Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
best way to protect assets from estate taxes
Old 02-22-2011, 12:22 PM   #1
Full time employment: Posting here.
 
Join Date: Jan 2010
Location: dubuque
Posts: 618
best way to protect assets from estate taxes

I was posting on another forum about estate taxes and whether they were fair or not. I was just curious about how some people protect their estate. do you use a trust or a will. what other methods would be useful?
__________________

__________________
frank is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-22-2011, 12:47 PM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,103
"best way to protect assets from estate taxes"?

Simple - I plan to do a 'reverse Don Pardo' and leave no parting gifts.
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Old 02-22-2011, 12:55 PM   #3
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Frank:

A trust or will does nothing to prevent estate taxes. They just insure that your designated heirs get what's left over.

For estates smaller than the estate tax exemption I don't see the advantage of a trust.
__________________
MasterBlaster is offline   Reply With Quote
Old 02-22-2011, 01:08 PM   #4
Confused about dryer sheets
 
Join Date: Feb 2011
Location: Brandon
Posts: 1
I would read a few recent books about estate planning and taxes before making a decision and contacting a lawyer who specializes in trusts. Although I would definately urge you to consider a trust such as an AB trust. Taxes are not avoided by a trust but probate fees to lawyers and courts are unavoidable in a will and which can cost $1000s more than establishing a trust for $500-$2000.00. There are problems with wills in which your intent in your will can be overridden by joint rights of survivorship issues. There is a myriad of other problems with just leaving a will so look into it. Estate planning is complex but actually interesting (especially if you read real life examples from celebrity wills etc.) Good luck.
__________________
ds13961 is offline   Reply With Quote
Old 02-22-2011, 01:17 PM   #5
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
The downside of a trust is that the executor does all the liquidation in private. Should an executor be ethically challenged, then a less than fair distribution of assets may take place.

At least with probate you get a court-supervised distribution of assets.

And for modest estates the difference in fees is modest.

For most modest estates, in my opinion, the normal probate procedure can work quite well.
__________________
MasterBlaster is offline   Reply With Quote
Old 02-22-2011, 01:23 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,384
Many people on the board love estate taxes (or perhaps just love them for others? Others with either estates or kids?) So I wouldn't expect a lot of estate tax expertise around here.

Ha
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 02-22-2011, 01:38 PM   #7
Recycles dryer sheets
 
Join Date: Jul 2010
Posts: 255
Some estate tax can be avoided by a simple A-B Trust. The arrangement preserves the unified lifetime credit of the pre-deceased spouse while providing the surviving spouse limited access to the funds in the irrevocable trust that is created upon the death of the first spouse. The access to funds is limited to health, education, maintenance and support. You will need to talk to an attorney that specializes in trusts and estates because there are many potential pitfalls and state considerations as well.

There are many more ways to reduce estate taxes using trusts that range from the relatively simple to the downright exotic with questionable acceptance by the IRS.
__________________
SunsetSail is offline   Reply With Quote
Old 02-22-2011, 02:46 PM   #8
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,617
Quote:
Originally Posted by frank View Post
I was posting on another forum about estate taxes and whether they were fair or not. I was just curious about how some people protect their estate. do you use a trust or a will. what other methods would be useful?
I'm with REWahoo. I'll be dead, so I won't care, and we'll probably have spent it all anyway.

We looked into revocable living trusts, mainly as a means of a long-term POA for medical crises, but the expense and maintenance isn't much better than probate. Oh, wait, I personally won't be going through probate, so maybe there's no need to go through a RLT either.

Spouse and I finally made wills with A/B trusts just because it was part of the package. Otherwise I doubt we'll ever be subject to the estate tax and probate won't be too taxing on our heir.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 02-22-2011, 03:23 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
In my experience the advantage of a trust while you are living is that the trustees you designate can easily pay your bills and manage your finances when the time comes that you cannot. They do not need to ask a court's permission to do that.

Just like a will you specify how you want any residue disbursed after you pass away. In some states all persons named in the trust receive a copy of the trust at your passing. If you state that the named individuals receive a % then the trustee must provide the heirs a financial statement. [There is an advantage to setting a specific amount for troublesome heirs for that reason.]

For people with substantial assets estate tax maneuvers can be included in the trust's design.

Having our parent's assets in trusts really helped us manage their affairs.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 02-22-2011, 03:26 PM   #10
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Quote:
Originally Posted by Brat View Post
In my experience the advantage of a trust while you are living is that the trustees you designate can easily pay your bills and manage your finances when the time comes that you cannot. They do not need to ask a court's permission to do that.

