the other one, we expect to leave something similar for her as well when we both die.

The exact details of which trusts to set up to handle the money after we die is not fully clear to me yet. However, some google searches and reading through this forum told me that people recommend start trusts up at our age and asset levels for asset protection from creditors and probate (in case of untimely death).

Question to experts here - is there some trust structure that:
1. Helps us avoid probate.
2. Allows us to continue funding it till our death. Preferably using both retirement/non-retirement money.
3. Allows us to access the assets for our retirement.
4. Upon our death, transfers assets to an SSNT and some other trust(s) - the structure of which are not yet determined.

Are all of these possible without spending tens of thousands in lawyer fees for trust setup?
Last edited by ctuser1 on Thu Mar 14, 2019 7:33 am, edited 1 time in total.

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RickBoglehead
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Re: Newbie question on trusts and estate planning

Post by RickBoglehead » Thu Mar 14, 2019 6:26 am

Yes.

A revocable trust can be setup whereby the trust, on death of both owners, pays funds to other trusts. Normally all assets, except for personal vehicles, would be moved to the trust. You can add and remove assets as you see fit, but want to make sure that the revocable trust contains all the assets it should to avoid probate - if avoiding probate is the proper strategy in your situation. There may be specific state rules that your attorney would be expert in navigating.

INAL, but a typical trust/will/POA package from an attorney should be in the $2 - $3,000 range.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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ctuser1
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Re: Newbie question on trusts and estate planning

Post by ctuser1 » Thu Mar 14, 2019 7:33 am

Thanks a lot RickBoglehead!

Would you (or anyone else) happen to know any online resource(s) I can use to educate myself on typical estate planning questions - i.e. something like a bogleheads of estate planning?

At this point I feel lost when I research anything related to estate planning. Investment planning (thanks to this forum) seems far easier. Paying a lawyer to explore all the options appear very expensive due to the hourly rate and how many questions I am likely to have. I would rather do my research, *know* what kind of high level estate setup strategy I want and then have the lawyer just fine tune it and draw up the paperwork at the cost of $2-3k.

Are my goals unreasonable? What do other people do?

fittan
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Re: Newbie question on trusts and estate planning

Post by fittan » Thu Mar 14, 2019 8:26 am

Hi, I am also researching on will and trust now so can chime in a bit.

- Have you had a will setup? If not you should have one asap. One key purpose of a will is to assign a guardian to take care of your kids wellfare if you and wife pass.

- To setup 2 wills, revocable living trust plus healthcare proxies, etc should costs around $2500 to $3500.

- You mentioned asset protection....RLT do NOT protect your assets from creditors. If you want assets protection, that's the purpose of Irrevocable living trust. However I don't think you (we), ILIT is usually for super wealthy. If you're worry about protecting your assets, I think an umbrella policy ($250/year for $1 million coverage) would be a better option.

- As for resources, besides this forum, youtube, a great place is podcasts. Just search "estate planning" and you'll find tons of attorney with hundreds of podcasts teaching EP (Estate planning) 101.

- One cavaet about trust is that after you set it up, you must do your "homework" to move assets into it else is it worthless. This means your house, your bank accounts, your mutual funds etc.

- Also for trust, you need to assign a "sucessor trustee". You and wife will be primary but if both passes, this sucessor will take over and manage the assets in the trust. This person could be same as guardian but personally I would separate. Meaning I will have one person to take care of my child wellfare and another their finances (sort of a check and balance).

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RickBoglehead
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Re: Newbie question on trusts and estate planning

Post by RickBoglehead » Thu Mar 14, 2019 8:58 am

ctuser1 wrote:
Thu Mar 14, 2019 7:33 am
Thanks a lot RickBoglehead!

Would you (or anyone else) happen to know any online resource(s) I can use to educate myself on typical estate planning questions - i.e. something like a bogleheads of estate planning?

At this point I feel lost when I research anything related to estate planning. Investment planning (thanks to this forum) seems far easier. Paying a lawyer to explore all the options appear very expensive due to the hourly rate and how many questions I am likely to have. I would rather do my research, *know* what kind of high level estate setup strategy I want and then have the lawyer just fine tune it and draw up the paperwork at the cost of $2-3k.

