"bogleheads" for estates ?

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skeptical
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"bogleheads" for estates ?

Post by skeptical » Mon Dec 02, 2019 1:03 pm

I am looking to put together an estate plan for my family and my kids - trusts, taxes, etc

I have seen advice on this forum for how to find an estate lawyer - going through ACTECT, talking with banks and CPA's for referrals, etc. I have gone down this route, without a lot of success. What I really want to do is educate myself on the various options, best practices, etc and then sit down with a lawyer to discuss and execute. In other words a forum similar to this but focused on estates and trusts.

I have come across a few sites, however they are either marketing fronts for estate firms or the quality/depth is not there.

Any suggestions ?

For example, one screening question I ask is how to shelter my estate from state taxes. The answer is always, "we would set up an irrevocable trust". But when I ask how to set this trust up without the 1% annual fee, the answer is always - "Well, these are the companies we use for that, and yes, that is what they charge". When I point out that after 15 years, you have already paid the equivalent of the estate tax to the bank, I get silence.

So, in this particular instance, the estate lawyer either does not know how to do this, or cannot saythat it cannot be done, and seems dumbfounded that I manage my investments myself. I have spoken with an estate planner from Vanguard, and they were also thrown by this question.

So, I need to educate myself, as I cannot really trust what these people (at least the ones I have met) say.

magicrat
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Re: "bogleheads" for estates ?

Post by magicrat » Mon Dec 02, 2019 1:27 pm

There is no requirement that a trust has a 1% annual fee. Seems like an odd question to be asking a lawyer.

retiringwhen
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Re: "bogleheads" for estates ?

Post by retiringwhen » Mon Dec 02, 2019 1:29 pm

Our Estate Planner wanted us to use his 1% AUM service (provided by another partner) we said, no thanks and he went ahead and did the plan without the need to implement a corporate trustee by default (we added a stipulation that the trustee could assign a corporate trustee if required though.)

My personal opinion is that you need to read a handful of books on estate planning, decide what risks and situations you need to plan for or protect your estate from, then go to the lawyer with that info, and work out a plan. A good estate planner should be able to work with your requirements to create the plan.

If you really want to read, one place to start is "Beyond the Grave" by Jeffrey Condon. It is CA/Common Property heavy, but gives a good intro the risks you want to address. There are a couple other threads on BH with lists of books. Also, read just about anything bsteiner posts as he is a fount of useful and relevant knowledge. you can learn a lot by reading the threads he posts in.

BTW, the best way to avoid state taxes is to move to a low cost state, everything else is expensive.

We paid more for an estate plan than we for any financial or tax service put together over the last 20 years. I am 100% DIY on taxes and investing, but I will not skimp on the costs of a good estate planning lawyer. I know my limitations.

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RickBoglehead
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Re: "bogleheads" for estates ?

Post by RickBoglehead » Mon Dec 02, 2019 1:34 pm

IANAL.

An irrevocable trust, as opposed to a revocable trust, is one where you give up all rights of ownership of the assets. Therefore, isn't it a contradiction to then want to manage the trust yourself? And, if so, then whoever manages the trust is going to want to get paid for that.

Vanguard's Trust division charges significantly less, but they use PAS to manage the investments. So you have the PAS fee and the trust fee, the total of which is still below 1%. On the low asset level (below $5 million), they charge a total of 0.55%. That drops to 0.30% for the next $5 million, and 0.10% for the next 15 million. So the effective rate for say $7.5 million would be 0.467%. Seems quite reasonable to me. https://www.vanguard.com/pdf/a196.pdf

I'd also point out that there are lawyers with different specialties, and some of them are not tax specialists. A tax attorney would be where I would focus, or an estate lawyer that is also a CPA. Or has a CPA on state.
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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Re: "bogleheads" for estates ?

Post by hicabob » Mon Dec 02, 2019 1:41 pm

I too have some interest in this but with minimal knowledge and being a complete legal layman. so ......

It does seem like the trust could be set up such that the trustor can be the trustee and manage the trust like a boglehead would with the benefactor (or some other entity) eventually taking over the trustee role at the right time?

https://www.lawyers.com/ask-a-lawyer/tr ... 41752.html

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FIREchief
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Re: "bogleheads" for estates ?

Post by FIREchief » Mon Dec 02, 2019 2:13 pm

skeptical wrote:
Mon Dec 02, 2019 1:03 pm
For example, one screening question I ask is how to shelter my estate from state taxes. The answer is always, "we would set up an irrevocable trust".
How does an irrevocable trust avoid state taxes that would otherwise be paid by the grantor's estate? Are you describing income taxes or estate taxes? Is there an assumption that the irrevocable trust would be administered in a state without state income taxes? :confused
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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skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Mon Dec 02, 2019 2:32 pm

Thanks for all the replies.

I will look into the books and BH contributors for information. It would be interesting to have a way of posting your estate needs like people post their portfolios for advice.

Note: A few years ago I spent $8K on an estate plan that I now know is inadequate, both due to changing circumstances, but also because I have more knowledge now. So, I feel I need to educate myself enough so I can determine what I need to have done by a lawyer.

Regarding the irrevocable trust, this is more of an example of stating a desire (want to shelter from estate taxes), and being given an option that does not seem to work (cost of implementation is more than the savings). It is OK that it does not work, but I don't want to pay a lot of money for an estate lawyer who provides non-viable options, and makes me question their advice on areas I do not know about.
RickBoglehead wrote:
Mon Dec 02, 2019 1:34 pm
IANAL.
An irrevocable trust, as opposed to a revocable trust, is one where you give up all rights of ownership of the assets. Therefore, isn't it a contradiction to then want to manage the trust yourself? And, if so, then whoever manages the trust is going to want to get paid for that.
I know I cannot manage the trust if it is irrevocable, and needs to be managed by some third party entity, however, these all seem to charge 1%. Vanguard, on my phone call, siad it would be .7% (.3% + .4%) and I would need to use PAS, which I do not want to use. I just want (and have) a simple 50/50 two fund portfolio, and would like to find a place to do that for a lot less than 1%, otherwise it is simply not worth doing.
FIREchief wrote:
Mon Dec 02, 2019 2:13 pm
How does an irrevocable trust avoid state taxes that would otherwise be paid by the grantor's estate? Are you describing income taxes or estate taxes? Is there an assumption that the irrevocable trust would be administered in a state without state income taxes? :confused
The assets in an irrevocable trust would avoid estate taxes, not income tax. Sorry If I was not clear

poundwise
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Re: "bogleheads" for estates ?

