Disadvantages of doing trust

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
JBTX
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Re: Disadvantages of doing trust

Post by JBTX »

bsteiner wrote: Wed Oct 23, 2024 3:49 pm
friar1610 wrote: Wed Oct 23, 2024 2:15 pm

Mass resident here. This is a great discussion. If this has specifically been addressed in this thread I missed it.

If a married couple is not sure whether or not a credit shelter trust is called for (e.g., due to level of assets), can a will be drafted with a provision for the establishment of a testamentary CST upon the death of the first member of the couple and at the discretion of, say, the will’s executor? The trust would then be created (or not) depending on circumstances at the time.
There are several ways to do that.

1. You could mandate a credit shelter trust. The trustees of the credit shelter trust could distribute the assets of the credit shelter trust to the spouse, or could direct the executors not to set up the credit shelter trust and instead distribute to the spouse the amount that would otherwise have passed to the credit shelter trust.

2. You could leave your estate to your spouse, and provide that to the extent (if any) that the spouse disclaims (waives) his/her interest, the disclaimed portion goes to a disclaimer trust. A disclaimer trust is essentially a credit shelter trust, except the spouse can't have a power of appointment over it, and can't participate in discretionary distributions to the children and grandchildren (except for an ascertainable standard such as health, maintenance, support and education).

3. You could leave your estate in trust, and say that to the extent your executors elect QTIP, the assets go to a marital (QTIP) trust, and to the extent your executors don't elect QTIP, the assets go to a credit shelter trust.

Given the low level of the Massachusetts exempt amount, most people in Massachusetts would probably pick #1, and provide for a credit shelter trust equal to the smaller of the Federal or the Massachusetts exempt amount.

This a helpful. So in a different situation where a decades old estate plan called for a credit shelter trust when the levels were much lower, the moneys could go into the credit shelter trust and nearly immediately distributed from that trust by the trustee?

If that is the case, would the inheriting spouse get future step up once assets have been distributed from CST?
bsteiner
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Re: Disadvantages of doing trust

Post by bsteiner »

JBTX wrote: Wed Oct 23, 2024 4:05 pm
bsteiner wrote: Wed Oct 23, 2024 3:49 pm

There are several ways to do that.

1. You could mandate a credit shelter trust. The trustees of the credit shelter trust could distribute the assets of the credit shelter trust to the spouse, or could direct the executors not to set up the credit shelter trust and instead distribute to the spouse the amount that would otherwise have passed to the credit shelter trust.

2. You could leave your estate to your spouse, and provide that to the extent (if any) that the spouse disclaims (waives) his/her interest, the disclaimed portion goes to a disclaimer trust. A disclaimer trust is essentially a credit shelter trust, except the spouse can't have a power of appointment over it, and can't participate in discretionary distributions to the children and grandchildren (except for an ascertainable standard such as health, maintenance, support and education).

3. You could leave your estate in trust, and say that to the extent your executors elect QTIP, the assets go to a marital (QTIP) trust, and to the extent your executors don't elect QTIP, the assets go to a credit shelter trust.

Given the low level of the Massachusetts exempt amount, most people in Massachusetts would probably pick #1, and provide for a credit shelter trust equal to the smaller of the Federal or the Massachusetts exempt amount.

This a helpful. So in a different situation where a decades old estate plan called for a credit shelter trust when the levels were much lower, the moneys could go into the credit shelter trust and nearly immediately distributed from that trust by the trustee?

If that is the case, would the inheriting spouse get future step up once assets have been distributed from CST?
Yes and yes, assuming the Will gives the trustees complete discretion to distribute the principal of the trust to the surviving spouse (or to decant the trust to give the spouse a general power of appointment, or to grant the spouse a general power of appointment).
friar1610
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Re: Disadvantages of doing trust

Post by friar1610 »

bsteiner:
There are several ways to do that.

1. You could mandate a credit shelter trust. The trustees of the credit shelter trust could distribute the assets of the credit shelter trust to the spouse, or could direct the executors not to set up the credit shelter trust and instead distribute to the spouse the amount that would otherwise have passed to the credit shelter trust.