Are my goals unreasonable? What do other people do?
A good estate planning attorney shouldn't have to research anything - they should do this day in and day out. Unless your circumstances are unusual, they should have a preset price for what they are going to put together.

I applaud your desire to get educated before you seek an attorney. This allows you to know what questions to ask of a prospective attorney, hopefully you would interview several. There are of course lots of books to read, and you may want to seek one out specific to your need to protect your one child. I recommend Living Trusts For Everyone : : Why A Will Is Not The Way To Avoid Probate, Protect Heirs, And Settle Estates by Ronald Farrington Sharp (2nd edition, 2017). It will help you understand some things and be able to ask better questions.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

Nutmeg
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Re: Newbie question on trusts and estate planning

Post by Nutmeg » Thu Mar 14, 2019 10:39 am

I am the trustee of a special needs trust. I recommend the Special Needs Alliance for information about legal planning for families of people with special needs. This is the link to its newsletter:

https://www.specialneedsalliance.org/the-voice/

From that link, you can access a list of special needs attorneys.

senex
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Re: Newbie question on trusts and estate planning

Post by senex » Thu Mar 14, 2019 10:42 am

fittan wrote:
Thu Mar 14, 2019 8:26 am
- You mentioned asset protection....RLT do NOT protect your assets from creditors. If you want assets protection, that's the purpose of Irrevocable living trust. However I don't think you (we), ILIT is usually for super wealthy. If you're worry about protecting your assets, I think an umbrella policy ($250/year for $1 million coverage) would be a better option.
I like this advice. One of my main take-aways from the Adkisson book was that liability insurance is by far the best first line of defense.

Revocable trusts, as you said, offer no creditor protection (you still control the money, so courts treat it as "yours").

Irrevocable trusts, as I understand it, may or may not offer protection, depending on the terms of the trust, the trustee (yourself vs corporate trustee), how and when assets were transferred into the trust, and ever-changing state law (your state of residence and/or the state of the trust/trustee). It is complicated & expensive.

You say most of your assets are in retirement accounts -- those already offer some creditor protections (for 401ks, read about ERISA protections, and for IRAs read about your state's rules).

bayview
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Re: Newbie question on trusts and estate planning

Post by bayview » Thu Mar 14, 2019 11:55 am

Revocable trusts are taxed at your own tax rate. Irrevocable trusts are taxed at the trust rate, which is usually higher.

You might want to keep that in mind. It's not a "therefore don't have an irrevocable trust" point.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

Topic Author
ctuser1
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Re: Newbie question on trusts and estate planning

Post by ctuser1 » Sat Mar 16, 2019 10:39 pm

Thanks everyone for chiming in. The Ronald Farrington Sharp book has been duly ordered. I'll go through it and may post more questions once I have gone through it.

A few more random questions in no particular order:

I have my $700k portfolio in 100% stocks (except for emergency funds @6months of expenses, which is sitting in a savings account). The way I have rationalized this are:
  • My portfolio is not really meant *just* for our retirement - but rather to last for my children's lifetime.
  • I enjoy my line of work and I don't *think* I would ever want to retire even after I achieve *FI*! I hope to continue in my 60s, or past that if I can. DW is in the same line of work and wants to retire as soon as possible!
  • I have experienced 2008, when my 100% equity portfolio went from $70k to < $30k and I was pretty nonchalant at that time. I am hoping I can continue that attitude with million dollar swings that are inevitable in future.
Any comments/suggestions?

Any ideas what is a reasonable amount for SSNT?
I don't know how much to target. What is reasonable? 500k? 5M? What amount of typical expenses are allowed without affecting eligibility for any government benefits.

Any suggestions on social security calculators
Especially one that can handle more specialized scenario we have? Of particular interest is factoring in the SSDI benefits for children based on parents earnings if the disability started before 21 years.

