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Revocable Living Trust. Anyone heard of this?

Home Estate Planning Revocable Living Trust. Anyone heard of this?

  • Avatar KPInvestor 
    Participant
    Status: Physician
    Posts: 76
    Joined: 10/16/2017

    “When you set up a typical probate-avoidance revocable living trust, you name yourself as the trustee. That lets you keep complete control over the assets you transfer to the trust. You can put property in the trust, take it out, sell it, or give it away at any time, with no restrictions. As a practical matter, it’s still yours.

    Another reason the law considers you the owner of trust property is that the trust is revocable—that is, you can revoke it at any time. If you did, the assets would once again be in your name.”

    Most likely it will not shield you from creditors. Not sure but YOUR IRA would need to be converted to an inherited IRA by the beneficiary. The trust is now irrevocable. If the terms restricted the control of funds by the beneficiary, then the terms of the trust would prevail. RMD’s or changes? Kids, grand kids, special needs? If the beneficiary controls it, most likely the protection is lost.
    Loss of control sacrificed for asset protection.
    RMD’s available should be the same inside or outside.
    Umbrella insurance might be more cost efficient if it’s a fear of liability. Bad debt is a whole different beast.

    Click to expand…

    Asset protection is not for me, as the grantor will not have any protection, but rather for the beneficiaries.  Umbrella insurance wont help against ex-spouses, which is the biggest concern I would have.  Chances of owing someone a lot of money is fairly low, but chance of divorce seems fairly high.  I linked another article, perhaps you can comment on it and let me know what you think.

    https://www.thetimesherald.com/story/money/business/2016/12/10/trusts-ira-beneficiaries/95196964/

    #175090 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1007
    Joined: 01/11/2017

    “When you set up a typical probate-avoidance revocable living trust, you name yourself as the trustee. That lets you keep complete control over the assets you transfer to the trust. You can put property in the trust, take it out, sell it, or give it away at any time, with no restrictions. As a practical matter, it’s still yours.

    Another reason the law considers you the owner of trust property is that the trust is revocable—that is, you can revoke it at any time. If you did, the assets would once again be in your name.”

    Most likely it will not shield you from creditors. Not sure but YOUR IRA would need to be converted to an inherited IRA by the beneficiary. The trust is now irrevocable. If the terms restricted the control of funds by the beneficiary, then the terms of the trust would prevail. RMD’s or changes? Kids, grand kids, special needs? If the beneficiary controls it, most likely the protection is lost.
    Loss of control sacrificed for asset protection.
    RMD’s available should be the same inside or outside.
    Umbrella insurance might be more cost efficient if it’s a fear of liability. Bad debt is a whole different beast.

    Click to expand…

    Asset protection is not for me, as the grantor will not have any protection, but rather for the beneficiaries.  Umbrella insurance wont help against ex-spouses, which is the biggest concern I would have.  Chances of owing someone a lot of money is fairly low, but chance of divorce seems fairly high.  I linked another article, perhaps you can comment on it and let me know what you think.

    https://www.thetimesherald.com/story/money/business/2016/12/10/trusts-ira-beneficiaries/95196964/

    Click to expand…

    Umbrella protection also offers no defense against professional liability claims.

    Trusts also keep assets out of beneficiary’s estate for estate tax purposes, a rather enormous advantage for the mid seven to lower eight figure estates most successful physicians will be dealing with, as current federal law sunsets the higher estate tax exemption of $11 million (double that for married couples) in 2026. State estate tax exemptions are often far lower. Ours is $2 million, $4 million if married – a very low sum for a successful physician.

    #175092 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3105
    Joined: 09/18/2018

    Divorce protection seems to be the biggest concern.
    This concern only comes into play after you pass away.

    Whether it’s a wife, ex-wife, children or the spouse of a child, yes you can restrict distributions with terms of the trust I suppose. The article is written by an attorney in Michigan. I would simply point out “all assets “ gives me pause” and I think he charges more than a will. Regarding the divorce thing, things like prenups and post nups have been considered by many. Taxes are another consideration.
    It’s one’s own IRA, unless it was a known threat, I personally wouldn’t care. If you wish to include restrictions, it will cost you. The RMD’s are non-issues.
    The article mentions rolling it into the wife’s IRA. That’s outside the trust and in her control. A lot of moving pieces. Every restriction you put in, reduces flexibility of the beneficiaries. If it’s controlled, most likely not protected, divorce or not.
    Specifically which party to which marriage? If it’s worth the price, go for it. I’d run the idea by the divorce attorney too!

    We all see professionals selling services. I don’t buy services out of newspaper articles.