2. You could leave your estate to your spouse, and provide that to the extent (if any) that the spouse disclaims (waives) his/her interest, the disclaimed portion goes to a disclaimer trust. A disclaimer trust is essentially a credit shelter trust, except the spouse can't have a power of appointment over it, and can't participate in discretionary distributions to the children and grandchildren (except for an ascertainable standard such as health, maintenance, support and education).

3. You could leave your estate in trust, and say that to the extent your executors elect QTIP, the assets go to a marital (QTIP) trust, and to the extent your executors don't elect QTIP, the assets go to a credit shelter trust.

Given the low level of the Massachusetts exempt amount, most people in Massachusetts would probably pick #1, and provide for a credit shelter trust equal to the smaller of the Federal or the Massachusetts exempt amount.
Thank you very much!
Friar1610 | 50-ish/50-ish
senex
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Re: Disadvantages of doing trust

Post by senex »

rs9876lg wrote: Tue Oct 22, 2024 7:59 am I am learning quite a lot about myself. Being an engineer (and a very good one) has been somewhat of a curse as I try to second guess professional even though I am paying them good money. This has been true with auto mechanics and home contractors and even doctors and surgeons! I did not have many interactions with law even though my father was a lawyer!

Hence “talk with good estate attorney” advice is difficult even though that is what I should be doing
There are lots of engineers here that think like you do. It's good to understand the territory before talking to a pro, for lots of reasons. You're asking good questions.

For basics, the Nolo Press books are a good intro. For anything beyond basics there are no good books I've heard of. The best resource I know are the many bogleheads threads -- particularly ones in which prolific professional bsteiner has commented (you can click on his name, then click "Search user's posts", and you'll get a list of every thread he's contributed to).

One difficulty with trust discussions is that "trust" is a heavily overloaded term, and different types of trusts solve different problems. Also, the appropriate choices (TOD/beneficiary vs. revocable living trust vs. will with testamentary trust) depend highly on net worth, state of residence, condition of the beneficiaries, and tolerance for cost/complexity. Once you've read hundreds of threads you learn to decipher what people are "really asking," and a coherent picture emerges -- vs. when you're new to the topic, the info seems totally contradictory.

Best wishes.
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rs9876lg
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Re: Disadvantages of doing trust

Post by rs9876lg »

bsteiner wrote: Tue Oct 22, 2024 9:28 am
rs9876lg wrote: Tue Oct 22, 2024 8:10 am

Another great response! All accounts already have TOD beneficiaries listed. No minor kids and no blended families.

Estate will be quite a bit over Mass limit. Ask me if I really care if my kids end up paying thousands extra in taxes. Not if that turns out to be rounding error for the estate

If to save that I need to pay half of that right now or as ongoing cost to maintain the trust then I am not interested
If you don't care about estate taxes, asset protection, or chaos if one child balks at paying his/her share of debts, taxes and expenses, then that may be fine. Otherwise, TOD is generally not a good idea (except for life insurance and retirement benefits) for many reasons.
I would like to understand why TOD is NOT good for brokerage/bank accounts (I am guessing that is what is being implied) but is acceptable for life insurance and retirement accounts (is it because it is mandatory and attornies would have prefered it differently?)

I also do not quite get how child balking will be different with trust vs POD if the executor is the adult son himself. If the POD lists 50% 50% where does chaos come from?

I can understand that if professional trustees are to be employed and compensated, then the above listed fears can be put to rest.
toddthebod
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Re: Disadvantages of doing trust

Post by toddthebod »

rs9876lg wrote: Mon Oct 28, 2024 11:01 am
bsteiner wrote: Tue Oct 22, 2024 9:28 am

If you don't care about estate taxes, asset protection, or chaos if one child balks at paying his/her share of debts, taxes and expenses, then that may be fine. Otherwise, TOD is generally not a good idea (except for life insurance and retirement benefits) for many reasons.
I would like to understand why TOD is NOT good for brokerage/bank accounts (I am guessing that is what is being implied) but is acceptable for life insurance and retirement accounts (is it because it is mandatory and attornies would have prefered it differently?)

