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The benefits of trusts

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  • Avatar Antares 
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    We are in the process of completing an irrevocable trust. In NY, probate can take 18 months, which would not be good for our dependent children. In addition to the delay, children under 18 can’t inherit directly. We still have a 15 year old. The trust can also be used to provide funds for future disabled beneficiaries. It needs to be funded, but only with a nominal amount (~$500). This sum is below the threshold for any reporting requirements, so there won’t be future work or expenses associated with maintaining the trust until it is fully funded upon our deaths.

    #139062 Reply
    Avatar bean1970 
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    Well said, but then I won’t care. So the reality is that my beneficiaries won’t know if it worked until I died, but I suppose that can be true with anything.

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    that’s my philosophy as well.  As an aside. I did LegalZoom for our trust (which is extremely uncomplicated, one beneficiary and if we outlive him it all goes to charity). I used their lawyers since it came with the $250 package.  now fast forward about 18 months,,,i went to a free dinner on asset protection (i love free and it was at a nice restaurant at the mall…two birds one stone).  The dudes swindled me into full meeting with them (hey i learned a few things, but left it at that). part of their consultation was to review my trust since their team had their own estate attorney.  Long story short he said the trust was one of the best he had seen done in town (and I live in a giant city)…who did it?  well i replied legal zoom and i think he pooped his pants…. The biggest mistake people do in trusts and was mentioned above, is they leave out an intended asset or never fund the trust at all. Empty trusts are useless to a beneficiary. That is followed by just doing stupid things like leaving it all to fluffy the cat or never updating it or re-doing it when you move across state lines to the state specific language, laws or different signatory rules to avoid any invalidities.

    #139064 Reply
    q-school q-school 
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    we sometimes see posters recommend trusts over wills.

    is it correct to say that if you have young children you still would need a will, even with a properly executed trust?

     

    #139082 Reply
    Avatar StarTrekDoc 
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    we sometimes see posters recommend trusts over wills.

    is it correct to say that if you have young children you still would need a will, even with a properly executed trust?

     

    Click to expand…

    Yes,  a pour over will is standard in a trust.

    #139086 Reply
    jfoxcpacfp jfoxcpacfp 
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    we sometimes see posters recommend trusts over wills.

    is it correct to say that if you have young children you still would need a will, even with a properly executed trust?

     

    Click to expand…

    Everybody needs a will. It names the Executor, your children’s guardians, and gives any additional instructions needed for those who will be managing anything left in your estate. It is doubtful you are going to leave everything to your trust (such as your furniture, car, etc). You will probably have specific bequests in your will such as sentimental belongings and jewelry that you want to leave to special people who are not listed as trust beneficiaries.

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

    #139087 Reply
    jfoxcpacfp jfoxcpacfp 
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    If you do not have a will, you are said to die intestate, and someone will have to apply to the court to be executor and handle these details.

    Plus, if you die before your spouse, do you really want him/her to have to deal with a trust for everything they inherit for the rest of their lives? 1/2 of the house in the trust, 1/2 of the house outside the trust, and so forth?

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

    #139089 Reply
    Avatar bean1970 
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    we sometimes see posters recommend trusts over wills.

    is it correct to say that if you have young children you still would need a will, even with a properly executed trust?

     

    Click to expand…

    only a will can appoint a guardian for minor children. So if a person has minors, a will is a priority.  Assets can be distributed via a will or a trust…it just matters if you want 1) privacy (trust) 2) avoid probate (trust) and 3) better control (trust).

    as mentioned, if one has a trust, generally the will is called a “pour over”, to capture any assets accidentally or intentionally (possessions, etc) left out of the trust…but it still appoints guardians for minors.

    the other reason to have a will, even if you had adult children and a trust, is you really want to have an official probate process…just very short, cheap as possible, without assets tied up. You want your estate legally open and then closed by the state. once it is closed, any long lost creditors and relatives are out of luck. Without a will you are stuck with the intestate process and your estate could be open for much longer.

    #139092 Reply
    Liked by q-school, rdo
    Avatar AlexxT 
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    A properly structured Revocable Living Trust should include the evil-Step-mother situation.  This happens with spouse #1 passes and locks in the proceeds to the named Beneficiaries.

    Click to expand…

    I might be wrong, but I think you need a Qtip trust for that.   If I remember correctly, while the typical A-B marital trust will pass half the estate to the kids, the part that belongs to the surviving parent might eventually go to the step-parent.  A Qtip trust avoids that problem.

    Maybe someone could confirm or correct me on that.

    #139302 Reply
    Avatar Dont_know_mind 
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    The more I learn about trusts the more I think they are very nebulous. They are only a legal document outlining the relationship between the trustees and beneficiaries.