Asset protection
I did not clarify what I meant by "asset protection" in my OP.
On DW's side, life expectancy is very short (everybody tend to die at 50s or 60s). On my side we have a very long life expectancy (100+), but half of them are disabled by varied afflictions (including Alzheimers) for the last 10-15 years. This means I have a two specific types of asset protection in mind when I mentioned that we need to protect our assets:
  • I need to protect our assets from a 90yo myself when no longer have my mental faculties. My grandpa was my role model in many ways, and I have seen how he was reduced to a second childhood. So I fully understand the need to protect myself from myself.
  • Medicare/Medicaid clawback in case I or DW were to need assisted living late in our life

bsteiner
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Re: Newbie question on trusts and estate planning

Post by bsteiner » Sun Mar 17, 2019 9:15 am

ctuser1 wrote:
Thu Mar 14, 2019 6:20 am
...
Wife and me, in our late 30s, are both frugal. We have around $700k (primarily in equities, so moves up and down by quite a bit) socked away. We save @$70k/year, and I hope to increase that to $100k/year within a few years, assuming both me and DW can make some higher paying jumps at our jobs. The assets are primarily in retirement accounts, but any potential increase in savings will go towards taxable accounts.

We have two kids, one typical child and another one autistic. We would like to leave a sizable SSNT for the autistic child. To be fair to the other one, we expect to leave something similar for her as well when we both die.

The exact details of which trusts to set up to handle the money after we die is not fully clear to me yet. However, some google searches and reading through this forum told me that people recommend start trusts up at our age and asset levels for asset protection from creditors and probate (in case of untimely death).

Question to experts here - is there some trust structure that:
1. Helps us avoid probate.
2. Allows us to continue funding it till our death. Preferably using both retirement/non-retirement money.
3. Allows us to access the assets for our retirement.
4. Upon our death, transfers assets to an SSNT and some other trust(s) - the structure of which are not yet determined.

Are all of these possible without spending tens of thousands in lawyer fees for trust setup?
Yes, though if you added a zero at the end of your net worth you would still be at the low end of the range for setting up an asset protection trust.

The fees would include both lawyer and trust company fees. It would probably cost less than "tens" (plural) of thousands of dollars, though it might cost "ten" (singular) or more thousand dollars.

The trust (which could be in your Will) for the child with special needs will be very similar to the trust for the child without special needs. The principal difference is that, depending on the nature of the child's special needs, he/she will probably have a lesser degree of control (or perhaps no control at all) over his/her trust.
RickBoglehead wrote:
Thu Mar 14, 2019 8:58 am
...
A good estate planning attorney shouldn't have to research anything - they should do this day in and day out. Unless your circumstances are unusual, they should have a preset price for what they are going to put together.

I applaud your desire to get educated before you seek an attorney. This allows you to know what questions to ask of a prospective attorney, hopefully you would interview several. There are of course lots of books to read, and you may want to seek one out specific to your need to protect your one child. I recommend Living Trusts For Everyone : : Why A Will Is Not The Way To Avoid Probate, Protect Heirs, And Settle Estates by Ronald Farrington Sharp (2nd edition, 2017). ...
It's the other way around. The better lawyers spot more issues and therefore do more research than the less knowledgeable lawyers who don't spot the issues and don't research the issues they don't spot.

Not only is the title of that book misleading (living trusts are for some people and in some states but not for most people in most states), but the book itself is highly misleading.
ctuser1 wrote:
Sat Mar 16, 2019 10:39 pm
...
Any ideas what is a reasonable amount for SSNT?

I don't know how much to target. What is reasonable? 500k? 5M? What amount of typical expenses are allowed without affecting eligibility for any government benefits.
...
As long as the child isn't entitled to anything (in any well drafted Will your children wouldn't be entitled to anything) the size of the trust won't affect eligibility for government benefits. Some people leave a larger share to the child with special needs, some people limit the size of the trust for the child with special needs, and some people provide an equal share for the child with special needs.
ctuser1 wrote:
Sat Mar 16, 2019 10:39 pm
...
I did not clarify what I meant by "asset protection" in my OP.