Post by poundwise » Mon Dec 02, 2019 2:37 pm

Excellent topic. This could be a great area for a bogleheads wiki entry, provided disclaimers were plastered everywhere.

I haven't bought this book, but love the title:
https://www.amazon.com/How-Die-Without- ... 0312244010

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Re: "bogleheads" for estates ?

Post by RickBoglehead » Mon Dec 02, 2019 2:43 pm

skeptical wrote:
Mon Dec 02, 2019 2:32 pm
Thanks for all the replies.

I will look into the books and BH contributors for information. It would be interesting to have a way of posting your estate needs like people post their portfolios for advice.

Note: A few years ago I spent $8K on an estate plan that I now know is inadequate, both due to changing circumstances, but also because I have more knowledge now. So, I feel I need to educate myself enough so I can determine what I need to have done by a lawyer.

Regarding the irrevocable trust, this is more of an example of stating a desire (want to shelter from estate taxes), and being given an option that does not seem to work (cost of implementation is more than the savings). It is OK that it does not work, but I don't want to pay a lot of money for an estate lawyer who provides non-viable options, and makes me question their advice on areas I do not know about.
RickBoglehead wrote:
Mon Dec 02, 2019 1:34 pm
IANAL.
An irrevocable trust, as opposed to a revocable trust, is one where you give up all rights of ownership of the assets. Therefore, isn't it a contradiction to then want to manage the trust yourself? And, if so, then whoever manages the trust is going to want to get paid for that.
I know I cannot manage the trust if it is irrevocable, and needs to be managed by some third party entity, however, these all seem to charge 1%. Vanguard, on my phone call, siad it would be .7% (.3% + .4%) and I would need to use PAS, which I do not want to use. I just want (and have) a simple 50/50 two fund portfolio, and would like to find a place to do that for a lot less than 1%, otherwise it is simply not worth doing.
FIREchief wrote:
Mon Dec 02, 2019 2:13 pm
How does an irrevocable trust avoid state taxes that would otherwise be paid by the grantor's estate? Are you describing income taxes or estate taxes? Is there an assumption that the irrevocable trust would be administered in a state without state income taxes? :confused
The assets in an irrevocable trust would avoid estate taxes, not income tax. Sorry If I was not clear
The 0.7% they quoted you doesn't match up with the brochure I linked to. The rate never gets higher than 0.55% which includes PAS.
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.

magicrat
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Re: "bogleheads" for estates ?

Post by magicrat » Mon Dec 02, 2019 2:45 pm

skeptical wrote:
Mon Dec 02, 2019 2:32 pm


I know I cannot manage the trust if it is irrevocable, and needs to be managed by some third party entity, however, these all seem to charge 1%.
You need a trustee who is not you, that does not mean you need to pay someone to be the trustee. You can appoint (just about) anyone you want.

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skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Mon Dec 02, 2019 2:58 pm

RickBoglehead wrote:
Mon Dec 02, 2019 2:43 pm
The 0.7% they quoted you doesn't match up with the brochure I linked to. The rate never gets higher than 0.55% which includes PAS.
Well, I guess I spoke with the wrong person :-)
Though, even .55% makes this of marginal use for the specific purpose of sheltering estate taxes - depends on how soon both my wife and I kick the bucket.

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skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Mon Dec 02, 2019 3:01 pm

magicrat wrote:
Mon Dec 02, 2019 2:45 pm
You need a trustee who is not you, that does not mean you need to pay someone to be the trustee. You can appoint (just about) anyone you want.
Yes, technically correct, but you run into practical issues. If I choose my brother, for example, the trust might be determined to be invalid as an irrevocable trust. It really needs to be an independent third party, which is typically a financial institution.

gtd98765
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Re: "bogleheads" for estates ?

Post by gtd98765 » Mon Dec 02, 2019 3:09 pm

Nolo has lots of books on various legal matters, including estate planning, if you want to read up.

https://store.nolo.com/products/

Topic Author
skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Mon Dec 02, 2019 3:37 pm

gtd98765 wrote:
Mon Dec 02, 2019 3:09 pm
Nolo has lots of books on various legal matters, including estate planning, if you want to read up.

https://store.nolo.com/products/
Yes, saw that, they seem to have some good info.

I guess what I am looking for is a framework/philosophy I can use to frame what I want to do.

Before finding this site, I went with a financial advisor, even though I read a lot on "investing" - I knew what stocks, bond, mutual funds were, how they worked, and what they did. When I found this site, I was able to think strategically about all of this, including taxes, costs, fund placement, etc, and I dumped my advisor and went my own route.

I feel like I know about a number of different estate planning tools (living trusts, irrevocable trusts, family trusts, wills, POA's, helath proxies, etc, but I am struggling with how to put all of this together, and if I am missing anything. The lawyers I have spoken with, and the one that I used, is in the mold of the "financial advisor" that has a package to sell, with a set of documents ready to go.

I probably need to take a step back and get a few books.

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Re: "bogleheads" for estates ?

Post by RudyS » Mon Dec 02, 2019 3:50 pm

Starting some estate planning to reduce Massachusetts estate tax on my and DW's demise. I have been told by an attorney, and also see in articles by law firms on the internet, that what I want is a revocable living trust, not an irrevocable trust. Plan is that when I pass on, a tax credit shelter trust just below the amount of the Massachusetts threshold for estate tax is created, with the balance going to my spouse. A parallel situation for DW. So I am surprised at the mention of an irrevocable trust in prior posts. I'm not trying to protect assets from Medicaid. Am I missing or misunderstanding anything? The advantage of a revocable trust seems to be flexibility while we're still alive.