    #175118 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    I read a few articles about this, similar to the one just listed above.  My understanding is that listing trust as primary beneficiary would keep control of funds under trust mgmt, which perhaps is mainly important if beneficiaries are minors, correct?  Meaning that instead of going directly to the minors/guardians, the funds would be distributed to the minor’s name and taxed according to their personal income level, but the funds would be managed by the trust (meaning by the trustee)?

    #175169 Reply
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1007
    Joined: 01/11/2017

    That is correct, but I’m still waiting for ZZZ to explain how one could accomplish the same thing without a trust.

    #175269 Reply
    Liked by Snag75
    Avatar KPInvestor 
    Participant
    Status: Physician
    Posts: 76
    Joined: 10/16/2017

    Divorce protection seems to be the biggest concern.
    This concern only comes into play after you pass away.

    Whether it’s a wife, ex-wife, children or the spouse of a child, yes you can restrict distributions with terms of the trust I suppose. The article is written by an attorney in Michigan. I would simply point out “all assets “ gives me pause” and I think he charges more than a will. Regarding the divorce thing, things like prenups and post nups have been considered by many. Taxes are another consideration.
    It’s one’s own IRA, unless it was a known threat, I personally wouldn’t care. If you wish to include restrictions, it will cost you. The RMD’s are non-issues.
    The article mentions rolling it into the wife’s IRA. That’s outside the trust and in her control. A lot of moving pieces. Every restriction you put in, reduces flexibility of the beneficiaries. If it’s controlled, most likely not protected, divorce or not.
    Specifically which party to which marriage? If it’s worth the price, go for it. I’d run the idea by the divorce attorney too!

    We all see professionals selling services. I don’t buy services out of newspaper articles.

    Click to expand…

    Hey Tim,

    As you can tell, I am very interested in this trust.  So far, I do not see too many negatives.  I actually want someone to talk me out of this because I was always told to never place your retirement beneficiaries as a trust.

    Im trying hard to follow exactly what you are saying but having a hard time.  I can clearly see you are not too fond of this type of trust.  Would you be willing to break down your reasons again so that I could follow your logic.  Perhaps a simple list of the negatives of this type of trust would be appreciated.

     

    #175271 Reply
    Avatar Tim 
    Participant
    Status: Accountant
    Posts: 3105
    Joined: 09/18/2018

    No I won’t break it down. That is for you and your attorney. You want to control your wealth in some form or fashion from current or future divorce risks.
    I “trust” that is confidential and should only be revealed to your attorney. Good luck.

    #175274 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    Divorce protection seems to be the biggest concern.
    This concern only comes into play after you pass away.

    Whether it’s a wife, ex-wife, children or the spouse of a child, yes you can restrict distributions with terms of the trust I suppose. The article is written by an attorney in Michigan. I would simply point out “all assets “ gives me pause” and I think he charges more than a will. Regarding the divorce thing, things like prenups and post nups have been considered by many. Taxes are another consideration.
    It’s one’s own IRA, unless it was a known threat, I personally wouldn’t care. If you wish to include restrictions, it will cost you. The RMD’s are non-issues.
    The article mentions rolling it into the wife’s IRA. That’s outside the trust and in her control. A lot of moving pieces. Every restriction you put in, reduces flexibility of the beneficiaries. If it’s controlled, most likely not protected, divorce or not.
    Specifically which party to which marriage? If it’s worth the price, go for it. I’d run the idea by the divorce attorney too!

    We all see professionals selling services. I don’t buy services out of newspaper articles.

    Click to expand…

    Hey Tim,

    As you can tell, I am very interested in this trust.  So far, I do not see too many negatives.  I actually want someone to talk me out of this because I was always told to never place your retirement beneficiaries as a trust.

    Im trying hard to follow exactly what you are saying but having a hard time.  I can clearly see you are not too fond of this type of trust.  Would you be willing to break down your reasons again so that I could follow your logic.  Perhaps a simple list of the negatives of this type of trust would be appreciated.

     

    Click to expand…

    I’m not sure I’m following either of you.  What “type of trust” are you referring to?  My understanding was that a routine RLT (which becomes irrevokable upon your death), that lists specific beneficiaries, would be able to act as a conduit, as long as the IRA received trust information within a year or so after your death.  This is different from a special IRA trust, correct?

    #175275 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    Btw just saw this in the relevant tax publication (which makes it clear that beneficiaries of a trust will get the money with RMD using life expectancy) about how the IRA can’t be “split” (see “Separate Accounts” section).  I never considered this since my children are minors, but I suppose they could inherit the IRA at any time and continue to get distributions as adults, right?  Didn’t think how this might work once they’re adults and in charge of their own funds.