Just like a will you specify how you want any residue disbursed after you pass away. In some states all persons named in the trust receive a copy of the trust at your passing. If you state that the named individuals receive a % then the trustee must provide the heirs a financial statement. [There is an advantage to setting a specific amount for troublesome heirs for that reason.]

For people with substantial assets estate tax maneuvers can be included in the trust's design.

Having our parent's assets in trusts really helped us manage their affairs.
You refer to two separate things. A trustee for your estate trust is not someone with power of attoney (when you are still livingt) and vice versa. They can be the same person but do not have to be. Either one of them is at your option.
__________________
MasterBlaster is offline   Reply With Quote
Old 02-22-2011, 03:52 PM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
I was discussing revocable living trusts:

A trustee, if the trust documents so state, can manage all the assets titled in the name of the trust. The trustee is acting as a trustee under the terms of a trust, a power of attorney is not necessary. A power of attorney is needed for assets outside the trust. Agencies such as Social Security may have their own power of attorney paperwork.

At the death of the last grantor trustee the trust becomes irrevocable and the trustees must apply for a tax ID. The trustee/s continue to be able to manage the trust assets under its terms. A power of attorney expires at the death of the grantor and anything outside the trust must be managed under the terms of a will.

We have always titled our RE in our trust. Sometimes it is necessary to pull it out of the trust at sale, it really depends on local practice. We didn't, but it did require more pieces of paper to do the job.

IRAs can't be put in a trust but you can authorise someone to act on your behalf to manage the account. The IRA custodian will ask you to name who you want to receive it when you die.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 02-22-2011, 05:25 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
Quote:
Originally Posted by frank View Post
I was posting on another forum about estate taxes and whether they were fair or not. I was just curious about how some people protect their estate. do you use a trust or a will. what other methods would be useful?
Frank...estate taxes will only be a problem if your assets are above the exemption. The exemption ( Unified Tax Credit.) is currently set at 5 million. Back in 2001 it was $600,000...so you see there has been a huge jump from then to now. Congress can also change that amount in future years.
So..I'd recommend staying on top of what the exemption amount is.
Second...if your assets exceed the exemption....start gifting your money away to your children or whoever else you'd like. You are able to "gift" $13,000 a year to anyone for any reason. You and a wife together may gift $26,000 a year. So "gifting" is way to get some of it into the hands of your heirs and reduces the value of your estate that may be hit with estate taxes.
I don't know your situation...but for anyone with assets over 5 million (or less since we don't know what the exemption will be), I'd definitely recommend becoming knowledgable about trusts.
For gross estates convincingly over the 5 million right now...you can't avoid all estate taxes...but you can minimize thru gifting and delay them thru trusts.
Another example: If you have life insurance..consider putting it in an irrevocable life insurance trust. Why? When it is in this type of trust, the insurance proceeds are not includable in the gross estate. But one must make sure they want it in an IRREVOCABLE vehicle...because....well...it is irrevocable.
__________________
sheehs1 is offline   Reply With Quote
Old 02-22-2011, 05:29 PM   #13
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
...and to make sure I'm clear on the gifting thing...you are not limited to one gift of $13,000 or with your wife of $26,000. You can give that to any number of people you want...each year...every year. For ex: you and your wife could gift $26,000 to 5 people a year which totals $130,000 a year.
__________________
sheehs1 is offline   Reply With Quote
Old 02-22-2011, 06:29 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
youbet's Avatar
 
Join Date: Mar 2005
Location: Chicago
Posts: 9,965
Quote:
Originally Posted by sheehs1 View Post
Congress can also change that amount in future years.
And Congress will continue to change the rules periodically to maximize the profitability of the estate planning industry and the lawyers/CPA's and others who work in it.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
youbet is offline   Reply With Quote
Old 02-23-2011, 10:25 AM   #15
Full time employment: Posting here.
 