    The longer assets are held in them, the more tenuous they seem to me. But over time the assets become more and more valuable. Take for example a testamemtary trust created on your death. Say the trust is active in 20 years. Your children will go to what the trust is about. They will find the trust was created from your will. Your will, which may be a basic component of the trust deed, may no longer exist or the ink may have conpletely faded. Who or what then owns the asset ? If the ink on the trust deed or will has faded or the deed or will is lost. If you are dead, the person who witnessed you signing the trust deed and whoever set up the trust for you are all dead, then who can clarify these issues ? Trusts can in theory be long living (up to 80 years in some jurisdictions) but practically it is a difficult structure.

    I am thinking of asking my parents to bequeath my portion of any estate to my children (who are minors) rather then myself. I am trying to find out if this has a tax benefit. Generally though, I find trusts unsettling. I have one that is 13 years old. Some days I think they are ok. Other days it freaks me out somewhat. First is the nebulous nature of it. Second is that regulatory authorities often change the way they tax trusts depending on the politics of the day. Making it potentially more prone to tax risk than other structures. Then there is always the question of who owns the trust (or trust company), and if that is not clear, what actually owns the assets which could be worth 10’s of millions in 20 years time, if things are successful.

    #139408 Reply
    jfoxcpacfp jfoxcpacfp 
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    The more I learn about trusts the more I think they are very nebulous. They are only a legal document outlining the relationship between the trustees and beneficiaries.

    The longer assets are held in them, the more tenuous they seem to me. But over time the assets become more and more valuable. Take for example a testamemtary trust created on your death. Say the trust is active in 20 years. Your children will go to what the trust is about. They will find the trust was created from your will. Your will, which may be a basic component of the trust deed, may no longer exist or the ink may have conpletely faded. Who or what then owns the asset ? If the ink on the trust deed or will has faded or the deed or will is lost. If you are dead, the person who witnessed you signing the trust deed and whoever set up the trust for you are all dead, then who can clarify these issues ? Trusts can in theory be long living (up to 80 years in some jurisdictions) but practically it is a difficult structure.

    I am thinking of asking my parents to bequeath my portion of any estate to my children (who are minors) rather then myself. I am trying to find out if this has a tax benefit. Generally though, I find trusts unsettling. I have one that is 13 years old. Some days I think they are ok. Other days it freaks me out somewhat. First is the nebulous nature of it. Second is that regulatory authorities often change the way they tax trusts depending on the politics of the day. Making it potentially more prone to tax risk than other structures. Then there is always the question of who owns the trust (or trust company), and if that is not clear, what actually owns the assets which could be worth 10’s of millions in 20 years time, if things are successful.

    Click to expand…

    You need a good estate planning attorney and a good financial planner to work with you on this. Depending on the assets your parents have, there will be GST implications of their passing assets to their grandchildren.

    Trusts are not nebulous, unless done improperly. What I have found is that the money inherited by 18-year-olds is extremely nebulous (even by 25 year olds and up). That is why a good trust has conditions in place to allow the trustee wide latitude in making distributions and why many trusts have laddered distribution schedules (i.e. child gets 1/3 of the principle at age 25, 1/2 the remainder at age 35, and the remainder at age 45). I have seen this happen in my own family and in clients’ families. You may know your children, but you sure don’t know who they are going to hang out with or marry.

    A good trust is one of the bedrocks of asset protection. Don’t overlook the value.

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

    #139440 Reply
    Avatar Dont_know_mind 
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    The more I learn about trusts the more I think they are very nebulous. They are only a legal document outlining the relationship between the trustees and beneficiaries.

    The longer assets are held in them, the more tenuous they seem to me. But over time the assets become more and more valuable. Take for example a testamemtary trust created on your death. Say the trust is active in 20 years. Your children will go to what the trust is about. They will find the trust was created from your will. Your will, which may be a basic component of the trust deed, may no longer exist or the ink may have conpletely faded. Who or what then owns the asset ? If the ink on the trust deed or will has faded or the deed or will is lost. If you are dead, the person who witnessed you signing the trust deed and whoever set up the trust for you are all dead, then who can clarify these issues ? Trusts can in theory be long living (up to 80 years in some jurisdictions) but practically it is a difficult structure.

    I am thinking of asking my parents to bequeath my portion of any estate to my children (who are minors) rather then myself. I am trying to find out if this has a tax benefit. Generally though, I find trusts unsettling. I have one that is 13 years old. Some days I think they are ok. Other days it freaks me out somewhat. First is the nebulous nature of it. Second is that regulatory authorities often change the way they tax trusts depending on the politics of the day. Making it potentially more prone to tax risk than other structures. Then there is always the question of who owns the trust (or trust company), and if that is not clear, what actually owns the assets which could be worth 10’s of millions in 20 years time, if things are successful.

