Wills & Trusts

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Luckywon
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Re: Wills & Trusts

Post by Luckywon »

bsteiner wrote: Tue Oct 12, 2021 6:16 pm
Lee_WSP wrote: Tue Oct 12, 2021 5:54 pm
Luckywon wrote: Tue Oct 12, 2021 4:50 pm ... I am the sole grantor of the trust. Its assets are over the federal exemption limit so it is a QTIP qualified trust with income going to spouse and provision for spouse to take additional distributions for HEMS. Spouse while alive is sole successor trustee. My goals are providing for spouse, retaining spousal estate tax exemption, and remainder going to my relatives (we have no children). Should I look into formula/disclaimer trusts?
Ah, well the qtip is included in the next to die's estate. It's typically used in blended family situations. So if your estate is going to be over the exemption, I'm a little confused as to why there's no bypass, unless you meant under the exemption.
If there's no risk of estate tax due to the leakage of the income on what would have been the credit shelter trust, some people leave the entire estate to a QTIP trust and elect portability in order to get a second basis step up at the spouse's death on what would have been the credit shelter trust.

Of course, depending on the state, that might not be the best choice for state estate tax purposes.
Thanks Lee_WSP and bsteiner. Our plan is indeed that portability be elected upon death of first spouse. With the combined exemption, we were not concerned about federal estate taxes, and we are in California, so no state estate tax issues (for now). Perhaps this was shortsighted, given the scheduled reduction in federal estate tax exemption. We may have to revisit at some point whether a bypass trust may make sense. Many thanks.
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Matahari
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Re: Wills & Trusts

Post by Matahari »

sandramjet wrote: Tue Oct 12, 2021 4:31 pm
Matahari wrote: Sun Oct 10, 2021 8:30 pm I appreciate the information. However, I assume that the trustee of any trust we set up will also be getting the financial statements relating to the accounts and assets transferred into the trust and therein lies my concern about full financial disclosure. I'm sure that that there are people we know who are as honest and trustworthy as the day is long, but I worry about people also being all too human. Fortunately for us, our intention is that our child will be our trustee, or at least the co-trustee, and I am bringing her along now as much as I think is appropriate for a young adult.
Although I am sure that my experience is the exception, I too am leery of how to select a trustee. My parents ended up appointing a sibling as trustee, and that (much to our surprise) did not end well. We had to go to court to remove the sibling and are still trying to undo the financial mess that trustee created. I would always make sure there is some way to provide oversight / easy removal of the trustee.
Thank you for sharing your experience. I believe that there is also the concept of appointing a "trust protector," especially for irrevocable, long-term trusts or generation-skipping trusts, which is the type of trust I'm primarily concerned about for our situation, as distinguished from revocable living trusts that have been the subject of most of the discussion in this thread. I'm reading and figuring out who will serve and my concerns extend to that individual as well.

While I only have one child to worry about in the next generation, a future spouse can also wield "soft influence," as I'm sure you know. I would not want a future spouse to feel completely set aside from the "family trust" and financial decisions that our child will deal with, though asset protection from potential bad marriages is one goal of such trusts. Family dynamics are hard, especially where money is concerned, and the balancing act is very difficult. I am wrestling with this, even at the hypothetical stage. I read, contemplate, and try to analyze, and then discuss with my somewhat-distracted spouse, who is still very busy and engaged in his career.

While it's a generalization, it's important to realize that a trustee has dominion over the trust assets. Having recourse to legal action is thin compensation for malfeasance. Selecting the right person(s) or corporate trustee (which may be necessary and can be expensive) is where the work should be be accomplished.

I would think that complex estate planning also requires the full participation and understanding of both spouses, if not the beneficiaries in general. I know one UHNW individual who is setting up a dynasty trust (I read the trust for this person as a second set of eyes) about which I kept thinking and commenting: Will your spouse understand how this works (spouse is not the financial/investing person in the relationship)? What about, in this instance, the blended family of kids? What about the cousins in the next generation? The outcome of these inquiries depend on the players involved; they are never just legal questions that are answered by the terms of the trust.
Lee_WSP
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Re: Wills & Trusts

Post by Lee_WSP »