I also do not quite get how child balking will be different with trust vs POD if the executor is the adult son himself. If the POD lists 50% 50% where does chaos come from?

I can understand that if professional trustees are to be employed and compensated, then the above listed fears can be put to rest.
Retirement accounts left to the estate (i.e., no beneficiary) have accelerated RMDs. Many life insurance policies have default beneficiaries that may not match your wishes. If assets pass through the estate via will or revocable trust, they will be used to pay the decedent's debts prior to distribution. If they are instead distributed via TOD/POD, and the beneficiary won't pay their share, the estate will have to sue the beneficiary to claw back funds. If the executor and beneficiary are the same person, it would be a matter of the creditors suing him personally rather than suing the estate.
michaeljc70
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Re: Disadvantages of doing trust

Post by michaeljc70 »

rs9876lg wrote: Mon Oct 28, 2024 11:01 am
bsteiner wrote: Tue Oct 22, 2024 9:28 am

If you don't care about estate taxes, asset protection, or chaos if one child balks at paying his/her share of debts, taxes and expenses, then that may be fine. Otherwise, TOD is generally not a good idea (except for life insurance and retirement benefits) for many reasons.
I would like to understand why TOD is NOT good for brokerage/bank accounts (I am guessing that is what is being implied) but is acceptable for life insurance and retirement accounts (is it because it is mandatory and attornies would have prefered it differently?)

I also do not quite get how child balking will be different with trust vs POD if the executor is the adult son himself. If the POD lists 50% 50% where does chaos come from?

I can understand that if professional trustees are to be employed and compensated, then the above listed fears can be put to rest.
Generally, TODs are fairly simple. For example, you cannot specify the money will be held until a minor is age X.

Depending where the account is held, your options will vary for TOD. One thing they don't support everywhere is specifying alternative beneficiaries if the primary beneficiary(s) pass before you do. I also think some allow the deceased beneficiary's estate to receive the asset (Trail of Estate). Some of this is also state law dependent if not specifically specified. IANAL
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rs9876lg
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Re: Disadvantages of doing trust

Post by rs9876lg »

lthenderson wrote: Tue Oct 22, 2024 12:54 pm
rs9876lg wrote: Mon Oct 21, 2024 6:07 pm I need to do my own research. Where do I start?
Read "Beyond the Grave" by Condon and Condon. I just finished the book myself a couple days ago. It deals exclusively on who needs a trusts and reviews dozen of different types of trusts depending on what you wish to accomplish. It is written in short chapters in sort of a question and answer format around real life examples, good and bad, that the father and son estate lawyer team has witnessed over decades of writing wills and trusts and seeing first hand what can go wrong.

https://www.amazon.com/Beyond-Grave-Lea ... 887307035/
Thank you! I am currently reading it. I completed "Trust and Living Will" by Daniel Shore although it just told me to talk to a qualified lawyer. I am also reading "Estate Planning for Dummies" - so much fluff but at least the terms are well explained.

In our case, the only applicable criterion is significant assets as far as state of Masschussetts is concerned but NOT that significant to worry about the Federal estate taxes. There is nothing else which is remotely applicable aka minors and/or blended families etc.

Somebody could ask the question "What happens if the surviving spouse finds a newer model and all the assets are bestowed upon them?" Reading some of the "future inheritance" discussion in BH strongly suggest that surviving spouse has every right to do what they want to do. Having well written Trust might be useful to protect the adult children although this generally is a taboo topic.
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rs9876lg
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Re: Disadvantages of doing trust

Post by rs9876lg »

michaeljc70 wrote: Mon Oct 28, 2024 11:12 am
rs9876lg wrote: Mon Oct 28, 2024 11:01 am
I would like to understand why TOD is NOT good for brokerage/bank accounts (I am guessing that is what is being implied) but is acceptable for life insurance and retirement accounts (is it because it is mandatory and attornies would have prefered it differently?)

I also do not quite get how child balking will be different with trust vs POD if the executor is the adult son himself. If the POD lists 50% 50% where does chaos come from?

