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Living trust or Will?
Old 02-17-2014, 04:15 PM   #1
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Living trust or Will?

We have a living will which we did ourselves. Now that we are close to
retirement, we thought about updating it with a Living Trust. We spoke
with a general family attorney and she said, that since our asset is more
than 500K, it is better to talk with an attorney that specialized in Living trust or estate? I did not think that this is so complex. She said that this trust will minimize my heir with taxes! It will avoid probate, etc.
Any opinions?
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Old 02-17-2014, 04:22 PM   #2
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For that asset level an RLT can make sense. Finding a competent attorney who can prepare a comprehensible RLT in less than a year can be the toughest part. I suggest you do not pay 100% of the fee up front, but rather reserve some % until the documents are signed.
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Old 02-17-2014, 04:24 PM   #3
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Quote:
Originally Posted by Birchwood View Post
We have a living will which we did ourselves. Now that we are close to
retirement, we thought about updating it with a Living Trust. We spoke
with a general family attorney and she said, that since our asset is more
than 500K, it is better to talk with an attorney that specialized in Living trust or estate? I did not think that this is so complex. She said that this trust will minimize my heir with taxes! It will avoid probate, etc.
Any opinions?
A living will specifies your medical wishes should you become incapacitated.

There are benefits to both a will/probate approach and the (living) trust (RLT) approach.

The living trust, is a revokable trust you (and perhaps a spouse) control while you are alive that specifies who gets what when you die. If your assets are small and most things go to the spouse then a will may be the right way to go.

As your attorney states - a trust avoids probate but is somewhat costly up-front. A will goes through probate but since your estate is small the probate fees will be modest. Note that many banks/mutual funds have their own stated benificiaries. In those cases those assets pass directly to the benificiaries outside of probate. You can also title your house such that the spouse will retain full ownership when you go.

There are no estate taxes unless the estate is larger than $5.34MM (in 2014 and grows with inflation after that). So keep that in mnd when the attorney suggests the heirs will have to pay estate taxes. The surviving spouse has an unlimited deduction on estate taxes. Therefore, for normal eastates, t's only after the last spouse dies that estate taxes come into play.

If you have (successor trustee) relatives that are ethically challenged and may seek to cheat others to their own benefit then a will/probate is the way to go. A will/probate is court supervised. A trust is not supervised. There are no trust police to stop dishonest trustees.

A trust is private. That keeps your affairs out of the limelight/. A will/probate is kind of public and out in the open.

A trust is (arguably) the harder estate to administer compared to a normal probate and will estate.

My personal opinion is that living trusts are oversold by the "trust-mills" that get income from setting up trusts. For many people of modest means a normal will/probate is the better way to go (in my opinion).

For large estates or estates with complex issues a trust is the way to go.

As always there are some things that make estate distribution tricky. Should you have any special situations you should consult qualified legal resources.
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Old 02-17-2014, 04:58 PM   #4
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There are no estate taxes unless the estate is larger than $5.34MM (in 2014 and grows with inflation after that). So keep that in mnd when the attorney suggests the heirs will have to pay estate taxes.
Keep in mind that the current limit could change as the political tides ebb and flow. And some states have their own estate taxes separate from federal tax. So if you find that a trust may have benefits down the road should the tax laws change, it may be something to consider.

My partner and I just completed our entire estate planning documents, including a living will. We transferred our home and brokerage accounts into the trust. Just to move my Vanguard account into the trust required filling out 26 pages of forms and four notary signatures. We both maintain POD status on our accounts, but the trust keeps our estate out of probate should we both die at the same time and leave an estate behind to successor heirs.
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Old 02-17-2014, 05:09 PM   #5
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Keep in mind that the current limit could change as the political tides ebb and flow. And some states have their own estate taxes separate from federal tax. So if you find that a trust may have benefits down the road should the tax laws change, it may be something to consider.

My partner and I just completed our entire estate planning documents, including a living will. We transferred our home and brokerage accounts into the trust. Just to move my Vanguard account into the trust required filling out 26 pages of forms and four notary signatures. We both maintain POD status on our accounts, but the trust keeps our estate out of probate should we both die at the same time and leave an estate behind to successor heirs.
That's true everything can change with the whim, of congress. However a RLT trust does not exempt you from estate taxes. There is no benefit in that sense. Should comgress decide to increase taxes you (and your beneficiaries) will suffer just like everyone else.

So called A-B trusts can preserve more of the estate tax exclusion (both spouses full amount) to pass on to children/grandchildren. But your normal RLT will not do that.

You don't have to put your brokerage accounts into the trust. Just use a pour-over will to have the assets go into the RLT upon your death.

Quote:
Just to move my Vanguard account into the trust required filling out 26 pages of forms and four notary signatures
What a pain ! And exactly my point on why for people of modest means a trust may not be the way to go. Should you need to change anything down the road get ready to do it all again !
Quote:

We both maintain POD status on our accounts, but the trust keeps our estate out of probate should we both die at the same time and leave an estate behind to successor heirs
mutual fund accounts are paid to beneficiaries outside of probate. Some bank accounts are as well.
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