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skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Mon Dec 02, 2019 4:31 pm

RudyS wrote:
Mon Dec 02, 2019 3:50 pm
Starting some estate planning to reduce Massachusetts estate tax on my and DW's demise. I have been told by an attorney, and also see in articles by law firms on the internet, that what I want is a revocable living trust, not an irrevocable trust. Plan is that when I pass on, a tax credit shelter trust just below the amount of the Massachusetts threshold for estate tax is created, with the balance going to my spouse. A parallel situation for DW. So I am surprised at the mention of an irrevocable trust in prior posts. I'm not trying to protect assets from Medicaid. Am I missing or misunderstanding anything? The advantage of a revocable trust seems to be flexibility while we're still alive.
You are correct - I currently have documents that do some kind of 1/2 and 1/2 swap for federal taxes (back when the limit was lower, now it does not matter), and something like that for MA to reduce the tax hit. However, we have enough assets in the estate that MA will take a good chunk (12% to 15% of total, 16% being the highest marginal rate) when we both pass on, unless it is put into an irrevocable trust before that event happens. At least, that is my understanding. And the irrevocable trust needs to be bullet proof,

Not looking to shelter from medicaid or lawsuits, though the latter is an extra benefit, but does not make up for the yearly cost of an irrevocable trust, especially considering the the loss of control over the assets.

Not quite yet ready to move to Florida :-)

senex
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Re: "bogleheads" for estates ?

Post by senex » Mon Dec 02, 2019 8:16 pm

skeptical wrote:
Mon Dec 02, 2019 1:03 pm
When I point out that after 15 years, you have already paid the equivalent of the estate tax to the bank, I get silence.
I share your concerns and frustrations. I get lots of silence when I ask non-standard questions. We could use a thorough estate planning wiki.

I don't know a single, well-organized, curated info source. My education has been a combination of books, personal discussions (with attorneys and friends about their own attorney experiences), and bsteiner's historic posts on bogleheads.

I'm starting to believe that your sentence I quoted above is a widely-overlooked yet critical concept: that some estate plans create so much cost and complexity that they are worse (measured by net residual estate) than the simple & nearly-free alternatives. I don't know how to formalize and quantify that concept and to figure out to whom it applies. Nor do the attorneys I have encountered.

One confounding problem is that some "benefits" of trust-based estate planning are, strictly speaking, hypothetical: they are not guaranteed unless drafting is flawless and current law, domicile, etc are meaningfully unchanged over an indefinite timeframe lasting decades or longer. Even "settled" law changes dramatically: slavery was once legal, income tax and perpetuities illegal, and taxes have changed by factors of 2x or more per decade. The best-formed estate plans, like the offshore trusts and corporate veils of yesteryear, have a some probability of being pierced or disregarded before they are fully exercised. No one can accurately estimate these probabilities or concomitant losses/gains.

My solution, for better or worse, is to focus on the things that are simple, inexpensive, and trivial to undo. For something like an irrevocable trust (which, by definition, cannot be "undone"), I exercise a skepticism bordering on fanatic. Not sure if I would use one without a long discussion with an actual beneficiary who had used one for decades. Not sure if that is good or bad for my heirs; though, if you understand probabilities & ensemble models, you know that even a zero net estate doesn't prove that a plan was poorly chosen.

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skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Tue Dec 03, 2019 8:30 am

Thanks senex, this has helped me understand what I am going through right now, and validates where I think I will end up: a simple living trust and essentially handing over my fully paid house over to the state (plus extra to cover the capital gains) at some point down the road.

So, I need to do a lot of research, and as you point out, there does not seem to be a place like bogleheads to go to as a central point of research/questions. To be fair, this area is far more complex than investing, so I am not too surprised.
senex wrote:
Mon Dec 02, 2019 8:16 pm
skeptical wrote:
Mon Dec 02, 2019 1:03 pm
When I point out that after 15 years, you have already paid the equivalent of the estate tax to the bank, I get silence.
I share your concerns and frustrations. I get lots of silence when I ask non-standard questions. We could use a thorough estate planning wiki.

I don't know a single, well-organized, curated info source. My education has been a combination of books, personal discussions (with attorneys and friends about their own attorney experiences), and bsteiner's historic posts on bogleheads.

I'm starting to believe that your sentence I quoted above is a widely-overlooked yet critical concept: that some estate plans create so much cost and complexity that they are worse (measured by net residual estate) than the simple & nearly-free alternatives. I don't know how to formalize and quantify that concept and to figure out to whom it applies. Nor do the attorneys I have encountered.

One confounding problem is that some "benefits" of trust-based estate planning are, strictly speaking, hypothetical: they are not guaranteed unless drafting is flawless and current law, domicile, etc are meaningfully unchanged over an indefinite timeframe lasting decades or longer. Even "settled" law changes dramatically: slavery was once legal, income tax and perpetuities illegal, and taxes have changed by factors of 2x or more per decade. The best-formed estate plans, like the offshore trusts and corporate veils of yesteryear, have a some probability of being pierced or disregarded before they are fully exercised. No one can accurately estimate these probabilities or concomitant losses/gains.

My solution, for better or worse, is to focus on the things that are simple, inexpensive, and trivial to undo. For something like an irrevocable trust (which, by definition, cannot be "undone"), I exercise a skepticism bordering on fanatic. Not sure if I would use one without a long discussion with an actual beneficiary who had used one for decades. Not sure if that is good or bad for my heirs; though, if you understand probabilities & ensemble models, you know that even a zero net estate doesn't prove that a plan was poorly chosen.

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JoeRetire
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Re: "bogleheads" for estates ?

Post by JoeRetire » Tue Dec 03, 2019 9:21 am

skeptical wrote:
Mon Dec 02, 2019 2:32 pm
A few years ago I spent $8K on an estate plan that I now know is inadequate, both due to changing circumstances, but also because I have more knowledge now. So, I feel I need to educate myself enough so I can determine what I need to have done by a lawyer.
You are more knowledgeable now. And if you get a new estate plan now, you'll be even more knowledgeable later. And circumstances may well change again.

You need to find a good estate lawyer that you can trust, create an estate plan that meets your current needs, and revise it as necessary when things change.

Good advice can only use whatever input you can provide and the expertise of the adviser; the future is unknown. And good professional advice isn't free. I suppose you can ask a bunch of questions here and hope for the best DIY.

I don't see any viable shortcuts.
Don't be a lemming.

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Re: "bogleheads" for estates ?