Luckywon wrote: Tue Oct 12, 2021 6:28 pm
bsteiner wrote: Tue Oct 12, 2021 6:16 pm
Lee_WSP wrote: Tue Oct 12, 2021 5:54 pm
Luckywon wrote: Tue Oct 12, 2021 4:50 pm ... I am the sole grantor of the trust. Its assets are over the federal exemption limit so it is a QTIP qualified trust with income going to spouse and provision for spouse to take additional distributions for HEMS. Spouse while alive is sole successor trustee. My goals are providing for spouse, retaining spousal estate tax exemption, and remainder going to my relatives (we have no children). Should I look into formula/disclaimer trusts?
Ah, well the qtip is included in the next to die's estate. It's typically used in blended family situations. So if your estate is going to be over the exemption, I'm a little confused as to why there's no bypass, unless you meant under the exemption.
If there's no risk of estate tax due to the leakage of the income on what would have been the credit shelter trust, some people leave the entire estate to a QTIP trust and elect portability in order to get a second basis step up at the spouse's death on what would have been the credit shelter trust.

Of course, depending on the state, that might not be the best choice for state estate tax purposes.
Thanks Lee_WSP and bsteiner. Our plan is indeed that portability be elected upon death of first spouse. With the combined exemption, we were not concerned about federal estate taxes, and we are in California, so no state estate tax issues (for now). Perhaps this was shortsighted, given the scheduled reduction in federal estate tax exemption. We may have to revisit at some point whether a bypass trust may make sense. Many thanks.
Ah, only your half is above. That makes sense now.
Luckywon
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Re: Wills & Trusts

Post by Luckywon »

bsteiner wrote: Tue Oct 12, 2021 5:49 pm
Luckywon wrote: Tue Oct 12, 2021 5:30 pm
Thank you bsteiner. It seems this discretion comes at the cost of loss of protection for the remainder beneficiaries. Or perhaps the trusts can be crafted such that there remains some balance, while providing flexibility for an instance like the one you described?
Unless the Will or trust agreement provides otherwise, trustees have to consider the interests of both the current and the subsequent beneficiaries.

Often a marital or credit shelter trust will say that the trustees are to give primary consideration to the spouse's needs.

Often a trust for a child will say that the trustees are to give primary consideration to the child's needs and best interests.
Thank you bsteiner. Will explore this with our attorney when reviewing our plans next.
bsteiner
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Re: Wills & Trusts

Post by bsteiner »

Matahari wrote: Tue Oct 12, 2021 6:31 pm
sandramjet wrote: Tue Oct 12, 2021 4:31 pm ...
Although I am sure that my experience is the exception, I too am leery of how to select a trustee. My parents ended up appointing a sibling as trustee, and that (much to our surprise) did not end well. We had to go to court to remove the sibling and are still trying to undo the financial mess that trustee created. I would always make sure there is some way to provide oversight / easy removal of the trustee.
Thank you for sharing your experience. I believe that there is also the concept of appointing a "trust protector," especially for irrevocable, long-term trusts or generation-skipping trusts, which is the type of trust I'm primarily concerned about for our situation, .... I'm reading and figuring out who will serve and my concerns extend to that individual as well.

While I only have one child to worry about in the next generation, a future spouse can also wield "soft influence," as I'm sure you know. I would not want a future spouse to feel completely set aside from the "family trust" and financial decisions that our child will deal with, though asset protection from potential bad marriages is one goal of such trusts. Family dynamics are hard, especially where money is concerned, and the balancing act is very difficult. I am wrestling with this, even at the hypothetical stage. I read, contemplate, and try to analyze, and then discuss with my somewhat-distracted spouse, who is still very busy and engaged in his career.

While it's a generalization, it's important to realize that a trustee has dominion over the trust assets. Having recourse to legal action is thin compensation for malfeasance. Selecting the right person(s) or corporate trustee (which may be necessary and can be expensive) is where the work should be be accomplished.
...
Someone has to control the trust.

Many clients give the primary beneficiary (the spouse in a marital or credit shelter (bypass) (family) trust or the child in the case of a trust for a child) the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee. Some don't. Sometimes, depending on the beneficiary, it's not appropriate to give a particular beneficiary this power.

Other than that, if you had more confidence in the protector than in the trustee, wouldn't you have picked the protector as the trustee?

Also, if you have a protector, who will have the power to remove and replace the protector?
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Matahari
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Re: Wills & Trusts

Post by Matahari »

bsteiner wrote: Wed Oct 13, 2021 3:53 pm
Someone has to control the trust.

Many clients give the primary beneficiary (the spouse in a marital or credit shelter (bypass) (family) trust or the child in the case of a trust for a child) the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee. Some don't. Sometimes, depending on the beneficiary, it's not appropriate to give a particular beneficiary this power.