I can understand that if professional trustees are to be employed and compensated, then the above listed fears can be put to rest.
Generally, TODs are fairly simple. For example, you cannot specify the money will be held until a minor is age X.

Depending where the account is held, your options will vary for TOD. One thing they don't support everywhere is specifying alternative beneficiaries if the primary beneficiary(s) pass before you do. I also think some allow the deceased beneficiary's estate to receive the asset (Trail of Estate). Some of this is also state law dependent if not specifically specified. IANAL
Once again, in simple case of two adult children the TOD/POD can be kept up to date.
bsteiner
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Re: Disadvantages of doing trust

Post by bsteiner »

...
I would like to understand why TOD is NOT good for brokerage/bank accounts (I am guessing that is what is being implied) but is acceptable for life insurance and retirement accounts (is it because it is mandatory and attornies would have prefered it differently?)

I also do not quite get how child balking will be different with trust vs POD if the executor is the adult son himself. If the POD lists 50% 50% where does chaos come from?

I can understand that if professional trustees are to be employed and compensated, then the above listed fears can be put to rest.
[/quote]

It makes sense to name beneficiaries (which may be trusts) for life insurance and retirement benefits to preserve the protection against the insured's or IRA owner's creditors, and in some cases to get a longer stretch.

TOD for other assets is piecemeal (asset by asset) planning.

You have to remember to update the designations each time you update your estate plan.

It makes it more difficult to provide for contingencies (such as a beneficiary predeceasing you).

It makes it more difficult to provide for your beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances from their creditors and spouses, and Medicaid.

You have to make sure your designations are consistent with your estate plan.

In the case of real estate, it puts a portion of your estate plan on the public records during your lifetime. So if you change it, everyone will know what it had been.

There will be chaos if, as a result, your estate doesn't have enough money to pay your debts, expenses, taxes and preresiduary bequests, and one of the TOD beneficiaries balks at contributing his/her share.

We’ve had several well-designed estate plans defeated by probably unintended TOD designations.

In one case, a couple provided for their daughter in trust under their Wills, to keep her inheritance out of her estate for estate tax purposes, and to protect her inheritance from her spouses. After the wife died, the husband, then elderly, moved his brokerage account to the daughter’s broker. When he died, it turned out that the daughter was TOD beneficiary on the brokerage account, destroying the asset protection.

In another case, the decedent left cash bequests to various friends and family. When she died, it turned out that her residuary beneficiary was TOD beneficiary on her largest account, leaving her estate without enough money to pay the cash bequests. Fortunately the residuary beneficiary voluntarily made gifts to make up the shortfall.

In another case, the decedent left his residences and retirement benefits to his wife, half of his estate (less the assets passing to his wife outright) in trust for his wife, with remainder in trust for his children from a previous marriage, and half of his estate (less estate taxes) in trust for his children. He then sold a portion of his business and put the proceeds into a brokerage account. When he died, it turned out that his wife was TOD beneficiary on the brokerage account. That left very little for his children. Making it worse, his wife died within a year after he died, and she left everything to her daughter from her previous marriage.

It's often penny wise and pound foolish.
kavm
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Re: Disadvantages of doing trust

Post by kavm »

One dimension that has not come up in this discussion is whether trusts can be used to prevent / mitigate elder financial abuse scenarios. That is a use case which is interesting to us as: (a) we have 8-figure assets, (b) no children or family in the USA, and (c) spouse has family history of dementia. So, our concerns are less about taxes or legacy left behind and more on ensuring proper use of our assets to provide comforts to us in life, including in scenarios involving the remaining spouse and impairment of mental abilities at later stages of life.

I am linking below a random internet blog post on the financial elder abuse below for a representative scenario, but the topic is perhaps broader than that.
https://www.clarkstonlegal.com/law-blog ... -marriage/

I wonder if trusts provide protective mechanisms to prevent or discourage elder financial abuse.

