Should we create a testamentary trust for $6M estate?

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JimmyJames
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Re: Should we create a testamentary trust for $6M estate?

Post by JimmyJames »

Gill wrote: Thu May 14, 2020 6:14 pm I’m sorry your experience differs so much from the many trust company clients who depend on these firms through generations. Are you also familiar with the many horror stories of individual trustees mismanaging and squandering trust assets to the detriment of those for whom the trusts were established? My former employer has been in business for over 200 years and it’s not from being “faceless” and charging excessive fees.
Gill
Hi Gill, any recommendations on how to evaluate a bank or trust company you are considering using a trustee? Ask for example investment portfolios, historical returns, etc? Maybe some questions to ask?
JimmyJames
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Re: Should we create a testamentary trust for $6M estate?

Post by JimmyJames »

Wouldn't it be better for the OP (and really anyone for that matter) to set up a LIVING REVOCABLE TRUST rather than the Testamentary Trust? Although it may cost a little more, won't that be more than offset by the cost of hiring an attorney for probate or having a corporate trustee settle your estate into the trust?

We recently had an estate attorney recommend a testamentary trust. We are in the same situation as the OP but much younger (late 30's). His reasoning was that the wills/testamentary trust will basically have the same end effect as a living trust but will be about $1250 cheaper and the chances of both my spouse and I passing away anytime soon are extremely low.

Although I agree with him, I believe it would be much cheaper to spend the $1250 now and not see my heirs have to pay an attorney thousands of dollars at my death to assist with probate (transferring assets to the trust). Even the corporate trustee we are considering wants to charge around 1-2% of assets to settle the estate. On several million dollars that is $$$. Much more than $1250 to set up the living trust now.

Am I missing something?
delamer
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Re: Should we create a testamentary trust for $6M estate?

Post by delamer »

JimmyJames wrote: Tue Jul 13, 2021 10:59 pm Wouldn't it be better for the OP (and really anyone for that matter) to set up a LIVING REVOCABLE TRUST rather than the Testamentary Trust? Although it may cost a little more, won't that be more than offset by the cost of hiring an attorney for probate or having a corporate trustee settle your estate into the trust?

We recently had an estate attorney recommend a testamentary trust. We are in the same situation as the OP but much younger (late 30's). His reasoning was that the wills/testamentary trust will basically have the same end effect as a living trust but will be about $1250 cheaper and the chances of both my spouse and I passing away anytime soon are extremely low.

Although I agree with him, I believe it would be much cheaper to spend the $1250 now and not see my heirs have to pay an attorney thousands of dollars at my death to assist with probate (transferring assets to the trust). Even the corporate trustee we are considering wants to charge around 1-2% of assets to settle the estate. On several million dollars that is $$$. Much more than $1250 to set up the living trust now.

Am I missing something?
My understanding is that the cost of probate varies widely by state. In some states, like California, it’s can be very expensive and drawn out. In other states, the cost is trivial.

I don’t think that having a living trust is going to necessarily avoid all attorney fees at end-of-life.

When my mother died, the bank where her assets were held in trust had a much higher fee structure for handling the estate issues than the local attorney (who’d drafted her will) who I decided to use. It was odd because the management fees for the trust were very reasonable, but the estate fees were high to the point of being exploitative.
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JimmyJames
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Re: Should we create a testamentary trust for $6M estate?

Post by JimmyJames »

I am constantly catching myself never trusting anyone (especially attorneys) and I can see why many of them might try to persuade their clients to testamentary trusts rather than a Living Trust as it essentially guarantees their firm future work/revenue. Ours wants to charge an additional $1250 to do a Living Trust instead of a Testamentary Trust. But I'd guess they will charge AT LEAST the same amount to my estate for probate when required. Even came across an attorney who said "testamentary trusts are just retirement plans for attorneys".
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

JimmyJames wrote: Wed Jul 14, 2021 11:57 am I am constantly catching myself never trusting anyone (especially attorneys) and I can see why many of them might try to persuade their clients to testamentary trusts rather than a Living Trust as it essentially guarantees their firm future work/revenue. Ours wants to charge an additional $1250 to do a Living Trust instead of a Testamentary Trust. But I'd guess they will charge AT LEAST the same amount to my estate for probate when required. Even came across an attorney who said "testamentary trusts are just retirement plans for attorneys".
If your heirs are unable to complete simple paperwork tasks and need to engage the services of an attorney to transfer some assets, sure. But be warned, if you acquire some other large asset late in life and fail to retitle it, they'll still have to go through full probate and you didn't save them anything. Trust me, this is a lot more common than you might think.

Given the odds that your beneficiaries may have to go through probate anyway, that it's a lot easier to change the terms of a testamentary trust instead of a living revocable trust, and the cost savings today, IMO, if probate is your only concern, a revocable living trust just doesn't have anything going for it.
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

delamer wrote: Wed Jul 14, 2021 9:43 am
JimmyJames wrote: Tue Jul 13, 2021 10:59 pm Wouldn't it be better for the OP (and really anyone for that matter) to set up a LIVING REVOCABLE TRUST rather than the Testamentary Trust? Although it may cost a little more, won't that be more than offset by the cost of hiring an attorney for probate or having a corporate trustee settle your estate into the trust?

We recently had an estate attorney recommend a testamentary trust. We are in the same situation as the OP but much younger (late 30's). His reasoning was that the wills/testamentary trust will basically have the same end effect as a living trust but will be about $1250 cheaper and the chances of both my spouse and I passing away anytime soon are extremely low.

Although I agree with him, I believe it would be much cheaper to spend the $1250 now and not see my heirs have to pay an attorney thousands of dollars at my death to assist with probate (transferring assets to the trust). Even the corporate trustee we are considering wants to charge around 1-2% of assets to settle the estate. On several million dollars that is $$$. Much more than $1250 to set up the living trust now.

Am I missing something?
My understanding is that the cost of probate varies widely by state. In some states, like California, it’s can be very expensive and drawn out. In other states, the cost is trivial.

I don’t think that having a living trust is going to necessarily avoid all attorney fees at end-of-life.

When my mother died, the bank where her assets were held in trust had a much higher fee structure for handling the estate issues than the local attorney (who’d drafted her will) who I decided to use. It was odd because the management fees for the trust were very reasonable, but the estate fees were high to the point of being exploitative.
Probating the Will is generally a small part of the work in an estate administration. The law firm still has to obtain appraisals, review the draft appraisals and deal with the appraisers, prepare the estate tax returns, deal with selling or distributing assets, tax elections, and everything else.

Probating a Will and dealing with the probate courts is more difficult in California than in other states.

The court fees are high in a few states, such as Delaware (1.75% of the probate assets other than real estate).

If your beneficiaries are the executors, they probably won't take executors' commissions (fees) since it would be coming out of their own money.
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Re: Should we create a testamentary trust for $6M estate?

Post by JimmyJames »

bsteiner wrote: Wed Jul 14, 2021 12:49 pm
delamer wrote: Wed Jul 14, 2021 9:43 am
JimmyJames wrote: Tue Jul 13, 2021 10:59 pm Wouldn't it be better for the OP (and really anyone for that matter) to set up a LIVING REVOCABLE TRUST rather than the Testamentary Trust? Although it may cost a little more, won't that be more than offset by the cost of hiring an attorney for probate or having a corporate trustee settle your estate into the trust?

We recently had an estate attorney recommend a testamentary trust. We are in the same situation as the OP but much younger (late 30's). His reasoning was that the wills/testamentary trust will basically have the same end effect as a living trust but will be about $1250 cheaper and the chances of both my spouse and I passing away anytime soon are extremely low.

Although I agree with him, I believe it would be much cheaper to spend the $1250 now and not see my heirs have to pay an attorney thousands of dollars at my death to assist with probate (transferring assets to the trust). Even the corporate trustee we are considering wants to charge around 1-2% of assets to settle the estate. On several million dollars that is $$$. Much more than $1250 to set up the living trust now.

Am I missing something?
My understanding is that the cost of probate varies widely by state. In some states, like California, it’s can be very expensive and drawn out. In other states, the cost is trivial.

I don’t think that having a living trust is going to necessarily avoid all attorney fees at end-of-life.

When my mother died, the bank where her assets were held in trust had a much higher fee structure for handling the estate issues than the local attorney (who’d drafted her will) who I decided to use. It was odd because the management fees for the trust were very reasonable, but the estate fees were high to the point of being exploitative.
Probating the Will is generally a small part of the work in an estate administration. The law firm still has to obtain appraisals, review the draft appraisals and deal with the appraisers, prepare the estate tax returns, deal with selling or distributing assets, tax elections, and everything else.