On DW's side, life expectancy is very short (everybody tend to die at 50s or 60s). On my side we have a very long life expectancy (100+), but half of them are disabled by varied afflictions (including Alzheimers) for the last 10-15 years. This means I have a two specific types of asset protection in mind when I mentioned that we need to protect our assets:
  • I need to protect our assets from a 90yo myself when no longer have my mental faculties. My grandpa was my role model in many ways, and I have seen how he was reduced to a second childhood. So I fully understand the need to protect myself from myself.
  • Medicare/Medicaid clawback in case I or DW were to need assisted living late in our life
To protect against yourself you'll need to create a trust that you can only amend or revoke with the consent of someone else. We've done that for people in the early and middle stages of Alzheimer's who were concerned about a specific predator. If you're in your 30s you're a bit young for this.

To protect against Medicaid you would have to give away your assets five years in advance. A common technique for people in their 70s with modest assets is to put assets (often the home) into a trust in which they receive the income but can't receive any principal. After five years, while they'll have to contribute their income (which is meaningless if the asset is the home), the principal will be protected. The tradeoff is the loss of flexibility, but if they have no plans to sell their home, they're often willing to do this. Again, you're a bit young for this.

Gill
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Re: Newbie question on trusts and estate planning

Post by Gill » Sun Mar 17, 2019 9:36 am

bayview wrote:
Thu Mar 14, 2019 11:55 am
Revocable trusts are taxed at your own tax rate. Irrevocable trusts are taxed at the trust rate, which is usually higher.
Careful. An irrevocable trust can be designed so that the income is taxed to the grantor.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

MtnBiker
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Re: Newbie question on trusts and estate planning

Post by MtnBiker » Sun Mar 17, 2019 10:00 am

bsteiner wrote:
Sun Mar 17, 2019 9:15 am

To protect against Medicaid you would have to give away your assets five years in advance. A common technique for people in their 70s with modest assets is to put assets (often the home) into a trust in which they receive the income but can't receive any principal. After five years, while they'll have to contribute their income (which is meaningless if the asset is the home), the principal will be protected. The tradeoff is the loss of flexibility, but if they have no plans to sell their home, they're often willing to do this. Again, you're a bit young for this.
Is there not an exception to the 5 year Medicaid lookback period in the case of funding a SNT for a disabled adult child?
In some cases, transferring your house or other assets to spouses or children are exceptions to the Medicaid rule against transferring assets.
Many people try to give away their assets to relatives in order to qualify for Medicaid. But when an applicant gives away property within five years of applying for Medicaid coverage of long-term care, Medicaid presumes that the gifts was made to qualify for Medicaid. This will trigger a period of ineligibility for Medicaid long-term care benefits on the theory that those assets could have been used to pay for the individual’s care.
Not all transfers, however, trigger a period of ineligibility for Medicaid. Federal and state Medicaid laws contain various exceptions to the rule against making gifts within five years of applying for Medicaid for long-term care (called the look back period). Following is a brief review of the most common exceptions.

Under federal law, when title to the applicant’s home is transferred to another, this will trigger a period of ineligibility for Medicaid coverage of long-term care unless the transfer is made to one of the following individuals:
• the spouse of the applicant
• a child of the applicant who is under age 21
• a child of the applicant who is blind or permanently and totally disabled
In other words, the Medicaid applicant can gift his or her house to anyone in the above circumstances during the five-year look-back period without penalty.

A Medicaid applicant can transfer any resources (including a house, as discussed above) to a disabled child without running afoul of the transfer rules. No transfer penalties will be imposed when an asset was transferred to the applicant's child, or to a trust established solely for the benefit of the applicant's child, as long as the child is either blind or permanently and totally disabled as defined by the individual state program or as defined by Supplemental Security Income rules.
Excerpts copied from: https://www.nolo.com/legal-encyclopedia ... -care.html

bayview
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Re: Newbie question on trusts and estate planning

Post by bayview » Sun Mar 17, 2019 9:06 pm

Gill wrote:
Sun Mar 17, 2019 9:36 am
bayview wrote:
Thu Mar 14, 2019 11:55 am
Revocable trusts are taxed at your own tax rate. Irrevocable trusts are taxed at the trust rate, which is usually higher.
Careful. An irrevocable trust can be designed so that the income is taxed to the grantor.
Gill
Thanks, I didn’t know that! Is that a fairly straightforward option, or does it come with a lot of negative entanglements?
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

bsteiner
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Re: Newbie question on trusts and estate planning