Post by RudyS » Tue Dec 03, 2019 1:37 pm

skeptical wrote:
Mon Dec 02, 2019 4:31 pm
RudyS wrote:
Mon Dec 02, 2019 3:50 pm
Starting some estate planning to reduce Massachusetts estate tax on my and DW's demise. I have been told by an attorney, and also see in articles by law firms on the internet, that what I want is a revocable living trust, not an irrevocable trust. Plan is that when I pass on, a tax credit shelter trust just below the amount of the Massachusetts threshold for estate tax is created, with the balance going to my spouse. A parallel situation for DW. So I am surprised at the mention of an irrevocable trust in prior posts. I'm not trying to protect assets from Medicaid. Am I missing or misunderstanding anything? The advantage of a revocable trust seems to be flexibility while we're still alive.
You are correct - I currently have documents that do some kind of 1/2 and 1/2 swap for federal taxes (back when the limit was lower, now it does not matter), and something like that for MA to reduce the tax hit. However, we have enough assets in the estate that MA will take a good chunk (12% to 15% of total, 16% being the highest marginal rate) when we both pass on, unless it is put into an irrevocable trust before that event happens. At least, that is my understanding. And the irrevocable trust needs to be bullet proof,

Not looking to shelter from medicaid or lawsuits, though the latter is an extra benefit, but does not make up for the yearly cost of an irrevocable trust, especially considering the the loss of control over the assets.

Not quite yet ready to move to Florida :-)
Thanks, skeptical, for your reply. I am still not absolutely clear on revocable vs irrevocable. I will be meeting with my estate attorney before finalizing this, but I would like to be clear on definitions, etc., beforehand. The topic is confusing enough.

To restate my previous post: I believe that I will be setting up two revocable living trusts, one for me and one for DW. Each will contain wording that when one of us passes, there will be a credit shelter trust (is that irrevocable or revocable?) created for the amount of the Massachusetts exemption, to keep that out of the taxable estate. The balance would go to the surviving spouse.

The question of total fees over the duration of the trust versus the one-time tax savings remains. Assuming 15% MA estate tax on the $1MM exempt amount if I use the trust, that's $150M one time savings. Versus 1% annual fee, over maybe 25 years, for $250M. I need to think about that one.

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Re: "bogleheads" for estates ?

Post by bsteiner » Tue Dec 03, 2019 4:27 pm

skeptical wrote:
Mon Dec 02, 2019 1:03 pm
I am looking to put together an estate plan for my family and my kids - trusts, taxes, etc
...
For example, one screening question I ask is how to shelter my estate from state taxes. The answer is always, "we would set up an irrevocable trust". But when I ask how to set this trust up without the 1% annual fee, the answer is always - "Well, these are the companies we use for that, and yes, that is what they charge". When I point out that after 15 years, you have already paid the equivalent of the estate tax to the bank, I get silence.

So, in this particular instance, the estate lawyer either does not know how to do this, or cannot say that it cannot be done, and seems dumbfounded that I manage my investments myself. I have spoken with an estate planner from Vanguard, and they were also thrown by this question.

So, I need to educate myself, as I cannot really trust what these people (at least the ones I have met) say.
The lawyer should be asking you the questions to ascertain the facts and your objectives, so he/she can advise as to how best to accomplish your objectives.

You can select one or more individuals and/or a bank or trust company as trustee(s). Close family members usually won't take commissions (fees).
hicabob wrote:
Mon Dec 02, 2019 1:41 pm
...
It does seem like the trust could be set up such that the trustor can be the trustee and manage the trust like a boglehead would with the benefactor (or some other entity) eventually taking over the trustee role at the right time?
...
Since very few people pay estate tax now, most people don't create trusts during their lifetime. If someone does, he/she can retain power over investments, but not distributions.
skeptical wrote:
Mon Dec 02, 2019 2:32 pm
...
A few years ago I spent $8K on an estate plan that I now know is inadequate, both due to changing circumstances, but also because I have more knowledge now. So, I feel I need to educate myself enough so I can determine what I need to have done by a lawyer.

Regarding the irrevocable trust, this is more of an example of stating a desire (want to shelter from estate taxes), and being given an option that does not seem to work (cost of implementation is more than the savings). It is OK that it does not work, but I don't want to pay a lot of money for an estate lawyer who provides non-viable options, and makes me question their advice on areas I do not know about.
...
If you give away assets now, you'll probably save state estate taxes, at the cost of giving up the basis step-up. You could give away high basis assets. If you don't die suddenly, assuming the donee is a trust that's a grantor trust for income tax purposes, you'll have the opportunity to buy back any highly appreciated assets from the trust to get a basis step-up for those assets.

If your estate is large enough that you're considering giving away assets during lifetime, and if your budget for your estate plan was the figure you mentioned, you should be able to select a good lawyer.
skeptical wrote:
Mon Dec 02, 2019 3:01 pm
magicrat wrote:
Mon Dec 02, 2019 2:45 pm
You need a trustee who is not you, that does not mean you need to pay someone to be the trustee. You can appoint (just about) anyone you want.
Yes, technically correct, but you run into practical issues. If I choose my brother, for example, the trust might be determined to be invalid as an irrevocable trust. It really needs to be an independent third party, which is typically a financial institution.
That's not correct. Indeed, by picking your brother, the trust will probably be a grantor trust for income tax purposes.
skeptical wrote:
Mon Dec 02, 2019 3:37 pm
...
I feel like I know about a number of different estate planning tools (living trusts, irrevocable trusts, family trusts, wills, POA's, helath proxies, etc, but I am struggling with how to put all of this together, and if I am missing anything. The lawyers I have spoken with, and the one that I used, is in the mold of the "financial advisor" that has a package to sell, with a set of documents ready to go.
...
There's some benefit to doing things similarly most of the time. Customization is expensive. But at the figure you mentioned, they shouldn't be "selling packages."
RudyS wrote:
Mon Dec 02, 2019 3:50 pm
Starting some estate planning to reduce Massachusetts estate tax on my and DW's demise. I have been told by an attorney, and also see in articles by law firms on the internet, that what I want is a revocable living trust, not an irrevocable trust. Plan is that when I pass on, a tax credit shelter trust just below the amount of the Massachusetts threshold for estate tax is created, with the balance going to my spouse. A parallel situation for DW. So I am surprised at the mention of an irrevocable trust in prior posts. I'm not trying to protect assets from Medicaid. Am I missing or misunderstanding anything? The advantage of a revocable trust seems to be flexibility while we're still alive.
Revocable trusts made sense in Massachusetts at one time. The probate procedures were cumbersome. Worse yet, trustees of trusts under a Will had to file periodic accountings with the court.