Probating a Will and dealing with the probate courts is more difficult in California than in other states.

The court fees are high in a few states, such as Delaware (1.75% of the probate assets other than real estate).

If your beneficiaries are the executors, they probably won't take executors' commissions (fees) since it would be coming out of their own money.
I'm mostly considering the situation where my wife and I would pass away and the testamentary trust is then created to care for our daughter for the next 20-30 years. We will have a local bank act as corporate trustee and they will take care of settling the estate for around 0.5% of assets (one time fee), and then about 1% per year annual to manage. They are a good smaller regional bank and i'm confident using them.

It's mainly the attorney/lawyer fees I am comparing. $1250 for living trust now vs. probably a similar or larger amount later to take everything through probate and get it into the testamentary trust. Half of my mind thinks it's probably fine and shouldn't be a huge cost, but the other half of my mind says why not just do the living trust now and not have to worry about attorneys and probate down the road.

I think I'm leaning towards taking the attorney's advice and just going with the will/testamentary trust arrangement. Chances are if my wife and I were to pass away at a young age, there is probably something that will require the attorney's services anyways. Like you all explained.

As a boglehead, I will hate seeing attorney's and banks come in after my death and take tens of thousands of dollars to do some administrative and paperwork tasks, but I guess it's probably one of those things you just have to accept and move on.
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

JimmyJames wrote: Thu Jul 15, 2021 10:11 am
It's mainly the attorney/lawyer fees I am comparing. $1250 for living trust now vs. probably a similar or larger amount later to take everything through probate and get it into the testamentary trust. Half of my mind thinks it's probably fine and shouldn't be a huge cost, but the other half of my mind says why not just do the living trust now and not have to worry about attorneys and probate down the road.

I think I'm leaning towards taking the attorney's advice and just going with the will/testamentary trust arrangement. Chances are if my wife and I were to pass away at a young age, there is probably something that will require the attorney's services anyways. Like you all explained.
People take the Bogle philosophy of avoiding unnecessary fees too far. There is no such thing as an attorney index fund. There is likewise no such thing as an index fund for tax advice. Don't be penny wise and pound foolish. Get the best legal advice you can afford that applies to your situation.

There's a good chance the living trust will actually end up costing you more. If you fail to title an asset or come into some windfall and then die before transferring it into the trust, you just defeated the whole point of "avoiding probate".

In addition, as Bruce said, probating a will is simply a matter of filling out some paperwork, publishing some notices, and showing up to court for a hearing or two if necessary. The real grunt work is appraising everything, filling out the decedent's final tax return, liquidating assets, filling out the estate tax return, etc etc. Those things are going to have to be done regardless of your living trust, so if your daughter isn't able to do it herself, she's going to end up paying someone else to do it anyway.
As a boglehead, I will hate seeing attorney's and banks come in after my death and take tens of thousands of dollars to do some administrative and paperwork tasks, but I guess it's probably one of those things you just have to accept and move on.
It's not only a Boglehead feeling. I would imagine no one likes spending money on attorneys. However, as far as professionals go, we are held to a higher standard of ethics than almost every other profession (I can't actually think of any other profession with stricter ethics, but it may exist). There are bad apples, but that is going to be true for all professions (even doctors).

IMO, the alternative is worse, and that's really all it comes down to.




As far as the choice itself between a living trust and a testamentary one, it is ultimately a personal choice. If you have reasons for preferring the living trust other than avoiding probate, it is a good choice. However, a testamentary trust will work just fine. They'll both probably come out to be about the same.
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Re: Should we create a testamentary trust for $6M estate?

Post by JimmyJames »

Lee_WSP wrote: Thu Jul 15, 2021 11:52 am
JimmyJames wrote: Thu Jul 15, 2021 10:11 am
It's mainly the attorney/lawyer fees I am comparing. $1250 for living trust now vs. probably a similar or larger amount later to take everything through probate and get it into the testamentary trust. Half of my mind thinks it's probably fine and shouldn't be a huge cost, but the other half of my mind says why not just do the living trust now and not have to worry about attorneys and probate down the road.

I think I'm leaning towards taking the attorney's advice and just going with the will/testamentary trust arrangement. Chances are if my wife and I were to pass away at a young age, there is probably something that will require the attorney's services anyways. Like you all explained.
People take the Bogle philosophy of avoiding unnecessary fees too far. There is no such thing as an attorney index fund. There is likewise no such thing as an index fund for tax advice. Don't be penny wise and pound foolish. Get the best legal advice you can afford that applies to your situation.

There's a good chance the living trust will actually end up costing you more. If you fail to title an asset or come into some windfall and then die before transferring it into the trust, you just defeated the whole point of "avoiding probate".

In addition, as Bruce said, probating a will is simply a matter of filling out some paperwork, publishing some notices, and showing up to court for a hearing or two if necessary. The real grunt work is appraising everything, filling out the decedent's final tax return, liquidating assets, filling out the estate tax return, etc etc. Those things are going to have to be done regardless of your living trust, so if your daughter isn't able to do it herself, she's going to end up paying someone else to do it anyway.
As a boglehead, I will hate seeing attorney's and banks come in after my death and take tens of thousands of dollars to do some administrative and paperwork tasks, but I guess it's probably one of those things you just have to accept and move on.
It's not only a Boglehead feeling. I would imagine no one likes spending money on attorneys. However, as far as professionals go, we are held to a higher standard of ethics than almost every other profession (I can't actually think of any other profession with stricter ethics, but it may exist). There are bad apples, but that is going to be true for all professions (even doctors).

IMO, the alternative is worse, and that's really all it comes down to.




As far as the choice itself between a living trust and a testamentary one, it is ultimately a personal choice. If you have reasons for preferring the living trust other than avoiding probate, it is a good choice. However, a testamentary trust will work just fine. They'll both probably come out to be about the same.
I appreciate your thoughts.
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

tibbitts wrote: Mon May 11, 2020 1:43 pm
If you trust her to make good spending decisions but don’t think she has the ability to manage the investing side of the money well, those are two separate issues. As is the another potential issue of a SIL who you are afraid would exert undue influence.
What is a SIL?
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

medusa98 wrote: Fri Jul 16, 2021 9:26 am
tibbitts wrote: Mon May 11, 2020 1:43 pm
If you trust her to make good spending decisions but don’t think she has the ability to manage the investing side of the money well, those are two separate issues. As is the another potential issue of a SIL who you are afraid would exert undue influence.
What is a SIL?
The ledge at the bottom of a window?

Far more important than whether to do this in a revocable trust, which you would do if you're in a state like California where probating a Will is more difficult, or a state where the court fees are high (such as Delaware where the fee is 1.75% of the estate excluding real estate), or a state that requires trustees of a testamentary trust to file formal court accountings, or whether you would do this in the Will, is the substantive provisions. In other words, what degree of control, if any, does each child have over his/her trust, and at what age, and until that point who controls the children's trusts? After the first spouse dies, what degree of control should the surviving spouse have?
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Re: Should we create a testamentary trust for $6M estate?

Post by LadyGeek »

medusa98 wrote: Fri Jul 16, 2021 9:26 am What is a SIL?
SIL = Sister-In-Law
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

bsteiner wrote: Fri Jul 16, 2021 9:41 am or a state that requires trustees of a testamentary trust to file formal court accountings
Do any states still require this?
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

Lee_WSP wrote: Fri Jul 16, 2021 11:51 am
bsteiner wrote: Fri Jul 16, 2021 9:41 am or a state that requires trustees of a testamentary trust to file formal court accountings
Do any states still require this?
I'm not aware of any, though I haven't checked every state. Many states used to but no longer do as a result of adopting the Uniform Trust Code. That used to be a nuisance in some states.
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

bsteiner wrote: Fri Jul 16, 2021 12:15 pm
Lee_WSP wrote: Fri Jul 16, 2021 11:51 am
bsteiner wrote: Fri Jul 16, 2021 9:41 am or a state that requires trustees of a testamentary trust to file formal court accountings
Do any states still require this?
I'm not aware of any, though I haven't checked every state. Many states used to but no longer do as a result of adopting the Uniform Trust Code. That used to be a nuisance in some states.
That's in line with what I've found. The trust governance provisions of the UTC would seem to supersede the old rules requiring annual accounting, but I wouldn't be surprised if one state didn't adopt it or changed it. Still, it is an itch I may take the time to scratch; I was hoping someone's already done the audit for me.
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