    Click to expand…

    You need a good estate planning attorney and a good financial planner to work with you on this. Depending on the assets your parents have, there will be GST implications of their passing assets to their grandchildren.

    Trusts are not nebulous, unless done improperly. What I have found is that the money inherited by 18-year-olds is extremely nebulous (even by 25 year olds and up). That is why a good trust has conditions in place to allow the trustee wide latitude in making distributions and why many trusts have laddered distribution schedules (i.e. child gets 1/3 of the principle at age 25, 1/2 the remainder at age 35, and the remainder at age 45). I have seen this happen in my own family and in clients’ families. You may know your children, but you sure don’t know who they are going to hang out with or marry.

    A good trust is one of the bedrocks of asset protection. Don’t overlook the value.

    Click to expand…

    Good points Johanna. I use trusts and have them in my will also.

    I do wonder whether they are as straightforward as people think. I only have experience with property trusts that I still control in a living state. As an entity, I feel it is less solid than a company or individual holding, but the latter 2 may have more risk if litigated and also tax issues specific to the structure.  In some jurisdictions property cannot be held by a trust on tittle so the tittle is the trustee. That is my main gripe with trusts as far as property goes.

    They do add a layer of fees and complexity. Hard to avoid with wills I presume. I wonder whether the trustee is the main thing with Testamentary trusts. You have to give them latitude to administer and take into account possible unforeseen situations. It depends on how tightly you want to spell that out but I imagine it could have unintended consequences if not thought out carefully in terms of being too strict or lax.

    I don’t want to cause too much extra stress on whoever has to be executor on my will. I don’t have that many assets in my own name actually, so I am not even sure if setting up a testamemtary trust at death would be worthwhile. I was even thinking of putting a clause in the will about the executor having discretion to set up testamemtary trusts or not.

    What I didn’t realise initially is that a will is very important for the guardianship of minors. I think I underestimated the possible guardians and put in too few options when I did my will initially. I had to then revise it to include further possibilities if the ones nominated declined.

    I wonder if anyone has experience with being trustee for a testamemtary trust and what the practical issues or difficulties they found were.

    #139670 Reply
    Avatar AlexxT 
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    What I didn’t realise initially is that a will is very important for the guardianship of minors. I think I underestimated the possible guardians and put in too few options when I did my will initially. I had to then revise it to include further possibilities if the ones nominated declined. I wonder if anyone has experience with being trustee for a testamemtary trust and what the practical issues or difficulties they found were.

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    Being an executor and trustee can be overwhelming for most people, even those with financial experience.  For family members, it’s probably more than they can handle.

    I read up on this and discussed it with my attorney.  Originally I had my sibling(s) as trustees and guardians.  While I think that my siblings are honest, I know that they are clueless about managing money ( they have savings, I have directed them to index funds, but they are not really reliable ).  So at the direction of my attorney, I met with a trust officer at Boston Private Bank recommended by the lawyer.  I was very impressed.  There’s no cost unless and until they are needed ( ie both parents are dead and kids are under 30-35, when they inherit ).  They do a lot of hands on supervision,disbursement, and hand holding.  Once they take over, it’s a sliding AUM fee of around 1%, which aggravates me, but they won’t work for free.

     

    #139697 Reply
    Avatar StarTrekDoc 
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    A properly structured Revocable Living Trust should include the evil-Step-mother situation.  This happens with spouse #1 passes and locks in the proceeds to the named Beneficiaries. 

    Click to expand…

    I might be wrong, but I think you need a Qtip trust for that.   If I remember correctly, while the typical A-B marital trust will pass half the estate to the kids, the part that belongs to the surviving parent might eventually go to the step-parent.  A Qtip trust avoids that problem.

    Maybe someone could confirm or correct me on that.

    Click to expand…

    You’re right about the A-B Trust on timing; it still can structure to keep it out of the Step-Parent too (and step-children, IF the surviving parent so chooses).  At the very least 50% is protected from the initial spouse’s passing, which is reasonable IMHO as social situations can fluctuate with remarriage and assets shift because of that.   We’re in a typical AB trust setup.

    #139702 Reply
    Avatar AlexxT 
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    We’re in a typical AB trust setup.

    Click to expand…

    I have a typical AB, but the language setting up the trust allows for the marital trust to be set up as a q-tip at that time to protect the surviving spouse’s assets from the new spouse.

    But who will protect the new spouse?

    Old joke:  A man is at a grave, on his knees, crying out “why did you have to die , why did you have to die “.   A passer-by asks, ” Is that your wife’s grave”.  The man answers, “No, it’s the grave of my wife’s first husband”.       { Rim shot }

    #139704 Reply
    q-school q-school 
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    And what about new spouse’s kids?
    And what if your kids get divorced, what about those kids?

    #139706 Reply

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