PS: We are nearing mid-60s and are in good health. So, this is not an imminent scenario but a topic that we are interested in protecting against.
toddthebod
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Re: Disadvantages of doing trust

Post by toddthebod »

kavm wrote: Mon Oct 28, 2024 2:29 pm One dimension that has not come up in this discussion is whether trusts can be used to prevent / mitigate elder financial abuse scenarios. That is a use case which is interesting to us as: (a) we have 8-figure assets, (b) no children or family in the USA, and (c) spouse has family history of dementia. So, our concerns are less about taxes or legacy left behind and more on ensuring proper use of our assets to provide comforts to us in life, including in scenarios involving the remaining spouse and impairment of mental abilities at later stages of life.

I am linking below a random internet blog post on the financial elder abuse below for a representative scenario, but the topic is perhaps broader than that.
https://www.clarkstonlegal.com/law-blog ... -marriage/

I wonder if trusts provide protective mechanisms to prevent or discourage elder financial abuse.

PS: We are nearing mid-60s and are in good health. So, this is not an imminent scenario but a topic that we are interested in protecting against.
If your chosen trustee is the one ripping you off, the trust makes it easier.
michaeljc70
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Re: Disadvantages of doing trust

Post by michaeljc70 »

toddthebod wrote: Mon Oct 28, 2024 2:34 pm
kavm wrote: Mon Oct 28, 2024 2:29 pm One dimension that has not come up in this discussion is whether trusts can be used to prevent / mitigate elder financial abuse scenarios. That is a use case which is interesting to us as: (a) we have 8-figure assets, (b) no children or family in the USA, and (c) spouse has family history of dementia. So, our concerns are less about taxes or legacy left behind and more on ensuring proper use of our assets to provide comforts to us in life, including in scenarios involving the remaining spouse and impairment of mental abilities at later stages of life.

I am linking below a random internet blog post on the financial elder abuse below for a representative scenario, but the topic is perhaps broader than that.
https://www.clarkstonlegal.com/law-blog ... -marriage/

I wonder if trusts provide protective mechanisms to prevent or discourage elder financial abuse.

PS: We are nearing mid-60s and are in good health. So, this is not an imminent scenario but a topic that we are interested in protecting against.
If your chosen trustee is the one ripping you off, the trust makes it easier.
Don't most people make themselves the trustee until they pass? That's what everyone in my family has done.
kavm
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Re: Disadvantages of doing trust

Post by kavm »

toddthebod wrote: Mon Oct 28, 2024 2:34 pm
kavm wrote: Mon Oct 28, 2024 2:29 pm One dimension that has not come up in this discussion is whether trusts can be used to prevent / mitigate elder financial abuse scenarios. That is a use case which is interesting to us as: (a) we have 8-figure assets, (b) no children or family in the USA, and (c) spouse has family history of dementia. So, our concerns are less about taxes or legacy left behind and more on ensuring proper use of our assets to provide comforts to us in life, including in scenarios involving the remaining spouse and impairment of mental abilities at later stages of life.

I am linking below a random internet blog post on the financial elder abuse below for a representative scenario, but the topic is perhaps broader than that.
https://www.clarkstonlegal.com/law-blog ... -marriage/

I wonder if trusts provide protective mechanisms to prevent or discourage elder financial abuse.

PS: We are nearing mid-60s and are in good health. So, this is not an imminent scenario but a topic that we are interested in protecting against.
If your chosen trustee is the one ripping you off, the trust makes it easier.
Understood. But, seems like solo agers without reliable family etc. face that scenario, with or without trust.

I should note that I am not very knowledgeable on this topic but very interested in discussion of options and considerations.
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rs9876lg
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Re: Disadvantages of doing trust

Post by rs9876lg »

Almost all of the listed horror stories involved blended families and/or intentional unequal bequeths regarding the TOD/POD shortcomings
RetiredAL
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Re: Disadvantages of doing trust

Post by RetiredAL »

michaeljc70 wrote: Mon Oct 28, 2024 2:36 pm
toddthebod wrote: Mon Oct 28, 2024 2:34 pm