Lee_WSP wrote: Fri Jul 16, 2021 12:32 pm
bsteiner wrote: Fri Jul 16, 2021 12:15 pm
Lee_WSP wrote: Fri Jul 16, 2021 11:51 am
bsteiner wrote: Fri Jul 16, 2021 9:41 am or a state that requires trustees of a testamentary trust to file formal court accountings
Do any states still require this?
I'm not aware of any, though I haven't checked every state. Many states used to but no longer do as a result of adopting the Uniform Trust Code. That used to be a nuisance in some states.
That's in line with what I've found. The trust governance provisions of the UTC would seem to supersede the old rules requiring annual accounting, but I wouldn't be surprised if one state didn't adopt it or changed it. Still, it is an itch I may take the time to scratch; I was hoping someone's already done the audit for me.
Someone probably has, but I don't know of it. I check them one at a time as needed or out of curiosity. At one time, CT required accountings every 3 years and MA, NH, VA and VT required annual accountings for testamentary trusts, but they no longer do, in some cases where the Will says that the trustees need not do so. CT requires a final accounting for testamentary trusts unless the beneficiaries waive it, but that's really the same as not requiring it unless a beneficiary asks for it.

New York hasn't adopted the UTC, in part because NY has a large body of case law, in part because it tends to be slow to modernize, and in part because it has so many lawyers and bar association committees that want to improve on it. But NY never required court accountings for estates or testamentary trusts
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Re: Should we create a testamentary trust for $6M estate?

Post by afan »

Probate may not be a major element of settling estates most of the time, but it is still something that has to be done if there is no living trust. Funding the living trust now takes one more task off the table for heirs.

Avoiding accumulating assets out of trust is simple- put the money in a trust account instead of individual accounts.

For the one estate that I settled I hired an attorney who helped and told me what to do. Charged by the time, not a percent of assets. Hiring an attorney or bank to be the executor and do all the work is a very expensive option that few people need to use.

Having a will with a testamentary trust does not require hiring a attorney or bank to be the executor.
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medusa98
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

FIREchief wrote: Tue May 12, 2020 7:18 pm
oldfort wrote: Tue May 12, 2020 7:09 pm
FIREchief wrote: Tue May 12, 2020 6:57 pm Have you missed the many posts by bsteiner where he suggests providing a responsible beneficiary with effective control of the trust at a desired point (perhaps immediately for responsible adult heirs)? In many states, the beneficiary may serve as their own trustee without risking the asset protection value of a trust. I'm not sure you have a valid concern if the beneficiary pays himself to serve as trustee (not sure that's even allowable, but the point remains.)

Why do so many posters insist upon assuming that all trusts require an expensive corporate trustee with suboptimal investing strategies?
I think bsteiner would be the first to say a beneficiary should never be the sole trustee of their own trust. So the problem remains, the beneficiary has to have a co-trustee.
Well let's just let Bruce tell us what he would say!! :D

Certainly, in some states, it could jeopardize the asset protections if there were no independent trustee. Some of us, fortunately, don't live in one of those states. I believe that standard boilerplate language in at least some asset protection states is along the lines of "Joe-beneficiary may choose to serve as his own trustee or co-trustee and has the power to appoint or remove his sole trustee or co-trustee at any time." If a state's laws currently provide full asset protection even though a beneficiary is currently serving as their own sole trustee, why would a person pay somebody else? Please keep in mind, many who post in these threads aren't just posting some random crap they read on the internet somewhere. 8-)
Why don't you simply establish residency in a desirable state? All you need is a library card or bill. Go to a hotel for a week and get one. When I lived in the US back in the day I did something like this in order to qualify for in state tuition at a university. Maybe it is harder now, I don't know.
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Re: Should we create a testamentary trust for $6M estate?

Post by senex »

medusa98 wrote: Tue Jul 20, 2021 10:41 am Why don't you simply establish residency in a desirable state? All you need is a library card or bill. Go to a hotel for a week and get one. When I lived in the US back in the day I did something like this in order to qualify for in state tuition at a university. Maybe it is harder now, I don't know.
Medusa, Fyi, someone bumped an old thread, and the message you quoted is about a year old.

Residency is more than a library card or a bill. A thorough residency audit (of which I've seen several) will demand your cell phone records, your appointment calendar, the locations of your family, pets, and household goods, your work location each working day of the year (including badge swipe records), your toll pass records, etc.

If you are trying to cheat on something minor, you may avoid such scrutiny, but if involved in legal action for a multi-million dollar trust, and your domicile is a key fact, I expect you'd have to produce that kind of thing. And if that court found your claims to be misleading, you might face further fines or criminal action for filing fraudulent (or failing to file) tax or other disclosures during the period you lied about your domicile.
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

senex wrote: Tue Jul 20, 2021 5:14 pm
medusa98 wrote: Tue Jul 20, 2021 10:41 am Why don't you simply establish residency in a desirable state? All you need is a library card or bill. Go to a hotel for a week and get one. When I lived in the US back in the day I did something like this in order to qualify for in state tuition at a university. Maybe it is harder now, I don't know.
Medusa, Fyi, someone bumped an old thread, and the message you quoted is about a year old.

Residency is more than a library card or a bill. A thorough residency audit (of which I've seen several) will demand your cell phone records, your appointment calendar, the locations of your family, pets, and household goods, your work location each working day of the year (including badge swipe records), your toll pass records, etc.

If you are trying to cheat on something minor, you may avoid such scrutiny, but if involved in legal action for a multi-million dollar trust, and your domicile is a key fact, I expect you'd have to produce that kind of thing. And if that court found your claims to be misleading, you might face further fines or criminal action for filing fraudulent (or failing to file) tax or other disclosures during the period you lied about your domicile.
Thanks for the advice. I'm not recommending cheating. Just looking up the requirements for residency in a desirable state and fulfilling those requirements. Might be easier than you think. Even politicians in your country establish residency in order to run for office in a place that they are not that related to and it's legit and open.

Anyhow, what do you think about my situation? I'm a US citizen but have not lived in the US for 20 years. I have to create a trust according to some state law but how to choose the state? Can I choose any or none?

Also, do you happen to know which states are most favorable for setting up trusts? Maybe Delaware?
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Re: Should we create a testamentary trust for $6M estate?

Post by senex »

medusa98 wrote: Wed Jul 21, 2021 10:03 am Anyhow, what do you think about my situation? I'm a US citizen but have not lived in the US for 20 years. I have to create a trust according to some state law but how to choose the state? Can I choose any or none?

Also, do you happen to know which states are most favorable for setting up trusts? Maybe Delaware?
Sorry that's beyond my knowledge, but others may chime in.

There are "protection" questions and taxation questions, and there are potentially three or more states involved in any trust: domicile of the grantor (creator), domicile of the trustee(s), and domicile of the beneficiary(ies). I think the trustee's location is often most important, and thus the booming trustee industries in South Dakota, Nevada, etc. But you probably need legal advice on all the subtleties.

For someone like you, overseas, my secondhand understanding is that your tax residency is in whatever state you last resided before leaving the country, and that you can't change it without moving back to the US to establish residency in a different state. But you should double check that.
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

senex wrote: Wed Jul 21, 2021 11:13 am
medusa98 wrote: Wed Jul 21, 2021 10:03 am Anyhow, what do you think about my situation? I'm a US citizen but have not lived in the US for 20 years. I have to create a trust according to some state law but how to choose the state? Can I choose any or none?

Also, do you happen to know which states are most favorable for setting up trusts? Maybe Delaware?
Sorry that's beyond my knowledge, but others may chime in.

There are "protection" questions and taxation questions, and there are potentially three or more states involved in any trust: domicile of the grantor (creator), domicile of the trustee(s), and domicile of the beneficiary(ies). I think the trustee's location is often most important, and thus the booming trustee industries in South Dakota, Nevada, etc. But you probably need legal advice on all the subtleties.

For someone like you, overseas, my secondhand understanding is that your tax residency is in whatever state you last resided before leaving the country, and that you can't change it without moving back to the US to establish residency in a different state. But you should double check that.
You could put a clause in your Will saying you want it to be probated in a specified state, one to which you have sufficient connection or where you have assets, so that the courts in that state will accept it. If there's more than one reasonable choice, you could pick the one that's best given all the facts and circumstances. Your lawyer should be able to give you more specific advice.
medusa98
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Joined: Thu Jul 15, 2021 10:15 am

Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

afan wrote: Fri Jul 16, 2021 2:34 pm Probate may not be a major element of settling estates most of the time, but it is still something that has to be done if there is no living trust. Funding the living trust now takes one more task off the table for heirs.