    Also now I’m wondering, what if it’s a 401K and not IRA?

     

    Separate accounts. A single IRA can be split into
    separate accounts or shares for each beneficiary. These
    separate accounts or shares can be established at any
    time, either before or after the owner’s required beginning
    date. Generally, these separate accounts or shares are
    combined for purposes of determining the minimum required
    distribution. However, these separate accounts or
    shares won’t be combined for required minimum distribution
    purposes after the death of the IRA owner if the separate
    accounts or shares are established by the end of the
    year following the year of the IRA owner’s death.
    The separate account rules can’t be used by beneficiaries
    of a trust.

    #175309 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 617
    Joined: 08/30/2018

    KPInvestor, as JBME and I have mentioned, it would really benefit you to read Chapter 13-17 of the Lange book. Buy the ebook and you can have your answer very quickly. It would take you less than an hour. Lange explains when you would use a trust as you describe with retirement plan assets (much as FIREShrink discuss), why you would generally choose not to (complexity and ability to do many of the same things with primary and secondary beneficiaries), and the very specific ways your lawyer needs to write the trust and work with the holder of your IRA/401K etc to set up the trust as a beneficiary (it has to meet five specific conditions). At the minimum, you will be a better informed consumer. Besides, the book is otherwise pretty good.

    Here is the bottom line from my perspective: You are asking a valid question, but you should only do this if your kids are minors or adults you want to protect and you have some circumstance that suggest your spouse might disclaim the inherited retirement asset. A lot of legal handholding necessary not to screw up the IRA etc. within the trust after your death, which means higher legal fees even assuming your lawyer is good at this particular transaction type. I decided not to do what your are proposing after reading the book, but that is just because the circumstances did not really apply for me.

    #175315 Reply
    Liked by KPInvestor
    Avatar KPInvestor 
    Participant
    Status: Physician
    Posts: 76
    Joined: 10/16/2017

    No I won’t break it down. That is for you and your attorney. You want to control your wealth in some form or fashion from current or future divorce risks.
    I “trust” that is confidential and should only be revealed to your attorney. Good luck.

    Click to expand…

    OKKKAAAYY.  How can my attorney explain to me what you are trying to say?  Its ok thanks for chiming in regardless.

    #175317 Reply
    Avatar KPInvestor 
    Participant
    Status: Physician
    Posts: 76
    Joined: 10/16/2017

    Divorce protection seems to be the biggest concern.
    This concern only comes into play after you pass away.

    Whether it’s a wife, ex-wife, children or the spouse of a child, yes you can restrict distributions with terms of the trust I suppose. The article is written by an attorney in Michigan. I would simply point out “all assets “ gives me pause” and I think he charges more than a will. Regarding the divorce thing, things like prenups and post nups have been considered by many. Taxes are another consideration.
    It’s one’s own IRA, unless it was a known threat, I personally wouldn’t care. If you wish to include restrictions, it will cost you. The RMD’s are non-issues.
    The article mentions rolling it into the wife’s IRA. That’s outside the trust and in her control. A lot of moving pieces. Every restriction you put in, reduces flexibility of the beneficiaries. If it’s controlled, most likely not protected, divorce or not.
    Specifically which party to which marriage? If it’s worth the price, go for it. I’d run the idea by the divorce attorney too!

    We all see professionals selling services. I don’t buy services out of newspaper articles.

    Click to expand…

    Hey Tim,

    As you can tell, I am very interested in this trust.  So far, I do not see too many negatives.  I actually want someone to talk me out of this because I was always told to never place your retirement beneficiaries as a trust.

    Im trying hard to follow exactly what you are saying but having a hard time.  I can clearly see you are not too fond of this type of trust.  Would you be willing to break down your reasons again so that I could follow your logic.  Perhaps a simple list of the negatives of this type of trust would be appreciated.

     

    Click to expand…

    I’m not sure I’m following either of you.  What “type of trust” are you referring to?  My understanding was that a routine RLT (which becomes irrevokable upon your death), that lists specific beneficiaries, would be able to act as a conduit, as long as the IRA received trust information within a year or so after your death.  This is different from a special IRA trust, correct?

    Click to expand…

    I think we might be talking about the same thing.  The only thing I am trying to get at is that it appears a RLT can offer asset protection to beneficiaries and allow RMD calculations based on beneficiary’s age.  If there are major downsides I want to know about them in a clear and concise fashion.  So far I have yet to find any major negatives so I am reaching out to this community to see if anyone has personal experience in this or knowledge.