However, that's no longer the case. In 2012, Massachusetts enacted the Uniform Probate Code, which simplified the probate procedures. Also in 2012 Massachusetts enacted the Uniform Trust Code, which among other things eliminated the requirement that trustees of trusts under a Will had to file periodic accountings with the court.

Of course, there's no harm in having them (or keeping the ones you created before 2012) if you want them.

The Massachusetts estate tax has a $1 million exclusion amount. Massachusetts also allows state-only QTIP elections. There are various ways to deal with this, depending on the size of the estate.
senex wrote:
Mon Dec 02, 2019 8:16 pm
skeptical wrote:
Mon Dec 02, 2019 1:03 pm
When I point out that after 15 years, you have already paid the equivalent of the estate tax to the bank, I get silence.
I share your concerns and frustrations. I get lots of silence when I ask non-standard questions. We could use a thorough estate planning wiki.

I don't know a single, well-organized, curated info source. My education has been a combination of books, personal discussions (with attorneys and friends about their own attorney experiences), and bsteiner's historic posts on bogleheads.

I'm starting to believe that your sentence I quoted above is a widely-overlooked yet critical concept: that some estate plans create so much cost and complexity that they are worse (measured by net residual estate) than the simple & nearly-free alternatives. I don't know how to formalize and quantify that concept and to figure out to whom it applies. Nor do the attorneys I have encountered.

One confounding problem is that some "benefits" of trust-based estate planning are, strictly speaking, hypothetical: they are not guaranteed unless drafting is flawless and current law, domicile, etc are meaningfully unchanged over an indefinite timeframe lasting decades or longer. Even "settled" law changes dramatically: slavery was once legal, income tax and perpetuities illegal, and taxes have changed by factors of 2x or more per decade. The best-formed estate plans, like the offshore trusts and corporate veils of yesteryear, have a some probability of being pierced or disregarded before they are fully exercised. No one can accurately estimate these probabilities or concomitant losses/gains.

My solution, for better or worse, is to focus on the things that are simple, inexpensive, and trivial to undo. For something like an irrevocable trust (which, by definition, cannot be "undone"), I exercise a skepticism bordering on fanatic. Not sure if I would use one without a long discussion with an actual beneficiary who had used one for decades. Not sure if that is good or bad for my heirs; though, if you understand probabilities & ensemble models, you know that even a zero net estate doesn't prove that a plan was poorly chosen.
Thanks for the kind words.

It would be a great deal of work to try to write a book that covers the various possibilities. The lawyers who could do it tend to prefer to write for professional journals.

Everyone has an estate plan. You're born with one, namely the intestacy law. You have to do what seems best at the time, taking into account the relevant facts and circumstances. You are correct that some (many) people create unnecessary complexity.

Irrevocable trusts can be flexible. It's not a choice between leaving assets outright or in rigid trusts.
skeptical wrote:
Tue Dec 03, 2019 8:30 am
Thanks senex, this has helped me understand what I am going through right now, and validates where I think I will end up: a simple living trust and essentially handing over my fully paid house over to the state (plus extra to cover the capital gains) at some point down the road. ...
If you're in Massachusetts, you probably no longer need a living trust as a result of Massachusetts' enactment of the Uniform Probate Code and the Uniform Trust Code in 2012. Of course, there's no harm in having one (or keeping one that you created before 2012) if that's what you want.
JoeRetire wrote:
Tue Dec 03, 2019 9:21 am
...
Good advice can only use whatever input you can provide and the expertise of the adviser; the future is unknown. And good professional advice isn't free. I suppose you can ask a bunch of questions here and hope for the best DIY.
...
It would be hard for someone to draft it himself/herself. But this is a good forum to post questions. It helps to know the person's age, assets and family situation, and what state the person lives in.
RudyS wrote:
Tue Dec 03, 2019 1:37 pm
...
To restate my previous post: I believe that I will be setting up two revocable living trusts, one for me and one for DW. Each will contain wording that when one of us passes, there will be a credit shelter trust (is that irrevocable or revocable?) created for the amount of the Massachusetts exemption, to keep that out of the taxable estate. The balance would go to the surviving spouse.

The question of total fees over the duration of the trust versus the one-time tax savings remains. Assuming 15% MA estate tax on the $1MM exempt amount if I use the trust, that's $150M one time savings. Versus 1% annual fee, over maybe 25 years, for $250M. I need to think about that one.
If you have appropriate family members (for example, if your spouse and one or more of your children are appropriate to serve as trustees of the $1 million Massachusetts credit shelter trust), you need not pay a bank or trust company 1% a year to serve as trustee.

As noted above, since Massachusetts adopted the Uniform Probate Code and the Uniform Trust Code in 2012, you probably no longer need revocable trusts. Of course, there's no harm in having one (or keeping one you created before 2012) if that's what you want.

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Re: "bogleheads" for estates ?

Post by Ragnoth » Tue Dec 03, 2019 4:55 pm

Bsteiner had some great advice and insight. Whether or not you will get a lot of value from setting up and maintaining a trust is basically a question of State and Federal law, and depends on your personal circumstances. The areas where it makes the most sense is if you have a large amount of wealth (i.e., if there will be substantial estate taxes), or if you have some other reason for putting "strings" on the money/assets (e.g., you are leaving a substantial sum to people who have special needs or are fiscally irresponsible).

Trustees are bound by certain duties when they are managing trusts. The short version is they have fiduciary obligations to the beneficiaries, and are obligated to manage the assets prudently. If they mess it up, they can be on the hook and get sued. You can have friends and family members as trustees, but it may be safer and easier to leave the money management component to professionals. It may not apply to your particular situation... but fights between trustees and beneficiaries can get ugly.

Getting to the real question, the 1% AUM that the OP mentioned is pretty standard. This basically covers the asset management (i.e., for 50-75 basis points most brokers will pair you with an "advisor" to actively manage your assets), some of the extra paperwork and accounting obligations, and the added liability risk.

I don't think there are many options cheaper than Vanguard. A savvy trustee could probably find some way to manage assets prudently on the cheap (e.g., through a well thought out 3-fund portfolio or a robo-advisor "trust" account), but these can sometimes be more of a headache than they are worth.