Avoiding accumulating assets out of trust is simple- put the money in a trust account instead of individual accounts.

For the one estate that I settled I hired an attorney who helped and told me what to do. Charged by the time, not a percent of assets. Hiring an attorney or bank to be the executor and do all the work is a very expensive option that few people need to use.

Having a will with a testamentary trust does not require hiring a attorney or bank to be the executor.
Yes, seems like living trust still has benefits.
1. Cost - wouldn't the lawyers managing probate charge by the hour? For example, dispatching a simpler, smaller 100k estate (e.g. a rental property, a couple of vehicles) of things you forgot to put in the trust would not be equivalent to dispatching a more complicated, larger 5mm estate (e.g multiple houses, brokerage accounts, insurance policies, bank accounts). So even though beneficiaries still go through probate, they pay less in hourly fees.

2. Time - assets in living trust available immediately rather than 12 months to - 2 years needed to complete probate.

3. Privacy - assets in living trust go to beneficiaries and other relatives are not made aware of anything.
Last edited by medusa98 on Wed Jul 21, 2021 11:53 am, edited 1 time in total.
medusa98
Posts: 18
Joined: Thu Jul 15, 2021 10:15 am

Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

JimmyJames wrote: Thu Jul 15, 2021 10:11 am I'm mostly considering the situation where my wife and I would pass away and the testamentary trust is then created to care for our daughter for the next 20-30 years. We will have a local bank act as corporate trustee and they will take care of settling the estate for around 0.5% of assets (one time fee), and then about 1% per year annual to manage. They are a good smaller regional bank and i'm confident using them.
I have the same basic plan. Don't you think 1% of assets per year is outrageous? What is there to do besides just buy a index fund and hold and file a simple tax return once a year? Can't you get a relative to do it for free and compensate them a bit?

I will make my brother trustee and give him a fixed amount per year.
His job will be:
1) Annual - to make a fixed amount payment to my childrens' guardians to cover living expenses and file taxes.
2) Once each of my 5 children turn 25 he will pay out their share. He will get a percentage of each share paid out. Thus, throughout the management of the trust, he will have been incentivized to maximize its value. For example, say he gets 1% of the paid out share. Share was initially 1mm when the child was 5 yo and has grown to 2mm once the child is 25 yo. Trustee keeps 20k and pays out 1,980,000 to child (sells stock, makes bank transfer).

Maybe you can incentivize them by giving them a percentage of profits but with strict rules on what can be invested in so that they don't make insane bets on stocks (e.g. limit investments to index funds, limit the number of different funds they can invest in, and limit the number of trades per year).
Lee_WSP
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Location: Arizona

Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

medusa98 wrote: Wed Jul 21, 2021 11:40 am
JimmyJames wrote: Thu Jul 15, 2021 10:11 am I'm mostly considering the situation where my wife and I would pass away and the testamentary trust is then created to care for our daughter for the next 20-30 years. We will have a local bank act as corporate trustee and they will take care of settling the estate for around 0.5% of assets (one time fee), and then about 1% per year annual to manage. They are a good smaller regional bank and i'm confident using them.
I have the same basic plan. Don't you think 1% of assets per year is outrageous? What is there to do besides just buy a index fund and hold and file a simple tax return once a year? Can't you get a relative to do it for free and compensate them a bit?
1% per year is dirt cheap compared to a trustee walking off with the assets, losing all the assets on bad bets, gambling the assets away, using the assets for personal expenses, or just dying or disappearing, or becoming mentally unstable with no one to stop them.

It is basically insurance and management.

If your talking about a few hundred thousand dollars and a few years, sure, your brother can do it without much risk of things going wrong.

But if your talking millions, why can't the trust afford professional management.

Gill has already stated just a small number of the tasks a trustee does. It is most certainly not simply filing tax returns and investing. Although the investing part is the most painful to have to pay for, finding someone competent to do it for cheap and remain trustworthy is a very tall order. Plus most trustees will not decouple the service.
bsteiner
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

medusa98 wrote: Wed Jul 21, 2021 11:31 am
afan wrote: Fri Jul 16, 2021 2:34 pm Probate may not be a major element of settling estates most of the time, but it is still something that has to be done if there is no living trust. Funding the living trust now takes one more task off the table for heirs.

Avoiding accumulating assets out of trust is simple- put the money in a trust account instead of individual accounts.

For the one estate that I settled I hired an attorney who helped and told me what to do. Charged by the time, not a percent of assets. Hiring an attorney or bank to be the executor and do all the work is a very expensive option that few people need to use.

Having a will with a testamentary trust does not require hiring a attorney or bank to be the executor.
Yes, seems like living trust still has benefits.
1. Cost - wouldn't the lawyers managing probate charge by the hour? For example, dispatching a simpler, smaller 100k estate (e.g. a rental property, a couple of vehicles) of things you forgot to put in the trust would not be equivalent to dispatching a more complicated, larger 5mm estate (e.g multiple houses, brokerage accounts, insurance policies, bank accounts). So even though beneficiaries still go through probate, they pay less in hourly fees.

2. Time - assets in living trust available immediately rather than 12 months to - 2 years needed to complete probate.

3. Privacy - assets in living trust go to beneficiaries and other relatives are not made aware of anything.
1. Most lawyers charge on a time basis. The cost to probate the Will is the same for a $100,000 estate as for a $100 million estate (except in California where $100,000 falls within their small estate procedure). Probating the Will is generally a small part of the legal work in an estate administration, and even if a decedent had a revocable trust the Will often has to be probated for one reason or another. The other work is pretty much the same regardless of whether the decedent had a revocable trust.

2. It usually only takes a few weeks (longer now due the pandemic) to probate a Will absent a contest. However, depending on the nature of the assets, and whether the estate is involved in litigation, it can take a long time to wind up a decedent's affairs.

3. Except for celebrities (most of whom probably want the publicity), no one goes to the courthouse to look at their friends', neighbors' and relatives' Wills. The media aren't interested in the Wills of decedents who aren't celebrities.
medusa98
Posts: 18
Joined: Thu Jul 15, 2021 10:15 am

Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

Lee_WSP wrote: Wed Jul 21, 2021 11:56 am
medusa98 wrote: Wed Jul 21, 2021 11:40 am
JimmyJames wrote: Thu Jul 15, 2021 10:11 am I'm mostly considering the situation where my wife and I would pass away and the testamentary trust is then created to care for our daughter for the next 20-30 years. We will have a local bank act as corporate trustee and they will take care of settling the estate for around 0.5% of assets (one time fee), and then about 1% per year annual to manage. They are a good smaller regional bank and i'm confident using them.
I have the same basic plan. Don't you think 1% of assets per year is outrageous? What is there to do besides just buy a index fund and hold and file a simple tax return once a year? Can't you get a relative to do it for free and compensate them a bit?
1% per year is dirt cheap compared to a trustee walking off with the assets, losing all the assets on bad bets, gambling the assets away, using the assets for personal expenses, or just dying or disappearing, or becoming mentally unstable with no one to stop them.

It is basically insurance and management.

If your talking about a few hundred thousand dollars and a few years, sure, your brother can do it without much risk of things going wrong.

But if your talking millions, why can't the trust afford professional management.

Gill has already stated just a small number of the tasks a trustee does. It is most certainly not simply filing tax returns and investing. Although the investing part is the most painful to have to pay for, finding someone competent to do it for cheap and remain trustworthy is a very tall order. Plus most trustees will not decouple the service.
Well, the trustee would be unable to steal the money because he would be regulated by the rules in the trust documents, no? I guess the broker/bank wouldn't verify that his actions were legal and he could steal it leaving the beneficiaries no recourse but legal action down the road. In that case I should have one or two co-trustees. All their signatures should be required before each trade and distribution. Would this solve the problem?