    #175319 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018
    Earnest refinancing bonus

    Divorce protection seems to be the biggest concern.
    This concern only comes into play after you pass away.

    Whether it’s a wife, ex-wife, children or the spouse of a child, yes you can restrict distributions with terms of the trust I suppose. The article is written by an attorney in Michigan. I would simply point out “all assets “ gives me pause” and I think he charges more than a will. Regarding the divorce thing, things like prenups and post nups have been considered by many. Taxes are another consideration.
    It’s one’s own IRA, unless it was a known threat, I personally wouldn’t care. If you wish to include restrictions, it will cost you. The RMD’s are non-issues.
    The article mentions rolling it into the wife’s IRA. That’s outside the trust and in her control. A lot of moving pieces. Every restriction you put in, reduces flexibility of the beneficiaries. If it’s controlled, most likely not protected, divorce or not.
    Specifically which party to which marriage? If it’s worth the price, go for it. I’d run the idea by the divorce attorney too!

    We all see professionals selling services. I don’t buy services out of newspaper articles.

    Click to expand…

    Hey Tim,

    As you can tell, I am very interested in this trust.  So far, I do not see too many negatives.  I actually want someone to talk me out of this because I was always told to never place your retirement beneficiaries as a trust.

    Im trying hard to follow exactly what you are saying but having a hard time.  I can clearly see you are not too fond of this type of trust.  Would you be willing to break down your reasons again so that I could follow your logic.  Perhaps a simple list of the negatives of this type of trust would be appreciated.

     

    Click to expand…

    I’m not sure I’m following either of you.  What “type of trust” are you referring to?  My understanding was that a routine RLT (which becomes irrevokable upon your death), that lists specific beneficiaries, would be able to act as a conduit, as long as the IRA received trust information within a year or so after your death.  This is different from a special IRA trust, correct?

    Click to expand…

    I think we might be talking about the same thing.  The only thing I am trying to get at is that it appears a RLT can offer asset protection to beneficiaries and allow RMD calculations based on beneficiary’s age.  If there are major downsides I want to know about them in a clear and concise fashion.  So far I have yet to find any major negatives so I am reaching out to this community to see if anyone has personal experience in this or knowledge.

    Click to expand…

    I am suspecting that others are assuming that 1. You have adult children and/or 2. Your trust would name your spouse as primary beneficiary, so it may limit what she can do with the assets, vs if she were named outright, and/or 3. You are talking about a special IRA trust.  Knowing this information about your situation would be helpful so the others can clarify their advice.  Also if spouse would be trustee.

    If your situation IS 1&2 above, then I am not seeing the downside.  If you want spouse to have full control (i.e. roll into their IRA and nothing goes to the kids) then you can 1. Name spouse as primary and trust as contingent, or 2. Name trust as primary, spouse as contingent #1, kids as contingent #2 (if spouse wants to do something else with assets, can have trust “disclaim” the IRA account, then goes to spouse and can take full control), or 3. trust as primary and spouse+kids as contingent (so kids are guaranteed a piece of the pie).

    Issues re: divorce and remarry potential I assume would be the same if spouse was primary, but I’m less familiar with all that.  I assume if your marital status changes, you’d be changing your docs anyway, but if you’re concerned about post-death relationships and less pie for your kids, then that is something to consider regardless, and to me it seems BETTER to have trust named in that case.

    I agree, would be nice to have a clear reason for the downsides, but would help if your situation was more clear so there aren’t wrong assumptions about you’re asking.

    #175321 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8153
    Joined: 01/09/2016
    The only thing I am trying to get at is that it appears a RLT can offer asset protection to beneficiaries and allow RMD calculations based on beneficiary’s age.

    Click to expand…

    Once again, a RLT offers no asset protection. The trust must be IRrevocable.

    You also do not need a trust to allow RMD calculations based upon a beneficiary’s age. That is the default rule for retirement beneficiaries.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #175327 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018
    The only thing I am trying to get at is that it appears a RLT can offer asset protection to beneficiaries and allow RMD calculations based on beneficiary’s age. 

    Click to expand…

    Once again, a RLT offers no asset protection. The trust must be IRrevocable.

    You also do not need a trust to allow RMD calculations based upon a beneficiary’s age. That is the default rule for retirement beneficiaries.

    Click to expand…

    I’m assuming the point of the trust is allocation of assets when OP dies (thus making the trust irrevocable)?

    Agree that RMD is same with direct benes, but then lose the “distribution”-guidance of the trust.  OP just needs to clarify what his/her trust is for (I was assuming giving assets to family if he/she dies).

    #175330 Reply

Reply To: Revocable Living Trust. Anyone heard of this?

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