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Re: "bogleheads" for estates ?

Post by celia » Tue Dec 03, 2019 5:19 pm

Do you object to a revocable trust? There are many things that can be written into it and it can be changed as your circumstances change. Your assets will also get a step-up in value when you die.

You and your wife can be trustee while you are living and see how easy it is to maintain. Of course, your assets would be titled as being owned by the trust. We will likely follow the example of our parents and make the successor trustee a co-trustee when we lose our marbles or get tired of thinking about money. This gives the new trustee time to ask questions while the grantors are still around to guide them for a year or more.

skeptical wrote:
Mon Dec 02, 2019 2:58 pm
RickBoglehead wrote:
Mon Dec 02, 2019 2:43 pm
The 0.7% they quoted you doesn't match up with the brochure I linked to. The rate never gets higher than 0.55% which includes PAS.
Well, I guess I spoke with the wrong person :-)
Though, even .55% makes this of marginal use for the specific purpose of sheltering estate taxes - depends on how soon both my wife and I kick the bucket.
How long do you think an irrevocable trust would need to be managed? Assuming you don't know when you'll die and you are married, would you want someone managing the money instead of your spouse? How long after you die will it be until one of your responsible kids is 30 or so? Or do you plan to leave assets for future generations that are not yet born?

In case this is not clear, I'm trying to point out that you may not need a trustee/manager for over 10 years, unless you are doing long-range planning.

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Re: "bogleheads" for estates ?

Post by afan » Tue Dec 03, 2019 7:26 pm

I am trustee of two irrevocable trusts for which I charge nothing.
Having an independent trustee does not mean paying an AUM fee at all.
As others have noted, you can find companies that will serve as trustee for less than 1%. I think Schwab will do it for slightly less than Vanguard although I don't know the cost of the funds. According to bsteiner there are banks that will do the administrative work for flat fee amounts similar to what Vanguard would charge on a $1M trust. But the costs do not go up as the assets increase. You have to provide someone to manage the investments but that could be you, a spouse or beneficiary.

If you don't have anyone who would be trustee for free it is possible that the cost of saving the state estate tax could be higher than the savings after a while. Depending on what you have to give away, losing the stepped up basis could be more expensive than the tax savings.

Moving to a state that has no estate tax would be more economical. Combine that with a trustee who will serve for free and you may have the best solution.
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Re: "bogleheads" for estates ?

Post by senex » Tue Dec 03, 2019 7:40 pm

RudyS wrote:
Tue Dec 03, 2019 1:37 pm
I am still not absolutely clear on revocable vs irrevocable. I will be meeting with my estate attorney before finalizing this, but I would like to be clear on definitions, etc., beforehand. The topic is confusing enough.

To restate my previous post: I believe that I will be setting up two revocable living trusts, one for me and one for DW. Each will contain wording that when one of us passes, there will be a credit shelter trust (is that irrevocable or revocable?) created for the amount of the Massachusetts exemption, to keep that out of the taxable estate. The balance would go to the surviving spouse.

First, some generalities. This is a layman's best effort on definitions (not legal advice!) and I welcome correction from experts:

revocable -- trust assets can be removed (clawed back, or "given back to yourself," if you wish) by you whenever you wish for any reason. Can only be created while alive; if it still exists when you die, it becomes irrevocable (a dead person can't decide to remove assets). The ability to remove assets back to yourself constitutes "complete control" of the trust, which means the govt deems the assets to be effectively owned by you for estate tax purposes. Such a trust may simplify various things (probate, mental incompetence, etc) but generally creates no change in estate tax compared to owning the assets outright. Also, I believe that revocability makes the trust disregarded for income tax purposes -- i.e. you don't file a trust tax return, you just report all trust income on your own 1040 as if you owned the assets.

irrevocable -- trust assets can never be clawed back to the creator (creator is also called "grantor" or "settlor"). If assets are removed, they must be removed according to the written rules of the trust and must go only to beneficiaries of the trust. (If you're thinking, why not make it irrevocable and make myself the beneficiary, that is a big can of worms, way above my pay grade). An irrevocable trust is its own legal entity and must get a tax id number and file its own tax return each year (I think; maybe there are de minimus exceptions if no taxable income?).

An irrev trust can be created while alive (called "inter vivos," latin for between the living) or created after your death (called "testamentary" trust, i.e. a trust created by your will & testament). If testamentary, it has no impact on estate tax; you pay regular estate tax (same as if you had no will), and the newly-formed trust receives whatever leftovers the will instructs. If inter vivos, you pay gift taxes (as applicable) when putting money into ("funding") the trust. After that, assuming you aren't a beneficiary, the trust's contents are outside your estate, i.e. not subject to estate tax when you die. You can control many things about such a trust, but I don’t know details (can you be trustee? Etc) (Again, if you are a beneficiary, or if there is any possible way to spend the money on yourself, it may be considered "yours" and taxable as part of your estate).

Since gift tax & estate tax are "unified" federally (and maybe in states that have estate tax?), you may ask what benefit comes from gifting a large amount now, if that gift simply reduces the estate exemption you'll use later. If your money never grows, yes, there is no point. But if you expect your money to grow, gifting now causes the future gains to be outside your estate. Also, if future laws reduce the exemption, you may have locked in a good situation ("you dumped the money while it was free to dump that amount of money").

The above comments are specific to cases in which you create the trust. If you are a beneficiary of a trust created by someone else, some of the taxation principles (esp rules regarding inclusion in your estate) may differ.

To your specific concerns:

I've heard of credit shelter trusts being a common tool in situations that lack portability. After your death, any trust funded with your money is irrevocable.

I believe anyone can be trustee, investment manager, etc. The hazy parts (to me) are what benefits are lost if you are both trustee and beneficiary of a trust created by your spouse upon her death. If you are trustee with complete discretion to distribute to yourself, I believe those assets are deemed "yours" and will be estate taxed when you die (for a credit shelter trust, that would defeat its purpose). But as restrictions are added (indep trustee, co-trustee, distributions limited to "ascertainable standard," etc), at some point the trust is deemed "not really your money" and thus remains outside your estate, not available to people you injure, etc. This is where it gets really hazy for me: the matrix of conditions that trigger various changes to trust taxation and creditor exposure.