Other than that, if you had more confidence in the protector than in the trustee, wouldn't you have picked the protector as the trustee?

Also, if you have a protector, who will have the power to remove and replace the protector?
Thank you, bsteiner. Yes, I understand what you are saying. Believe me, it is something that has crossed my mind. There is little doubt, in our situation, the beneficiary will be appointed the initial trustee, so as to provide as much power and flexibility as allowed. It is a balancing act: if the B-T has broad powers, then the provisions related to distributions and access to the assets must be such that the B-T does not have the ability to drain the trust wantonly. And, in the case of a family trust, the appointment of a non-close family member is fraught with potential complications, in which case we are left with a corporate trustee.

About the trust protector, IIUIC, this individual will provide oversight over the trustee. Correct me if I'm wrong. And, while I have candidates in mind, each of them has potential limitations. For example, one is as honest as the day is long, but is still busy working and saving lives and is not well-versed in financial and estate planning. Another is completely into financial and estate planning and is many steps ahead of me, but may not be an ideal candidate because this individual tends to consider matters wholly in monetary terms. I believe either would be responsible fiduciaries for my loved ones. Choosing the right person(s) is tough and therein lies the rub.

Edited: to fix the abbrev. above
Lee_WSP
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Re: Wills & Trusts

Post by Lee_WSP »

IMO/IME
The halfway point between completely trusting the beneficiary with total discretion and not trusting the beneficiary at all is pretty similar to the method used to keep the trust out of the beneficiary's estate.

Allow the beneficiary HEMS distributions, but require a non affiliated third party co-trustee to sign off on any other discretionary distributions. Such trustee may be hired and fired as needed.

If greater oversight over the beneficiary is desired, then you could have a permanent corporate trustee a co-trustee (optional ability to remove and replace with another corporate trustee), but allow the beneficiary to make HEMS distributions to him/herself.
bsteiner
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Re: Wills & Trusts

Post by bsteiner »

Matahari wrote: Thu Oct 14, 2021 4:19 pm
bsteiner wrote: Wed Oct 13, 2021 3:53 pm
Someone has to control the trust.

Many clients give the primary beneficiary (the spouse in a marital or credit shelter (bypass) (family) trust or the child in the case of a trust for a child) the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee. Some don't. Sometimes, depending on the beneficiary, it's not appropriate to give a particular beneficiary this power.

Other than that, if you had more confidence in the protector than in the trustee, wouldn't you have picked the protector as the trustee?

Also, if you have a protector, who will have the power to remove and replace the protector?
Thank you, bsteiner. Yes, I understand what you are saying. Believe me, it is something that has crossed my mind. There is little doubt, in our situation, the beneficiary will be appointed the initial trustee, so as to provide as much power and flexibility as allowed. It is a balancing act: if the B-T has broad powers, then the provisions related to distributions and access to the assets must be such that the B-T does not have the ability to drain the trust wantonly. And, in the case of a family trust, the appointment of a non-close family member is fraught with potential complications, in which case we are left with a corporate trustee.

About the trust protector, IIUIC, this individual will provide oversight over the trustee. Correct me if I'm wrong. And, while I have candidates in mind, each of them has potential limitations. For example, one is as honest as the day is long, but is still busy working and saving lives and is not well-versed in financial and estate planning. Another is completely into financial and estate planning and is many steps ahead of me, but may not be an ideal candidate because this individual tends to consider matters wholly in monetary terms. I believe either would be responsible fiduciaries for my loved ones. Choosing the right person(s) is tough and therein lies the rub.
...
What type of oversight do you want the protector to do?

Would the two individuals you describe work well together as co-trustees?
Lee_WSP wrote: Thu Oct 14, 2021 5:21 pm IMO/IME
The halfway point between completely trusting the beneficiary with total discretion and not trusting the beneficiary at all is pretty similar to the method used to keep the trust out of the beneficiary's estate.

Allow the beneficiary HEMS distributions, but require a non affiliated third party co-trustee to sign off on any other discretionary distributions. Such trustee may be hired and fired as needed.

If greater oversight over the beneficiary is desired, then you could have a permanent corporate trustee a co-trustee (optional ability to remove and replace with another corporate trustee), but allow the beneficiary to make HEMS distributions to him/herself.
That's permissible, and many lawyers, including one who sometimes participates in this group and whom I respect, does it that way.