For a 10mm trust, 1% a year would be 100k.
1) Trading should be essentially zero. You can specify 3 ETFs to invest in and that's it. But let's say 1 hour per year if you have to re-buy with dividends for example.
2) Distributions are yearly. Get from earnings or sell stock if needed and make 3 bank transfers. That's literally 1 hour.
3) Tax return I imagine is super simple and would take 3 hours. If more complicated get an accountant to do it for $500.
4) Let's add another 5 hours per year for miscellenous work.
That's 10 hours per year for 100k.
What are the other duties?
medusa98
Posts: 18
Joined: Thu Jul 15, 2021 10:15 am

Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

bsteiner wrote: Wed Jul 21, 2021 12:02 pm
medusa98 wrote: Wed Jul 21, 2021 11:31 am
afan wrote: Fri Jul 16, 2021 2:34 pm Probate may not be a major element of settling estates most of the time, but it is still something that has to be done if there is no living trust. Funding the living trust now takes one more task off the table for heirs.

Avoiding accumulating assets out of trust is simple- put the money in a trust account instead of individual accounts.

For the one estate that I settled I hired an attorney who helped and told me what to do. Charged by the time, not a percent of assets. Hiring an attorney or bank to be the executor and do all the work is a very expensive option that few people need to use.

Having a will with a testamentary trust does not require hiring a attorney or bank to be the executor.
Yes, seems like living trust still has benefits.
1. Cost - wouldn't the lawyers managing probate charge by the hour? For example, dispatching a simpler, smaller 100k estate (e.g. a rental property, a couple of vehicles) of things you forgot to put in the trust would not be equivalent to dispatching a more complicated, larger 5mm estate (e.g multiple houses, brokerage accounts, insurance policies, bank accounts). So even though beneficiaries still go through probate, they pay less in hourly fees.

2. Time - assets in living trust available immediately rather than 12 months to - 2 years needed to complete probate.

3. Privacy - assets in living trust go to beneficiaries and other relatives are not made aware of anything.
1. Most lawyers charge on a time basis. The cost to probate the Will is the same for a $100,000 estate as for a $100 million estate (except in California where $100,000 falls within their small estate procedure). Probating the Will is generally a small part of the legal work in an estate administration, and even if a decedent had a revocable trust the Will often has to be probated for one reason or another. The other work is pretty much the same regardless of whether the decedent had a revocable trust.

2. It usually only takes a few weeks (longer now due the pandemic) to probate a Will absent a contest. However, depending on the nature of the assets, and whether the estate is involved in litigation, it can take a long time to wind up a decedent's affairs.

3. Except for celebrities (most of whom probably want the publicity), no one goes to the courthouse to look at their friends', neighbors' and relatives' Wills. The media aren't interested in the Wills of decedents who aren't celebrities.
1. I see.
2. I was told that assets might be locked up for 12 months to 2 years.
3. Sounds right for most people but autism and eccentricity run extremely high in my family.
Lee_WSP
Posts: 5283
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

medusa98 wrote: Wed Jul 21, 2021 7:14 pm
Lee_WSP wrote: Wed Jul 21, 2021 11:56 am
medusa98 wrote: Wed Jul 21, 2021 11:40 am
JimmyJames wrote: Thu Jul 15, 2021 10:11 am I'm mostly considering the situation where my wife and I would pass away and the testamentary trust is then created to care for our daughter for the next 20-30 years. We will have a local bank act as corporate trustee and they will take care of settling the estate for around 0.5% of assets (one time fee), and then about 1% per year annual to manage. They are a good smaller regional bank and i'm confident using them.
I have the same basic plan. Don't you think 1% of assets per year is outrageous? What is there to do besides just buy a index fund and hold and file a simple tax return once a year? Can't you get a relative to do it for free and compensate them a bit?
1% per year is dirt cheap compared to a trustee walking off with the assets, losing all the assets on bad bets, gambling the assets away, using the assets for personal expenses, or just dying or disappearing, or becoming mentally unstable with no one to stop them.

It is basically insurance and management.

If your talking about a few hundred thousand dollars and a few years, sure, your brother can do it without much risk of things going wrong.

But if your talking millions, why can't the trust afford professional management.

Gill has already stated just a small number of the tasks a trustee does. It is most certainly not simply filing tax returns and investing. Although the investing part is the most painful to have to pay for, finding someone competent to do it for cheap and remain trustworthy is a very tall order. Plus most trustees will not decouple the service.
Well, the trustee would be unable to steal the money because he would be regulated by the rules in the trust documents, no? I guess the broker/bank wouldn't verify that his actions were legal and he could steal it leaving the beneficiaries no recourse but legal action down the road. In that case I should have one or two co-trustees. All their signatures should be required before each trade and distribution. Would this solve the problem?

For a 10mm trust, 1% a year would be 100k.
1) Trading should be essentially zero. You can specify 3 ETFs to invest in and that's it. But let's say 1 hour per year if you have to re-buy with dividends for example.
2) Distributions are yearly. Get from earnings or sell stock if needed and make 3 bank transfers. That's literally 1 hour.
3) Tax return I imagine is super simple and would take 3 hours. If more complicated get an accountant to do it for $500.
4) Let's add another 5 hours per year for miscellenous work.
That's 10 hours per year for 100k.
What are the other duties?
There is absolutely nothing stopping a trustee from simply liquidating the assets and fleeing the country.

If the trustees acted in cahoots, likewise nothing would stop them. In fact a single trustee could still just steal depending on how the assets are titled.

By naming them trustee you just transferred legal title to all the trust assets. You'd better trust them.
Last edited by Lee_WSP on Wed Jul 21, 2021 8:12 pm, edited 1 time in total.
Luckywon
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Joined: Tue Mar 28, 2017 10:33 am

Re: Should we create a testamentary trust for $6M estate?

Post by Luckywon »

medusa98 wrote: Wed Jul 21, 2021 7:25 pm autism and eccentricity run extremely high in my family.
This sounds like a very strong argument against having these family members act as trustees in lieu of a corporate trustee or probate process.
bsteiner
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Re: Should we create a testamentary trust for $6M estate?

Post by bsteiner »

medusa98 wrote: Wed Jul 21, 2021 7:25 pm
bsteiner wrote: Wed Jul 21, 2021 12:02 pm
medusa98 wrote: Wed Jul 21, 2021 11:31 am
afan wrote: Fri Jul 16, 2021 2:34 pm Probate may not be a major element of settling estates most of the time, but it is still something that has to be done if there is no living trust. Funding the living trust now takes one more task off the table for heirs.

Avoiding accumulating assets out of trust is simple- put the money in a trust account instead of individual accounts.

For the one estate that I settled I hired an attorney who helped and told me what to do. Charged by the time, not a percent of assets. Hiring an attorney or bank to be the executor and do all the work is a very expensive option that few people need to use.

Having a will with a testamentary trust does not require hiring a attorney or bank to be the executor.
Yes, seems like living trust still has benefits.
1. Cost - wouldn't the lawyers managing probate charge by the hour? For example, dispatching a simpler, smaller 100k estate (e.g. a rental property, a couple of vehicles) of things you forgot to put in the trust would not be equivalent to dispatching a more complicated, larger 5mm estate (e.g multiple houses, brokerage accounts, insurance policies, bank accounts). So even though beneficiaries still go through probate, they pay less in hourly fees.

2. Time - assets in living trust available immediately rather than 12 months to - 2 years needed to complete probate.

3. Privacy - assets in living trust go to beneficiaries and other relatives are not made aware of anything.
1. Most lawyers charge on a time basis. The cost to probate the Will is the same for a $100,000 estate as for a $100 million estate (except in California where $100,000 falls within their small estate procedure). Probating the Will is generally a small part of the legal work in an estate administration, and even if a decedent had a revocable trust the Will often has to be probated for one reason or another. The other work is pretty much the same regardless of whether the decedent had a revocable trust.

2. It usually only takes a few weeks (longer now due the pandemic) to probate a Will absent a contest. However, depending on the nature of the assets, and whether the estate is involved in litigation, it can take a long time to wind up a decedent's affairs.

3. Except for celebrities (most of whom probably want the publicity), no one goes to the courthouse to look at their friends', neighbors' and relatives' Wills. The media aren't interested in the Wills of decedents who aren't celebrities.
1. I see.
2. I was told that assets might be locked up for 12 months to 2 years.
3. Sounds right for most people but autism and eccentricity run extremely high in my family.
The assets aren’t locked up. But it can take a while to ascertain what the assets are, sell the ones they want to sell, pay the debts, taxes and expenses, file the estate tax returns, and do whatever else is necessary.