Again, not an attorney, just one layman trying to share the definitions I've learned, to my best understanding. I welcome any and all corrections. This is a great forum and I'm glad there are experienced attorneys willing to swoop in, share their knowledge, and correct my misapprehensions.
Last edited by senex on Tue Dec 03, 2019 8:27 pm, edited 3 times in total.

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Re: "bogleheads" for estates ?

Post by dodecahedron » Tue Dec 03, 2019 7:42 pm

hicabob wrote:
Mon Dec 02, 2019 1:41 pm
It does seem like the trust could be set up such that the trustor can be the trustee and manage the trust like a boglehead would with the benefactor (or some other entity) eventually taking over the trustee role at the right time?

https://www.lawyers.com/ask-a-lawyer/tr ... 41752.html
Reread your link *carefully* and completely and you will see that it provides no authority for the idea that the trustor can be the trustee/manager of an irrevocable trust. In fact, a careful reading suggests exactly the opposite is true. Your link also suggests that irrevocable trusts are very tricky devices which should be used with great caution (if at all.)

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Re: "bogleheads" for estates ?

Post by dmcmahon » Tue Dec 03, 2019 8:46 pm

RudyS wrote:
Tue Dec 03, 2019 1:37 pm
skeptical wrote:
Mon Dec 02, 2019 4:31 pm
RudyS wrote:
Mon Dec 02, 2019 3:50 pm
Starting some estate planning to reduce Massachusetts estate tax on my and DW's demise. I have been told by an attorney, and also see in articles by law firms on the internet, that what I want is a revocable living trust, not an irrevocable trust. Plan is that when I pass on, a tax credit shelter trust just below the amount of the Massachusetts threshold for estate tax is created, with the balance going to my spouse. A parallel situation for DW. So I am surprised at the mention of an irrevocable trust in prior posts. I'm not trying to protect assets from Medicaid. Am I missing or misunderstanding anything? The advantage of a revocable trust seems to be flexibility while we're still alive.
You are correct - I currently have documents that do some kind of 1/2 and 1/2 swap for federal taxes (back when the limit was lower, now it does not matter), and something like that for MA to reduce the tax hit. However, we have enough assets in the estate that MA will take a good chunk (12% to 15% of total, 16% being the highest marginal rate) when we both pass on, unless it is put into an irrevocable trust before that event happens. At least, that is my understanding. And the irrevocable trust needs to be bullet proof,

Not looking to shelter from medicaid or lawsuits, though the latter is an extra benefit, but does not make up for the yearly cost of an irrevocable trust, especially considering the the loss of control over the assets.

Not quite yet ready to move to Florida :-)
Thanks, skeptical, for your reply. I am still not absolutely clear on revocable vs irrevocable. I will be meeting with my estate attorney before finalizing this, but I would like to be clear on definitions, etc., beforehand. The topic is confusing enough.

To restate my previous post: I believe that I will be setting up two revocable living trusts, one for me and one for DW. Each will contain wording that when one of us passes, there will be a credit shelter trust (is that irrevocable or revocable?) created for the amount of the Massachusetts exemption, to keep that out of the taxable estate. The balance would go to the surviving spouse.

The question of total fees over the duration of the trust versus the one-time tax savings remains. Assuming 15% MA estate tax on the $1MM exempt amount if I use the trust, that's $150M one time savings. Versus 1% annual fee, over maybe 25 years, for $250M. I need to think about that one.
My revocable living trust cost me a flat fee to set up. I’m the trustee and serve at no cost. It’s just a pass-through to my own tax return so there’s nothing particularly clever to “manage”. My mom and late father did the same, with an A-B trust structure sounding an awful lot like yours. Flat fee to set them up, when dad passed on, his trust became irrevocable and mom became trustee. The lawyer handling the estate got an EIN assigned and that was that. I now manage the trust for her. Opening accounts is straightforward and similar to opening them for the revocable trust, you just bring in your paperwork and it takes a bit longer initially to open a bank or brokerage account. For dad’s trust there is now the need to file a tax return for it, that’s the main change in the workload. Plus a bit more paperwork to open a new account (I have to show his death certificate). I do the taxes using TurboTax Business, this is possible because the assets are very simple 1099 type investments, and because the terms of the trust specify that all the income goes to mom while she lives, there is no tax due (but mom has to report the income, which I pay to her in an annual check). I have a more complex irrevocable trust that is beyond TurboTax’s powers - I pay a flat fee to have my accountant prepare that return, but otherwise manage the investments myself. It is definitely possible for a BH DIY minded person to avoid AUM fees, but it requires a bit of work.

Edit: actually there was one tricky thing, transferring a non financial asset like a house or condo is a bit trickier. I did this for my own house, it’s in my revocable trust, but I had to have an attorney draft a deed which cost me a fixed fee. Mom and dad did this as well, and they worded their trusts to give each other a life estate in the house and condo (each of them had one home in their respective trusts). This gave mom the right to live in the condo owned by dad’s trust even after he died and it became an asset of the new, irrevocable trust that came into existence at that moment.

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skeptical
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Re: "bogleheads" for estates ?

Post by skeptical » Tue Dec 03, 2019 11:01 pm

Wow, a lot of information, and I appreciate everyone for their input. I can't possibly respond to each one, but here are some basics:

- Been reading "beyond the grave", great suggestion !
- Going through bsteiner's posts.
- I am planning to spend a good amount to make and execute a solid plan, but I need to be better prepared than I am now - I just do not trust someone to do something unless I both understand what they are doing, and also know that it is a good plan.
- Revocable trusts are cheap and easy, but do not provide tax sheltering, and it seems that in MA, may not be needed. Irrevocable trusts are expensive, inflexible, cannot be changed, and I still do not know a way of doing one (including investment management) for less than makes sense as a tax shelter. I will look into what a bank can provide. I might consider using one as kind of an annuity for part of the assets, with the remaining principle being passed on, if the costs and tax issues can be resolved.
- My assets are very simple: a house and a simple investment portfolio - so no complications of business, land, property, etc.
- There are enough assets that would enable my kids not to never have to to work (they are teenagers), which is not something I want. So I need to provide appropriate controls (I have not idea what this means right now) for quite some time, at least 10, possible 15-20 more years.
- I am planning to live for another 30-35 years, so a trust is likely to last quite some time.