If your chosen trustee is the one ripping you off, the trust makes it easier.
Don't most people make themselves the trustee until they pass? That's what everyone in my family has done.
After my Mom passed, my 89 yo Dad made me the Trustee of their Trust. He passed at 97. Why? He was capable, but their finances had always been Mom's turf, and he did not want to tread on it.
toddthebod
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Re: Disadvantages of doing trust

Post by toddthebod »

michaeljc70 wrote: Mon Oct 28, 2024 2:36 pm
toddthebod wrote: Mon Oct 28, 2024 2:34 pm

If your chosen trustee is the one ripping you off, the trust makes it easier.
Don't most people make themselves the trustee until they pass? That's what everyone in my family has done.
Presumably this person has named a co-trustee to help them manage their finances, or has been declared incapacitated and therefore the successor trustee has taken over. Unlike naming someone as a joint account holder on your checking account and then getting ripped off (unfortunately very common), that person now controls all of your assets and your house.
bsteiner
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Re: Disadvantages of doing trust

Post by bsteiner »

kavm wrote: Mon Oct 28, 2024 2:29 pm One dimension that has not come up in this discussion is whether trusts can be used to prevent / mitigate elder financial abuse scenarios. That is a use case which is interesting to us as: (a) we have 8-figure assets, (b) no children or family in the USA, and (c) spouse has family history of dementia. So, our concerns are less about taxes or legacy left behind and more on ensuring proper use of our assets to provide comforts to us in life, including in scenarios involving the remaining spouse and impairment of mental abilities at later stages of life.

...

I wonder if trusts provide protective mechanisms to prevent or discourage elder financial abuse.

PS: We are nearing mid-60s and are in good health. So, this is not an imminent scenario but a topic that we are interested in protecting against.
They can be used for this purpose. However, you have to give up control. You can't amend or revoke it without the consent of a very trusted person or persons.

You probably wouldn't do this when you're in your 60s and in good health. There was a case in Illinois where someone did this prematurely and ended up in litigation when they wanted to change it. But we did it for a client who was older, in the middle stages of Alzheimer's but still had capacity, and was concerned about a specific predator.
bsteiner
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Re: Disadvantages of doing trust

Post by bsteiner »

michaeljc70 wrote: Mon Oct 28, 2024 2:36 pm ...
Don't most people make themselves the trustee until they pass? ...
Most people don't create trusts during their lifetime. If you do, and you're a trustee, the trust will probably be included in your estate, which would usually defeat the purpose of the trust.

The exception is a revocable trust. Someone who creates a revocable trust will usually be a trustee.
kavm
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Re: Disadvantages of doing trust

Post by kavm »

bsteiner wrote: Mon Oct 28, 2024 3:49 pm
kavm wrote: Mon Oct 28, 2024 2:29 pm One dimension that has not come up in this discussion is whether trusts can be used to prevent / mitigate elder financial abuse scenarios. That is a use case which is interesting to us as: (a) we have 8-figure assets, (b) no children or family in the USA, and (c) spouse has family history of dementia. So, our concerns are less about taxes or legacy left behind and more on ensuring proper use of our assets to provide comforts to us in life, including in scenarios involving the remaining spouse and impairment of mental abilities at later stages of life.

...

I wonder if trusts provide protective mechanisms to prevent or discourage elder financial abuse.

PS: We are nearing mid-60s and are in good health. So, this is not an imminent scenario but a topic that we are interested in protecting against.
They can be used for this purpose. However, you have to give up control. You can't amend or revoke it without the consent of a very trusted person or persons.

You probably wouldn't do this when you're in your 60s and in good health. There was a case in Illinois where someone did this prematurely and ended up in litigation when they wanted to change it. But we did it for a client who was older, in the middle stages of Alzheimer's but still had capacity, and was concerned about a specific predator.
Thank you so much, Bruce! Appreciate it! Will revisit the question in 10-15 years, if still around :happy
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Mullins
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Re: Disadvantages of doing trust