Even though it's permissible, I prefer not to permit a trustee who's a beneficiary to participate in distributions in his/her own favor, even for health, maintenance and support. The co-trustee(s) would make those distributions. If appropriate, the beneficiary may have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). Most clients give their children this power after reaching a specified age, and many give their spouse this power over the marital and credit shelter trusts.
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Matahari
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Re: Wills & Trusts

Post by Matahari »

bsteiner wrote: Thu Oct 14, 2021 6:09 pm
Matahari wrote: Thu Oct 14, 2021 4:19 pm
bsteiner wrote: Wed Oct 13, 2021 3:53 pm
Someone has to control the trust.

Many clients give the primary beneficiary (the spouse in a marital or credit shelter (bypass) (family) trust or the child in the case of a trust for a child) the power to remove and replace his/her co-trustee, provided the replacement trustee isn't a close relative or subordinate employee. Some don't. Sometimes, depending on the beneficiary, it's not appropriate to give a particular beneficiary this power.

Other than that, if you had more confidence in the protector than in the trustee, wouldn't you have picked the protector as the trustee?

Also, if you have a protector, who will have the power to remove and replace the protector?
Thank you, bsteiner. Yes, I understand what you are saying. Believe me, it is something that has crossed my mind. There is little doubt, in our situation, the beneficiary will be appointed the initial trustee, so as to provide as much power and flexibility as allowed. It is a balancing act: if the B-T has broad powers, then the provisions related to distributions and access to the assets must be such that the B-T does not have the ability to drain the trust wantonly. And, in the case of a family trust, the appointment of a non-close family member is fraught with potential complications, in which case we are left with a corporate trustee.

About the trust protector, IIUIC, this individual will provide oversight over the trustee. Correct me if I'm wrong. And, while I have candidates in mind, each of them has potential limitations. For example, one is as honest as the day is long, but is still busy working and saving lives and is not well-versed in financial and estate planning. Another is completely into financial and estate planning and is many steps ahead of me, but may not be an ideal candidate because this individual tends to consider matters wholly in monetary terms. I believe either would be responsible fiduciaries for my loved ones. Choosing the right person(s) is tough and therein lies the rub.
...
What type of oversight do you want the protector to do?

Would the two individuals you describe work well together as co-trustees?
Lee_WSP wrote: Thu Oct 14, 2021 5:21 pm IMO/IME
The halfway point between completely trusting the beneficiary with total discretion and not trusting the beneficiary at all is pretty similar to the method used to keep the trust out of the beneficiary's estate.

Allow the beneficiary HEMS distributions, but require a non affiliated third party co-trustee to sign off on any other discretionary distributions. Such trustee may be hired and fired as needed.

If greater oversight over the beneficiary is desired, then you could have a permanent corporate trustee a co-trustee (optional ability to remove and replace with another corporate trustee), but allow the beneficiary to make HEMS distributions to him/herself.
That's permissible, and many lawyers, including one who sometimes participates in this group and whom I respect, does it that way.

Even though it's permissible, I prefer not to permit a trustee who's a beneficiary to participate in distributions in his/her own favor, even for health, maintenance and support. The co-trustee(s) would make those distributions. If appropriate, the beneficiary may have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). Most clients give their children this power after reaching a specified age, and many give their spouse this power over the marital and credit shelter trusts.
Thank you, bsteiner and Lee_WSP, for your very helpful comments. I think those 2 individuals serving together is a good thought.
557880yvi
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Re: Wills & Trusts

Post by 557880yvi »

Perhaps as a final post on this topic, I'd like to share an interesting experience from this weekend. I went to visit an elderly relative who just moved to an Assisted Living facility. It is in an area of very significant wealth. Perused the real estate listing (yes, just in case I win Powerball!) and the local Assessor's Database. Almost every single property was in a Trust.
bsteiner
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Re: Wills & Trusts

Post by bsteiner »

557880yvi wrote: Tue Oct 19, 2021 9:24 am Perhaps as a final post on this topic, I'd like to share an interesting experience from this weekend. I went to visit an elderly relative who just moved to an Assisted Living facility. It is in an area of very significant wealth. Perused the real estate listing (yes, just in case I win Powerball!) and the local Assessor's Database. Almost every single property was in a Trust.
You would find most of them in trusts in a state like California where revocable trusts are common.