Hopefully, both or one of us (wife and I) will be around long enough so that we can just pass everyone on, making everything simple. We both plan on being here for 30 or more years. If something happens to both of us within the next 5-10 years, we don't want to leave problems for our kids.

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Re: "bogleheads" for estates ?

Post by skeptical » Tue Dec 03, 2019 11:09 pm

dmcmahon wrote:
Tue Dec 03, 2019 8:46 pm
I have a more complex irrevocable trust that is beyond TurboTax’s powers - I pay a flat fee to have my accountant prepare that return, but otherwise manage the investments myself. It is definitely possible for a BH DIY minded person to avoid AUM fees, but it requires a bit of work.
I thought that for an irrevocable trust that while legally the trustee could be the beneficiary, that doing so make its use a tax shelter questionable.

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Re: "bogleheads" for estates ?

Post by dmcmahon » Tue Dec 03, 2019 11:58 pm

skeptical wrote:
Tue Dec 03, 2019 11:01 pm
Wow, a lot of information, and I appreciate everyone for their input.
- Going through bsteiner's posts.
Good luck to you both. There's no substitute for a smart and honest attorney IMO.

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Re: "bogleheads" for estates ?

Post by dmcmahon » Wed Dec 04, 2019 12:02 am

skeptical wrote:
Tue Dec 03, 2019 11:09 pm
dmcmahon wrote:
Tue Dec 03, 2019 8:46 pm
I have a more complex irrevocable trust that is beyond TurboTax’s powers - I pay a flat fee to have my accountant prepare that return, but otherwise manage the investments myself. It is definitely possible for a BH DIY minded person to avoid AUM fees, but it requires a bit of work.
I thought that for an irrevocable trust that while legally the trustee could be the beneficiary, that doing so make its use a tax shelter questionable.
I believe what you're saying is true with respect to vehicles such as ILITs designed to get assets out of your estate without you having any explicit control over the trust. Even in the case of an ILIT you may have an interest insofar as you can ask the trustee for loans against the whole life value. But yes, you cannot be your own trustee for such trusts.
You can be your own trustee on a CRUT. It's a split-interest trust so it's acknowledged up front that you have a beneficial interest in the trust (as the income beneficiary). So long as you avoid self-dealing and act in the interests of all parties, including the charities that are your remainder beneficiaries, you're fine. But, yeah, the taxes are a lot more complicated than, say, dad's trust, and I pay an accountant to make sure they're correct.

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Re: "bogleheads" for estates ?

Post by fourwheelcycle » Wed Dec 04, 2019 9:50 am

skeptical wrote:
Tue Dec 03, 2019 11:01 pm
- Revocable trusts are cheap and easy, but do not provide tax sheltering
- There are enough assets that would enable my kids not to never have to to work (they are teenagers), which is not something I want. So I need to provide appropriate controls ... for quite some time, at least 10, possibly 15-20 more years.
- I am planning to live for another 30-35 years, so a trust is likely to last quite some time.

We both plan on being here for 30 or more years. If something happens to both of us within the next 5-10 years, we don't want to leave problems for our kids.
It seems that two revocable trusts, one for you and one for your spouse, could accomplish your goals. First, you would arrange your assets so the total of each of your retirement accounts plus all real estate and taxable savings titled to each of you is approximately equal for each spouse.

You would each be named as the primary beneficiary for your spouse's retirement accounts. Your children would be named (in equal share's?) as the secondary beneficiaries, with customized designations that provide each child's share will go into an irrevocable trust to benefit the child until they reach the age of "X", at which time any remaining balance will be fully distributed.

All other assets of each spouse would be titled to their individual revocable trust (IRT). Each IRT would provide that on your death all assets of the IRT would be placed in an irrevocable credit shelter trust to benefit the surviving spouse for their lifetime, with any remaining balance distributed (in equal share's?) to your children upon the death of the second spouse, with the same age-related provisions as your retirement account secondary beneficiary designations.

This way there would be no trust management/investment expenses until the first spouse dies, and any expenses would only continue until the death of the second spouse, and further, if necessary, until all of your children have reached the age of "X".

If you wanted to pass up estate tax sheltering (since trust expenses and capital gains taxes might offset estate tax savings) you would not even need the surviving spouse irrevocable trusts, and you would only incur trust management/investment expenses if the second spouse dies before all of your children have reached the age of "X".

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Re: "bogleheads" for estates ?

Post by afan » Wed Dec 04, 2019 11:00 am

The surviving spouse can be trustee, there would be no need fo pay a corporate trustee.
After death of the surviving spouse, one or more of the children could be trustee(s), still no need to pay a corporate trustee.

The children will be better off if the trust remains in existence, rather than distributing all the funds to them at some age. Keeping the money in the trust provides asset protection and ensures that the money will never become part of their estates for estate tax purposes.

The tax returns need not be complicated. As noted above, one could choose to distribute the income each year and have it taxed at the beneficiary's rate. This would move money into the beneficiary's taxable estate, which may not be desirable.
Irrevocable trusts are expensive, inflexible, cannot be changed, and I still do not know a way of doing one (including investment management) for less than makes sense as a tax shelter.
As bsteiner noted, they need not be as inflexible as you seem to assume. They need not be expensive.

That said, if the sole goal is to minimize state estate taxes at your death, then it might not be worth it.

Revocable trusts help a lot if you become incapable of managing your affairs. In theory, that is what a durable power of attorney is for. In practice, many people have found that financial institutions will not accept them. In such situations the revocable trust works better.

You need to plan for both state and federal estate taxes. Right now your assets may be at a level taxable by the state but not the fed government. The laws of either can change. You want a plan that will work if the rates or exclusion amounts were to change. No way to know what those changes might be or when they could occur. If you are prepared to gift $1M now to save state taxes and you can identify someone who will be trustee for free, then there may be limited downside, except for losing the stepped up basis. If you have enough in assets for which this is not a concern, say cash, then this could save the estate taxes without increasing the income tax liability.

The solutions need not be expensive and need not involve paying a corporate trustee. However, the complexity of tax land inheritance laws requires the help of a knowledgeable attorney.

I second the suggestion of using bsteiner's posts.
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

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