Join Date: Jan 2010
Location: dubuque
Posts: 618
lots of good info here. What I was more concerned with than taxes was who would get what and how to insure it happens the way I want it to. sounds like some of the simpler trusts might be worth looking into.
__________________
frank is offline   Reply With Quote
Old 02-23-2011, 10:31 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
Remember you can always amend the trust, even changing the trustees, if need be. You determine the 'need'.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 02-23-2011, 11:03 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
Frank....The title of your thread indicated it was about estate taxes. Be that as it may...a will can achieve the same thing as a trust. You don't need a trust to route your assets where you want them. Lots of good reasons for trusts.
1. Privacy - wills are filed with the courts and become open to the public. Any Jo blow can go to the courthouse and find out your assets as well as who got what. Many would like for this information to remain private and use a trust to do so. Trust are not recorded at the court house. Of course by the time you have to give a copy to every bank in the area...some of the "word" is out. Still...a trust can protect privacy to some degree.
2. Immediacy - Assets placed in trust do not have to clear probate before you can do something with them. Useful in the event there is property to sell...etc.
3. Marital trust are particularly useful for many reasons.
- one spouse may not want the other spouse to permanently end up with his
or her assets...but would like that spouse to be able to enjoy any income
produced from said trust during their life. At the death of the 2nd
spouse...said assets will be routed based on the wishes of the first spouse.
(I'm sure their was an easier way of say that - LOL!)
The cons...incude but are not limited to....
- having to file tax returns each year for a trust.(since it is it's own legal entity) ..so it potentially increases accounting cost...depending.
- a Trustee must follow prudent man statutes....so assets may or may not grow to the extent otherwise possible....outside of a trust.
- selecting the trustee and alternate trustees is a pain ...for many. Who do you trust that long to administer it properly. ?
- Trustees can collect trustee fees...which can reduce the income to a fairly significant degree. Last I knew it was something like .06% principle asset base and 5% of income....EACH YEAR. Depending on assets and income generating ability this can become significant. Lower then executor fees...but with a trust...can go on for years depending on ow it is structured...

Just a few things to think about. Good luck...!
__________________
sheehs1 is offline   Reply With Quote
Old 02-23-2011, 11:48 AM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Brat's Avatar
 
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 5,914
Quote:
Originally Posted by sheehs1 View Post
The cons...incude but are not limited to....
- having to file tax returns each year for a trust.(since it is it's own legal entity) ..so it potentially increases accounting cost...depending.
- a Trustee must follow prudent man statutes....so assets may or may not grow to the extent otherwise possible....outside of a trust.
- selecting the trustee and alternate trustees is a pain ...for many. Who do you trust that long to administer it properly. ?
- Trustees can collect trustee fees...which can reduce the income to a fairly significant degree. Last I knew it was something like .06% principle asset base and 5% of income....EACH YEAR. Depending on assets and income generating ability this can become significant. Lower then executor fees...but with a trust...can go on for years depending on ow it is structured...

Just a few things to think about. Good luck...!
You don't need a tax ID for a revocable living trust, you use the grantor's SSN.

If you ask a financial institution, attorney or CPA to be your residual trustee (you manage the trust yourself as the grantor trustee, just as you would an IRA, until you pass off the responsibility) then they are entitled to a fee. In our case we managed our parents trusts for no fee when they could no longer do so. Each month I sat down with my mother when she was in a nursing home and showed her the bills and her investments. Often I asked her to sign the checks. She ran a business and was a smart cookie, and was entitled to respect.

And yes, it is a long lived document. A person named in one of the trusts became disabled and was on SSI so the trust had to be amended to provide for a special needs trust for that person. Had the grantor trustee anticipated that a provision to create such a trust could have been included.

Meet with an attorney in your area who has experience in estate planning, they are the experts. If you change states of residency have an attorney in that state review the document (and your other estate planning documents) to make sure that it squares with that state's laws.
__________________
Duck bjorn.
Brat is offline   Reply With Quote
Old 02-23-2011, 12:32 PM   #19
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
Quote:
Originally Posted by Brat View Post
You don't need a tax ID for a revocable living trust, you use the grantor's SSN.
True...until the grantor passes away. That is what I was referencing....
__________________
sheehs1 is offline   Reply With Quote
Old 02-23-2011, 12:35 PM   #20
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Posts: 1,649
Quote:
Originally Posted by Brat View Post

If you ask a financial institution, attorney or CPA to be your residual trustee (you manage the trust yourself as the grantor trustee, just as you would an IRA, until you pass off the responsibility) then they are entitled to a fee. In our case we managed our parents trusts for no fee when they could no longer do so.

Meet with an attorney in your area who has experience in estate planning, they are the experts. If you change states of residency have an attorney in that state review the document (and your other estate planning documents) to make sure that it squares with that state's laws.
All trustees are entitled to take the fee whether professional or a family members. Family members may elect not take the fee but can. The trustee in our family took the fee - so did the family named executor.
__________________

__________________
sheehs1 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Estate vs Gift Taxes moguls FIRE and Money 16 09-25-2010 12:17 AM
Buffett on estate taxes Nords Stock Picking and Market Strategy 122 11-26-2007 10:26 AM
Report finds residential real estate underperforms other assets Spacebär FIRE and Money 41 02-19-2007 04:39 PM
Estate taxes Nords FIRE and Money 115 12-16-2006 08:50 AM
incorporate to protect assets? TallCotton Other topics 52 05-23-2005 09:56 PM

 

 
All times are GMT -6. The time now is 05:21 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.