Post by Mullins »

bsteiner wrote: Mon Oct 28, 2024 1:54 pm provide for your beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances from their creditors and spouses, and Medicaid.
A question that comes to mind is, so when those trust beneficiaries die, what happens to that trust's funds? Does the original grantor dictate in the trust how they're to be ultimately dispersed? Does the beneficiary get to decide who gets it? What if there are no further generations of children after the beneficiary... just what happens?
"The Quality of the Answer Depends on the Quality of Your Question."
newbh933
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Re: Disadvantages of doing trust

Post by newbh933 »

Mullins wrote: Tue Oct 29, 2024 9:02 am
bsteiner wrote: Mon Oct 28, 2024 1:54 pm provide for your beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances from their creditors and spouses, and Medicaid.
A question that comes to mind is, so when those trust beneficiaries die, what happens to that trust's funds? Does the original grantor dictate in the trust how they're to be ultimately dispersed? Does the beneficiary get to decide who gets it? What if there are no further generations of children after the beneficiary... just what happens?
I can comment from a sample of one at least. DW is the beneficiary of a trust (well, technically two) and those items are laid out in a section of the trust(s). It covers, in pretty specific detail, exactly what is to happen under all the various conditions you list. HTH
Nobody knows nothing... and I know even less!
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rs9876lg
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Re: Disadvantages of doing trust

Post by rs9876lg »

While reading one of the books it mentioned “portability”. Talk to your estate planning team was the book advice

Unused exemption amount of first to die carries over to the surviving spouse if the estate planning team had used advanced tricks

The book did not list them
toddthebod
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Re: Disadvantages of doing trust

Post by toddthebod »

rs9876lg wrote: Tue Oct 29, 2024 8:14 pm While reading one of the books it mentioned “portability”. Talk to your estate planning team was the book advice

Unused exemption amount of first to die carries over to the surviving spouse if the estate planning team had used advanced tricks

The book did not list them
Federally you just need to file an estate tax return to elect portability when the first spouse dies. Most states that have estate taxes do not allow portability, so you typically create what's called a credit shelter trust to hold the first spouse's assets (up to the state exemption) when they die.
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rs9876lg
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Re: Disadvantages of doing trust

Post by rs9876lg »

I would like to get clarification on the "free/default" (we do have to pay taxes on the imputed cost every year during tax time) life insurance that we have through respective workplace. The benefyciary is the other spouse and contigent beneficiaries 50-50 two adult children. It is strongly suggested to have the insurance into life insurance trust but I am not sure if that is applicable to employee provided insurance.
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Re: Disadvantages of doing trust

Post by bsteiner »

rs9876lg wrote: Thu Oct 31, 2024 9:31 am I would like to get clarification on the "free/default" (we do have to pay taxes on the imputed cost every year during tax time) life insurance that we have through respective workplace. The benefyciary is the other spouse and contigent beneficiaries 50-50 two adult children. It is strongly suggested to have the insurance into life insurance trust but I am not sure if that is applicable to employee provided insurance.
Insurance trusts were common when the estate tax exclusion amount was much lower, and there was no portability. The exlcusion amount was $675,000 as recently as 2001. At that time, most upper middle class clients were rich enough to pay estate tax but poor enough to need life insurance. Even if they weren't comfortable giving away other assets, they were often comfortable giving away their life insurance. So they often created insurance trusts for the benefit of their spouse and issue, or sometimes just for their issue. Group insurance coverage is usually assignable, so they often assigned (gave) their insurance coverage (and their other life insurance) to an insurance trust.

With the current level of the exlcusion amount and portability, very few clients are rich enough to pay estate tax but poor enough to need life insurance, so we haven't created many insurance trusts in recent years. However, we still do some, since (i) some states have an estate tax with a lower exclusion amount and no portability, (ii) some people have high incomes but modest asset and so have large amounts of life insurance, and (iii) there are sometimes other reasons for having life insurance.
Topic Author
rs9876lg
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Joined: Wed Jul 03, 2024 8:48 am

Re: Disadvantages of doing trust

Post by rs9876lg »

Thank you! We do not have other life insurance and will NOT get another insurance once employer provided is no longer there. The amounts of insurance are modest abd we don't need the insurance per se. But knowing that group insurance can be put in trust is useful information.
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