Post by bsteiner » Sun Mar 17, 2019 9:20 pm

bayview wrote:
Sun Mar 17, 2019 9:06 pm
Gill wrote:
Sun Mar 17, 2019 9:36 am
bayview wrote:
Thu Mar 14, 2019 11:55 am
Revocable trusts are taxed at your own tax rate. Irrevocable trusts are taxed at the trust rate, which is usually higher.
Careful. An irrevocable trust can be designed so that the income is taxed to the grantor.
Gill
Thanks, I didn’t know that! Is that a fairly straightforward option, or does it come with a lot of negative entanglements?
Most trusts are created by Will. In those cases, grantor trust status isn't an option.

Most trusts created during lifetime are grantor trusts for income tax purposes. They're usually created to shift wealth out of the grantor's estate for estate tax purposes. If a trust is a grantor trust, each time the grantor pays the tax on the trust's income and gains, the grantor is effectively shifting additional wealth out of his/her estate free of transfer tax.

With the current level of the estate tax exclusion amount, if estate taxes are no longer a concern, some clients are turning off grantor trust status and having the trusts pay their own taxes. It's often possible to do this in a way that avoids state income taxes.

bayview
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Re: Newbie question on trusts and estate planning

Post by bayview » Sun Mar 17, 2019 9:41 pm

bsteiner wrote:
Sun Mar 17, 2019 9:20 pm
bayview wrote:
Sun Mar 17, 2019 9:06 pm
Gill wrote:
Sun Mar 17, 2019 9:36 am
bayview wrote:
Thu Mar 14, 2019 11:55 am
Revocable trusts are taxed at your own tax rate. Irrevocable trusts are taxed at the trust rate, which is usually higher.
Careful. An irrevocable trust can be designed so that the income is taxed to the grantor.
Gill
Thanks, I didn’t know that! Is that a fairly straightforward option, or does it come with a lot of negative entanglements?
Most trusts are created by Will. In those cases, grantor trust status isn't an option.

Most trusts created during lifetime are grantor trusts for income tax purposes. They're usually created to shift wealth out of the grantor's estate for estate tax purposes. If a trust is a grantor trust, each time the grantor pays the tax on the trust's income and gains, the grantor is effectively shifting additional wealth out of his/her estate free of transfer tax.

With the current level of the estate tax exclusion amount, if estate taxes are no longer a concern, some clients are turning off grantor trust status and having the trusts pay their own taxes. It's often possible to do this in a way that avoids state income taxes.
That’s interesting; I had no idea. It seems odd that it would be better to pay trust rates rather than personal, as they seem shockingly high, but I suppose that if one were in the nosebleed brackets, it would make sense.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

bsteiner
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Re: Newbie question on trusts and estate planning

Post by bsteiner » Mon Mar 18, 2019 8:33 am

bayview wrote:
Sun Mar 17, 2019 9:41 pm
bsteiner wrote:
Sun Mar 17, 2019 9:20 pm
...
Most trusts created during lifetime are grantor trusts for income tax purposes. They're usually created to shift wealth out of the grantor's estate for estate tax purposes. If a trust is a grantor trust, each time the grantor pays the tax on the trust's income and gains, the grantor is effectively shifting additional wealth out of his/her estate free of transfer tax.

With the current level of the estate tax exclusion amount, if estate taxes are no longer a concern, some clients are turning off grantor trust status and having the trusts pay their own taxes. It's often possible to do this in a way that avoids state income taxes.
That’s interesting; I had no idea. It seems odd that it would be better to pay trust rates rather than personal, as they seem shockingly high, but I suppose that if one were in the nosebleed brackets, it would make sense.
Most people who created trusts during lifetime are in high brackets.

If they're no longer concerned about estate taxes (either because of the increase in the estate tax exclusion amount, or because they've already given away as much as they want and are leaving their remaining assets to charity), they may prefer to have the trust pay its own tax. If they're paying state income tax but the trust can be set up not to pay state income tax in any state (which is often possible), the trust's Federal income tax may be less than the Federal and state income tax that the grantor would pay.

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