The executors may make interim distributions and likely will if a beneficiary was dependent on the decedent. But usually the beneficiaries are self-supporting and it’s easier to make the distributions at the end.
medusa98
Posts: 18
Joined: Thu Jul 15, 2021 10:15 am

Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

Lee_WSP wrote: Wed Jul 21, 2021 7:56 pm
medusa98 wrote: Wed Jul 21, 2021 7:14 pm
Lee_WSP wrote: Wed Jul 21, 2021 11:56 am
medusa98 wrote: Wed Jul 21, 2021 11:40 am
JimmyJames wrote: Thu Jul 15, 2021 10:11 am I'm mostly considering the situation where my wife and I would pass away and the testamentary trust is then created to care for our daughter for the next 20-30 years. We will have a local bank act as corporate trustee and they will take care of settling the estate for around 0.5% of assets (one time fee), and then about 1% per year annual to manage. They are a good smaller regional bank and i'm confident using them.
I have the same basic plan. Don't you think 1% of assets per year is outrageous? What is there to do besides just buy a index fund and hold and file a simple tax return once a year? Can't you get a relative to do it for free and compensate them a bit?
1% per year is dirt cheap compared to a trustee walking off with the assets, losing all the assets on bad bets, gambling the assets away, using the assets for personal expenses, or just dying or disappearing, or becoming mentally unstable with no one to stop them.

It is basically insurance and management.

If your talking about a few hundred thousand dollars and a few years, sure, your brother can do it without much risk of things going wrong.

But if your talking millions, why can't the trust afford professional management.

Gill has already stated just a small number of the tasks a trustee does. It is most certainly not simply filing tax returns and investing. Although the investing part is the most painful to have to pay for, finding someone competent to do it for cheap and remain trustworthy is a very tall order. Plus most trustees will not decouple the service.
Well, the trustee would be unable to steal the money because he would be regulated by the rules in the trust documents, no? I guess the broker/bank wouldn't verify that his actions were legal and he could steal it leaving the beneficiaries no recourse but legal action down the road. In that case I should have one or two co-trustees. All their signatures should be required before each trade and distribution. Would this solve the problem?

For a 10mm trust, 1% a year would be 100k.
1) Trading should be essentially zero. You can specify 3 ETFs to invest in and that's it. But let's say 1 hour per year if you have to re-buy with dividends for example.
2) Distributions are yearly. Get from earnings or sell stock if needed and make 3 bank transfers. That's literally 1 hour.
3) Tax return I imagine is super simple and would take 3 hours. If more complicated get an accountant to do it for $500.
4) Let's add another 5 hours per year for miscellenous work.
That's 10 hours per year for 100k.
What are the other duties?
There is absolutely nothing stopping a trustee from simply liquidating the assets and fleeing the country.

If the trustees acted in cahoots, likewise nothing would stop them. In fact a single trustee could still just steal depending on how the assets are titled.

By naming them trustee you just transferred legal title to all the trust assets. You'd better trust them.
That's a good point. The assets could be a simple brokerage account with 3 ETFs. Could open with Schwab or Vanguard and ask them to require all 3 signatures before transferring funds out. This would make the bank transfers a bit harder but they would only be done once a year: Guardian A, Guardian B, trustees compensation, taxes.

I suppose the 1% fee would be deducted from the earnings (dividends and cap gains on stocks sold if necessary(if dividends are insufficient to meet distributions+fees)) and the remaining earnings would be taxed. I plan to pay out 60k per year to the guardians of the 5 children (12k/year/child) until they are adults. This will probably be covered by dividends. But with 1% fee, dividends will probably not cover all outgoing payments so stock would have to be sold which means capital gains might be triggered which complicates everything and costs more.

For this simple model of a portfolio worth 10mm, I used no distributions to guardians during the 20 years while they are growing up.

Final Portfolio Value
Fee 1%, 14.6mm
Fee flat 5k/year, 17.1mm

So my beneficiaries lose 2.5mm or 15% with that 1% fee.
Trustee earns 2.4mm (diff is cause some of the fees offset taxes)
I counted 10 hours of work for the trustee per year.
For comparison, lifetime earnings, 45 year career, of an accountant in USA are 3.2mm and they hate their job!
https://www.monster.com/career-advice/a ... e-earnings

ROI 3.00% will use this low estimate cause I am ignoring inflation, these are real returns
Div. Portion of ROI 25.00% these will be taxed yearly unlike stock price increase returns
Fee Rate 1.00%
Div. Tax Rate 15.00%


Year Trust Value Gross Gain Dividend Fee Profit Tax Net Gain
1 $10,000,000 $300,000 $75,000 $100,000 -$25,000 0 $200,000
2 $10,200,000 $306,000 $76,500 $102,000 -$25,500 0 $204,000
3 $10,404,000 $312,120 $78,030 $104,040 -$26,010 0 $208,080
4 $10,612,080 $318,362 $79,591 $106,121 -$26,530 0 $212,242
5 $10,824,322 $324,730 $81,182 $108,243 -$27,061 0 $216,486
6 $11,040,808 $331,224 $82,806 $110,408 -$27,602 0 $220,816
7 $11,261,624 $337,849 $84,462 $112,616 -$28,154 0 $225,232
8 $11,486,857 $344,606 $86,151 $114,869 -$28,717 0 $229,737
9 $11,716,594 $351,498 $87,874 $117,166 -$29,291 0 $234,332
10 $11,950,926 $358,528 $89,632 $119,509 -$29,877 0 $239,019
11 $12,189,944 $365,698 $91,425 $121,899 -$30,475 0 $243,799
12 $12,433,743 $373,012 $93,253 $124,337 -$31,084 0 $248,675
13 $12,682,418 $380,473 $95,118 $126,824 -$31,706 0 $253,648
14 $12,936,066 $388,082 $97,020 $129,361 -$32,340 0 $258,721
15 $13,194,788 $395,844 $98,961 $131,948 -$32,987 0 $263,896
16 $13,458,683 $403,761 $100,940 $134,587 -$33,647 0 $269,174
17 $13,727,857 $411,836 $102,959 $137,279 -$34,320 0 $274,557
18 $14,002,414 $420,072 $105,018 $140,024 -$35,006 0 $280,048
19 $14,282,462 $428,474 $107,118 $142,825 -$35,706 0 $285,649
20 $14,568,112 $437,043 $109,261 $145,681 -$36,420 0 $291,362

Year Trust Value Gross Gain Dividend Fee Profit Tax Net Gain
1 $10,000,000 $300,000 $75,000 5000 $70,000 10500 $284,500
2 $10,284,500 $308,535 $77,134 5000 $72,134 10820.0625 $292,715
3 $10,577,215 $317,316 $79,329 5000 $74,329 11149.3668 $301,167
4 $10,878,382 $326,351 $81,588 5000 $76,588 11488.17977 $309,863
5 $11,188,245 $335,647 $83,912 5000 $78,912 11836.77596 $318,811
6 $11,507,056 $345,212 $86,303 5000 $81,303 12195.43787 $328,016
7 $11,835,072 $355,052 $88,763 5000 $83,763 12564.45614 $337,488
8 $12,172,560 $365,177 $91,294 5000 $86,294 12944.12981 $347,233
9 $12,519,792 $375,594 $93,898 5000 $88,898 13334.76656 $357,259
10 $12,877,052 $386,312 $96,578 5000 $91,578 13736.68294 $367,575
11 $13,244,626 $397,339 $99,335 5000 $94,335 14150.20466 $378,189
12 $13,622,815 $408,684 $102,171 5000 $97,171 14575.66682 $389,109
13 $14,011,924 $420,358 $105,089 5000 $100,089 15013.4142 $400,344
14 $14,412,268 $432,368 $108,092 5000 $103,092 15463.80153 $411,904
15 $14,824,172 $444,725 $111,181 5000 $106,181 15927.1938 $423,798
16 $15,247,970 $457,439 $114,360 5000 $109,360 16403.96652 $436,035
17 $15,684,005 $470,520 $117,630 5000 $112,630 16894.50606 $448,626
18 $16,132,631 $483,979 $120,995 5000 $115,995 17399.20992 $461,580
19 $16,594,211 $497,826 $124,457 5000 $119,457 17918.48711 $474,908
20 $17,069,119 $512,074 $128,018 5000 $123,018 18452.75842 $488,621
Lee_WSP
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Location: Arizona

Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

Your beneficiaries shouldn’t be under a disability (minor) forever. Eventually, they will be old enough to manage their own affairs. If they are disabled (financially or otherwise), the fee is just the price you pay to have someone look over them.
senex
Posts: 768
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Re: Should we create a testamentary trust for $6M estate?