Other reasons for putting real estate in trust include:

1. Medicaid planning (though that would be more in modest neighborhoods).

2. Qualified personal residence trusts (QPRTs), though they're less common now that the estate tax exclusion amount has been increased, interest rates are low, and the grantor may no longer buy the home back from the trust when the retained term ends.

3. Giving or leaving assets in trust rather than outright to keep them out of the beneficiaries' estates and to protect against their creditors and spouses, and Medicaid.
557880yvi
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Re: Wills & Trusts

Post by 557880yvi »

bsteiner wrote: Tue Oct 19, 2021 10:26 am
557880yvi wrote: Tue Oct 19, 2021 9:24 am Perhaps as a final post on this topic, I'd like to share an interesting experience from this weekend. I went to visit an elderly relative who just moved to an Assisted Living facility. It is in an area of very significant wealth. Perused the real estate listing (yes, just in case I win Powerball!) and the local Assessor's Database. Almost every single property was in a Trust.
You would find most of them in trusts in a state like California where revocable trusts are common. Massachusetts

Other reasons for putting real estate in trust include:

1. Medicaid planning (though that would be more in modest neighborhoods). Nothing modest about these neighborhoods!

2. Qualified personal residence trusts (QPRTs), though they're less common now that the estate tax exclusion amount has been increased, interest rates are low, and the grantor may no longer buy the home back from the trust when the retained term ends.

3. Giving or leaving assets in trust rather than outright to keep them out of the beneficiaries' estates and to protect against their creditors and spouses, and Medicaid.
bsteiner
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Re: Wills & Trusts

Post by bsteiner »

557880yvi wrote: Tue Oct 19, 2021 10:46 am
Perhaps as a final post on this topic, I'd like to share an interesting experience from this weekend. I went to visit an elderly relative who just moved to an Assisted Living facility. It is in an area of very significant wealth. Perused the real estate listing (yes, just in case I win Powerball!) and the local Assessor's Database. Almost every single property was in a Trust.
bsteiner wrote: Tue Oct 19, 2021 10:26 am
You would find most of them in trusts in a state like California where revocable trusts are common. Massachusetts
...
For reasons I've never understood, it's common in Massachusetts to have short nominee trusts (which are more like nominee agreements) for real estate so the name of the beneficial owner doesn't have to appear on the deed.
557880yvi
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Re: Wills & Trusts

Post by 557880yvi »

bsteiner wrote: Tue Oct 19, 2021 10:26 am
You would find most of them in trusts in a state like California where revocable trusts are common. Massachusetts
...
For reasons I've never understood, it's common in Massachusetts to have short nominee trusts (which are more like nominee agreements) for real estate so the name of the beneficial owner doesn't have to appear on the deed.
[/quote]

These were not short beneficial trusts, the names were there (interestingly, some well-known names)
bsteiner
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Re: Wills & Trusts

Post by bsteiner »

557880yvi wrote: Tue Oct 19, 2021 12:58 pm
bsteiner wrote: Tue Oct 19, 2021 10:26 am
You would find most of them in trusts in a state like California where revocable trusts are common. Massachusetts
...

For reasons I've never understood, it's common in Massachusetts to have short nominee trusts (which are more like nominee agreements) for real estate so the name of the beneficial owner doesn't have to appear on the deed.
These were not short beneficial trusts, the names were there (interestingly, some well-known names)
The deeds wouldn't contain the text of the trusts, just the names of the trustees.

Most prominent people don't mind having their names on the public records as owners of their homes. Those who don't want their names on the public records would need to have someone else as trustee, and not include their name in the trust name. For example, John Smith could create a trust with Jane Brown as trustee, and call it the [name of the street where the home is located] Trust.
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Re: Wills & Trusts

Post by Lee_WSP »

Is putting the vacation/second/family home in a GRAT common practice in MA?

Edit: now that I mention vacation homes, I’m pretty sure it’s commonly advocated to put out of state property in a living trust for ease of out of state transfer.

Are these second homes? With the MA estate tax being uncoupled, I wouldn’t be surprised if they “live” in Florida, but maintain a MA residence for 49% of the year.
557880yvi
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Re: Wills & Trusts

Post by 557880yvi »

Lee_WSP wrote: Tue Oct 19, 2021 1:52 pm
Are these second homes? With the MA estate tax being uncoupled, I wouldn’t be surprised if they “live” in Florida, but maintain a MA residence for 49% of the year.
There were quite a few license plates with oranges (FL) on them this weekend!
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