churroParticipantStatus: PhysicianPosts: 5Joined: 07/23/2019
We previously set up a relatively simple Will with an estate planning attorney that names a trustee and sets aside an equal share of assets to each of our young children into irrevocable trusts (and one of these trusts is a special needs trust) in the event that both my spouse and I were to perish together. I don’t understand this well enough to know why this was recommended by the attorney, and it was several years ago when we did it, but I’m reading on WCI about revocable living trusts and wondering if that might be better? We also don’t actually have these trusts set up yet, and reading through some of the threads it seems that many of you all have already had the trusts established. I don’t necessarily feel the need to set up the trusts now unless it’s necessary or beneficial in some way, as our goal at this point in time would be to plan for a catastrophe such as if we were to both perish together somehow since we are a young couple with four young children, one of which has special needs. Does it seem reasonable to just have the Will establish these irrevocable trusts? Or do we need to proactively have these trusts already established? Our life insurance policies’ contingent beneficiaries all list the trusts established under the will of the insured. At this point I just would want to make it simple for our executor/trustee and make sure that all the kids get the assets protected appropriately. If I was supposed to have gone and established these trusts after signing the Will, it will be frustrating to hear it that given that we weren’t told to do this already but better late than never. I’m overall happy with the Will which was all very professionally written, I am just left with questions now as I’m reading through WCI content and forums. Either way I am sure we will revisit the Will and the trust situation when we are older and the kids are not minors. Just wanted to get a few thoughts on this – thanks in advance.August 11, 2019 at 6:40 pm MST #238177jfoxcpacfpModeratorStatus: Financial Advisor, Accountant, Small Business OwnerPosts: 7958Joined: 01/09/2016
First of all, the default recommendation of (impo) most E&T attorneys advising HIPs is an RLT. It’s similar to how most CPAs recommend S-corps for side hustles and SEPs as the retirement plan for same (if it even crosses their minds).
In some states, it is appropriate (NY being Exhibit A) but in most, it is not. Estate planning is a very individual and personal process. I will leave it to the actual attorneys participating here to weigh in, but this is one situation I strongly recommend working with an experienced CPA or CFP who will give practical advice, not just fall back on the herd mentality. And who will work proactively with your E&T attorney as a team.
iow, I am just giving general advice and there are too many issues and potential consequences at play for me to give you a specific opinion. But I am sure others will have thoughts, experiences, and recommendations.spiritriderParticipantStatus: Small Business OwnerPosts: 1869Joined: 02/01/2016
I couldn’t agree more with @jfoxcpacfp. RLT recommendations by estate lawyers are akin to S-Corp recommendations CPAs provide for physician side hustles. Their default recommendations are without a detailed examination of the specific facts and circumstances. Often they are unnecessary.
However, you sound like you have one of the good ones. Unless I am misunderstanding, you are probably describing what is known as a “Testamentary Trust”. This trust is included as part of your will and like an RLT becomes irrevocable upon your death. However, unlike an RLT or “Inter Vivos Trust”, it is not actually created and funded until after your death. You can’t create these trusts even if you wanted to.
Given your professed goals, a testamentary trust was probably the right prescription. In most cases you can name the trusts as beneficiaries of life insurance policies and retirement accounts. You can name the trusts as TOD recipients of financial accounts. All of the above will avoid probate, so the value of a RLT is limited.
As pointed out by @jfoxcpacfp, probate of other assets is relatively painless and inexpensive in most states. RLTs are generally only beneficial in limited complex and expensive probate states.
If you have a special needs child, you may want to consider a currently funded Inter Vivos special needs trust and/or if they meet the disabled requirements an ABLE account.churroParticipantStatus: PhysicianPosts: 5Joined: 07/23/2019
Thank you so much @jfoxcpacfp and @spiritrider. These are exactly the kind of comments that I was looking for, and both have helped me to sort out the situation. I remember now the terminology the attorney used, and yes these are testamentary trusts as @spiritrider describes. This estate plan is what we were basically asking to have set up since these trusts will be created at death and will allow the children to have permanent ownership to their portions of our assets and LI policies. For our special needs child, we do have an ABLE account but don’t current have a revocable special needs trust, so that’s something I can look into in the future. Thanks again!StarTrekDocParticipantStatus: PhysicianPosts: 1966Joined: 01/15/2017
ABLE account is nice, but we setup an IRREVOCABLE trust for our SN child and pointed all our family to it in case they wanted to do something for him and not accidentally gift him anything directly — this would mess up all his mediCAL and disability things as owned assets and probably would be clawed back to the State.
We have a RLT that pours into the IRREVOCABLE upon our death for his portion of the trust.
This is where a good estate lawyer with understanding of SN laws is worth their weight and time.August 12, 2019 at 4:01 pm MST #238404