Post by senex »

medusa98 wrote: Thu Jul 22, 2021 8:31 am So my beneficiaries lose 2.5mm or 15% with that 1% fee.
Trustee earns 2.4mm (diff is cause some of the fees offset taxes)
I counted 10 hours of work for the trustee per year.
Your math sounds about right. Yes, corporate trustees are extraordinarily expensive, compared to an impeccably honest boglehead who would work for an hourly rate. And it's probably even worse than you've modeled, because many corporate trustees won't index, and thus will generate extra tax liability (potentially a lot of it) from turnover/churn. They also may choose a more conservative asset allocation (more bonds, lower returns & higher taxes) than you prefer.

Basically, it costs what it costs. It is not an agile industry with constant money-saving innovations, like the brokerage business (where commissions & spreads have fallen by several orders of magnitude in a lifetime). Vanguard has entered the space with reduced costs & service; they will also index, which should reduce tax churn. You can search for commentary on them. The flat-fee administrative trustees are a bit of an innovation, but it's hard to find detailed reviews from actual users/beneficiaries. It is a fairly untrodden path, though perhaps worth your study.

There are semi-regular boglehead threads about personal trustees stealing/squandering trust money, then using trust funds to defend themselves in multi-year court battles. It's not pretty. You either pay the corporate fee, or you take the risk of the trust being stolen. There are no trust police, and it's expensive to spend years in court, with the other side paying as many top-notch lawyers as he wants with your (the trust's) money.
Lee_WSP
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

senex wrote: Thu Jul 22, 2021 1:01 pm
medusa98 wrote: Thu Jul 22, 2021 8:31 am So my beneficiaries lose 2.5mm or 15% with that 1% fee.
Trustee earns 2.4mm (diff is cause some of the fees offset taxes)
I counted 10 hours of work for the trustee per year.
Your math sounds about right. Yes, corporate trustees are extraordinarily expensive, compared to an impeccably honest boglehead who would work for an hourly rate. And it might be even worse than you've modeled, because a corp trustee may choose a more conservative asset allocation (more bonds, lower returns & higher taxes) than you prefer.

Basically, it costs what it costs. It isn't an industry with constant money-saving innovations, like the brokerage business (where commissions & spreads have fallen by several orders of magnitude in a lifetime). Vanguard has entered the space with reduced costs & service; you can search for commentary on them. The flat-fee administrative trustees are a bit of an innovation, but it's hard to find detailed reviews from actual users/beneficiaries. It is a fairly untrodden path, though perhaps worth your study.

There are semi-regular boglehead threads about personal trustees stealing/squandering trust money, then using trust funds to defend themselves in multi-year court battles. It's not pretty. You either pay the corporate fee, or you take the risk of the trust being stolen. There are no trust police, and it's expensive to spend years in court, with the other side paying as many top-notch lawyers as he wants with your (the trust's) money.
Tacking on to your response.

There are two parts to trust administration. 1) the investment oversight and 2) the accounting, tax prep, doling out benefits, and decision making.

The investment half is ripe for overhauling and cost reduction. However, Vanguard’s PAS is not cheap either and it’s a robot. A trust with multi generational beneficiaries will require a bit more nuance than a simple retirement plan, so Vanguard’s PAS is more of a floor rather than a ceiling.

As for the second part, that can be doled out at an hourly rate, but it’s far simpler to roll the two together into a single management fee.

What will increase the cost and complexity of the second part is a problem beneficiary. Imagine if the beneficiary constantly has to have their hand held or constantly bugs the trustee for more money or the like. An hourly fee is going to rack up pretty quickly.

In addition to the above, Vanguard does not manage real estate. Real estate is it’s own problem and not amenable to Vanguard’s cost cutting methodology.

Or a family business. Or artwork. Or etc.
BillWalters
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Re: Should we create a testamentary trust for $6M estate?

Post by BillWalters »

In my experience people are very unrealistic about their beneficiaries. First as prospective trustees and second as beneficiaries. In most cases people are going to behave while the patriarch/matriarch is still alive to preserve their inheritance, but upon their death all bets are off. Family trustees often use their role to settle resentments or grudges, and beneficiaries inevitably want too many distributions (to the detriment of the remaindermen). Also individuals can and often do mess up taxes. All the time.
Ranunculus
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Re: Should we create a testamentary trust for $6M estate?

Post by Ranunculus »

And here's what can happen if you choose the wrong small law firm to administer your trust:
https://mynewsla.com/crime/2021/05/07/d ... t-changes/
According to the DA’s office, Thompson established a living trust for a 95-year-old woman, whose identity was not disclosed, in May 2019. The trust specified that the defendant, designated the “trust protector,” had no beneficiary interest in the event of the victim’s death, prosecutors said.

The woman directed that 100% of her estate go to a children’s hospital after her passing, according to investigators. She died in November 2019, and the DA’s office said that the next month, Thompson allegedly renamed himself trustee in whole, giving himself full authority over the proceeds.

Swanson allegedly notarized the document.

“As is required by law, Thompson notified the woman’s disinherited relatives of the terms of the trust, but he failed to notify the hospital regarding its interest as the beneficiary of the trust,” the DA’s office stated.

The defendant abruptly withdrew $320,500 from the trust and transferred the funds to accounts in his name, prosecutors allege.
medusa98
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

Lee_WSP wrote: Thu Jul 22, 2021 1:11 pm There are two parts to trust administration. 1) the investment oversight and 2) the accounting, tax prep, doling out benefits, and decision making.
The first part is a non-issue. All assets get liquidated and got tossed into 3 specified ETFs. If one ETF is closed, those assets get put into the other 2. The only difficult part is initially where non-ETF assets (e.g. life insurance, properties, bank accounts) have to be liquidated. I will give the trustee compensation for that. For things like properties, he will get a percentage of the asset sale in order to incentivize him to sell at the highest price. There will be a time limit on the sale so that he can't wait forever.

The 2nd part is 5 hours a year. There are no decisions to make. Pay 12k/minor/year to minor's guardian. When benficiary is 18, cease payments; when beneficiary is 25 pay out share in full.
What will increase the cost and complexity of the second part is a problem beneficiary. Imagine if the beneficiary constantly has to have their hand held or constantly bugs the trustee for more money or the like. An hourly fee is going to rack up pretty quickly.
Beneficiaries' guardians gets 12k/year while B is a minor. B gets nothing till age 25 and that's that. So no problem.
Last edited by medusa98 on Thu Jul 22, 2021 6:46 pm, edited 3 times in total.
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

senex wrote: Thu Jul 22, 2021 1:01 pm And it's probably even worse than you've modeled, because many corporate trustees won't index, and thus will generate extra tax liability (potentially a lot of it) from turnover/churn. They also may choose a more conservative asset allocation (more bonds, lower returns & higher taxes) than you prefer.

Basically, it costs what it costs. It is not an agile industry with constant money-saving innovations, like the brokerage business (where commissions & spreads have fallen by several orders of magnitude in a lifetime). Vanguard has entered the space with reduced costs & service; they will also index, which should reduce tax churn. You can search for commentary on them. The flat-fee administrative trustees are a bit of an innovation, but it's hard to find detailed reviews from actual users/beneficiaries. It is a fairly untrodden path, though perhaps worth your study.
Absolutely insane that the trustee cannot simply follow what you say (e.g "Buy these 3 ETFs in equal parts; rebuy with dividends!).
There are semi-regular boglehead threads about personal trustees stealing/squandering trust money, then using trust funds to defend themselves in multi-year court battles. It's not pretty. You either pay the corporate fee, or you take the risk of the trust being stolen. There are no trust police, and it's expensive to spend years in court, with the other side paying as many top-notch lawyers as he wants with your (the trust's) money.
My brother is an accountant and has a few million himself and no children. He is frugal and I trust him 99%. But to be sure, having 2 co-trustees completely solves the problem if one of a brokerage account can be set up to require 3 signatures before funds are transferred. I wouldn't have thought of doing this until I read Lee's post. Do you see any problem with this plan?
medusa98
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

BillWalters wrote: Thu Jul 22, 2021 2:36 pm In my experience people are very unrealistic about their beneficiaries. First as prospective trustees and second as beneficiaries. In most cases people are going to behave while the patriarch/matriarch is still alive to preserve their inheritance, but upon their death all bets are off. Family trustees often use their role to settle resentments or grudges, and beneficiaries inevitably want too many distributions (to the detriment of the remaindermen). Also individuals can and often do mess up taxes. All the time.
Not a problem if everything has been set in stone like Moises' ten commandments, except there will only be 3-5 commandments. Thus sayeth Yaweh.
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

medusa98 wrote: Thu Jul 22, 2021 6:36 pm
Lee_WSP wrote: Thu Jul 22, 2021 1:11 pm There are two parts to trust administration. 1) the investment oversight and 2) the accounting, tax prep, doling out benefits, and decision making.
The first part is a non-issue. All assets get liquidated and got tossed into 3 specified ETFs. If one ETF is closed, those assets get put into the other 2. The only difficult part is initially where non-ETF assets (e.g. life insurance, properties, bank accounts) have to be liquidated. I will give the trustee compensation for that. For things like properties, he will get a percentage of the asset sale in order to incentivize him to sell at the highest price. There will be a time limit on the sale so that he can't wait forever.

The 2nd part is 5 hours a year. There are no decisions to make. Pay 12k/minor/year to minor's guardian. When benficiary is 18, cease payments; when beneficiary is 25 pay out share in full.
What will increase the cost and complexity of the second part is a problem beneficiary. Imagine if the beneficiary constantly has to have their hand held or constantly bugs the trustee for more money or the like. An hourly fee is going to rack up pretty quickly.
Beneficiaries' guardians gets 12k/year while B is a minor. B gets nothing till age 25 and that's that. So no problem.
It's your estate. I'm not going to tell you how to structure it.

But, in my professional opinion, it's not a great plan.

Look, it just comes down to whether you trust your trustee or not. If you do, go ahead (who am I to tell you what to do?). None of us will find out what happens until after you're dead. There are three likely possibilities, he does fine, he make a few mistakes, but otherwise does fine, or he ruins your children's inheritance through incompetence or greed.
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

medusa98 wrote: Thu Jul 22, 2021 6:42 pm
Absolutely insane that the trustee cannot simply follow what you say (e.g "Buy these 3 ETFs in equal parts; rebuy with dividends!).
You’ve obviously never had employees. That’s all I’ll say on that.
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

medusa98 wrote: Thu Jul 22, 2021 6:48 pm
BillWalters wrote: Thu Jul 22, 2021 2:36 pm In my experience people are very unrealistic about their beneficiaries. First as prospective trustees and second as beneficiaries. In most cases people are going to behave while the patriarch/matriarch is still alive to preserve their inheritance, but upon their death all bets are off. Family trustees often use their role to settle resentments or grudges, and beneficiaries inevitably want too many distributions (to the detriment of the remaindermen). Also individuals can and often do mess up taxes. All the time.
Not a problem if everything has been set in stone like Moises' ten commandments, except there will only be 3-5 commandments. Thus sayeth Yaweh.
The moment Moses left to go up the mountain, they were constructing idols and engaging in all sorts of unwanted behaviors. Not a great analogy.
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FIREchief
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Re: Should we create a testamentary trust for $6M estate?

Post by FIREchief »

Lee_WSP wrote: Thu Jul 22, 2021 7:00 pm The moment Moses left to go up the mountain, they were constructing idols and engaging in all sorts of unwanted behaviors. Not a great analogy.
:P
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
medusa98
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

Lee_WSP wrote: Thu Jul 22, 2021 6:55 pm
medusa98 wrote: Thu Jul 22, 2021 6:42 pm
Absolutely insane that the trustee cannot simply follow what you say (e.g "Buy these 3 ETFs in equal parts; rebuy with dividends!).
You’ve obviously never had employees. That’s all I’ll say on that.
Very wrong. Maybe you're used to dealing with gullible boomers happy to fork over their assets and pay massive fees to Warren Buffet wannabes.
You still don't seem to realize that I have addressed your concern by adding 2 co-trustees whose signatures will be required before any bank transfer.
Last edited by medusa98 on Fri Jul 23, 2021 7:45 am, edited 1 time in total.
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Re: Should we create a testamentary trust for $6M estate?

Post by medusa98 »

Lee_WSP wrote: Thu Jul 22, 2021 7:00 pm
medusa98 wrote: Thu Jul 22, 2021 6:48 pm
BillWalters wrote: Thu Jul 22, 2021 2:36 pm In my experience people are very unrealistic about their beneficiaries. First as prospective trustees and second as beneficiaries. In most cases people are going to behave while the patriarch/matriarch is still alive to preserve their inheritance, but upon their death all bets are off. Family trustees often use their role to settle resentments or grudges, and beneficiaries inevitably want too many distributions (to the detriment of the remaindermen). Also individuals can and often do mess up taxes. All the time.
Not a problem if everything has been set in stone like Moises' ten commandments, except there will only be 3-5 commandments. Thus sayeth Yaweh.
The moment Moses left to go up the mountain, they were constructing idols and engaging in all sorts of unwanted behaviors. Not a great analogy.
Hahaha, good point. But his trustees, Aharon and Hosheah, stayed steadfast. True that in the following millenniums countless false prophets have tried to mess with the very clear laws. Thanks be to Yahweh all were effectively dispatched with. My trust won't last that long.
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Re: Should we create a testamentary trust for $6M estate?

Post by Lee_WSP »

medusa98 wrote: Fri Jul 23, 2021 7:36 am
Lee_WSP wrote: Thu Jul 22, 2021 6:55 pm
medusa98 wrote: Thu Jul 22, 2021 6:42 pm
Absolutely insane that the trustee cannot simply follow what you say (e.g "Buy these 3 ETFs in equal parts; rebuy with dividends!).
You’ve obviously never had employees. That’s all I’ll say on that.
Very wrong. Maybe you're used to dealing with gullible boomers happy to fork over their assets and pay massive fees to Warren Buffet wannabes.
You still don't seem to realize that I have addressed your concern by adding 2 co-trustees whose signatures will be required before any bank transfer.
Good luck finding both a bank, brokerage and trustees willing to do that.

It's your assets. If you trust your trustee that's all there is to it.
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Re: Should we create a testamentary trust for $6M estate?

Post by senex »

medusa98 wrote: Thu Jul 22, 2021 6:42 pm Absolutely insane that the trustee cannot simply follow what you say (e.g "Buy these 3 ETFs in equal parts; rebuy with dividends!).
I felt a great deal of frustration upon learning that a corporate trustee will often refuse to invest according to grantor's instructions.

Our legal system has a streak of protect-you-from-yourself (outlawing lawn darts, usury, etc). This is another case of it. It is what it is. The power to control assets after you're dead is on odd one, hard to reason about.
medusa98 wrote: Thu Jul 22, 2021 6:42 pm My brother is an accountant and has a few million himself and no children. He is frugal and I trust him 99%. But to be sure, having 2 co-trustees completely solves the problem if one of a brokerage account can be set up to require 3 signatures before funds are transferred. I wouldn't have thought of doing this until I read Lee's post. Do you see any problem with this plan?
I have no relevant experience. I recommend talking to a professional. I personally lean towards taking my chances, because I dislike dealing with bureaucracies, and I dislike percent-of-asset fees, and I don't want my hope/life/choices to be based on some invincible pile of money I didn't earn. So I'm hesitant to structurally nudge my heirs in those directions.
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Re: Should we create a testamentary trust for $6M estate?

Post by afan »

Much of this discussion assumes the beneficiary is not the trustee. If the beneficiary does serve as trustee they cannot steal from themselves. They could make bad 8nveatment decisions but if you live long enough to see how they manage their finances you can be confident. If you don't trust their judgment, then don't make them trustee.


If your beneficiaries cannot serve as their own trustees:

I would worry about an individual, such as an attorney, who is not the beneficiary, a close family member or a very close friend. An individual attorney will grow old, retire, encounter life changes that may distract them, same as any other person. A large law firm, as opposed to an individual, might solve this problem. I would still worry that they might not have the back office and controls of a bank or trust company.

I still think an administrative trustee combined with an asset manager who can be hired and replaced would be the best solution. Hire someone who will do what you want. If they violate their agreement to sit on index funds, then fire them. Give the beneficiaries the right to remove and replace trustees.

There is no more reason a large trust requires a bank trustee than it requires active management. Having multiple generations, which is a relatively uncommon situation, does not mean the investment management has to be any more complex. 3-4 index funds scales far beyond this level. Not sure it ever stops being a good solution.

Different if there is a private business. Someone has to run it, or sell it. That takes expertise.

Can an individual manage a $10M portfolio? Of course. Those confronting this problem for estate planning built the portfolios, why could not their kids continue to manage them? Should they have been paying 1% of assets all along? For what? Doing so certainly would have reduced the perceived need for a bank to manage the trust, since the total assets would have been depleted by trustee fees.
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