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Old 04-01-2016, 05:03 AM   #21
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If your state has an estate tax, a trust can also help preserve the estate tax exemption at the state level for the first spouse to die where most states do not have portability which is available at the federal level.
we had a disclaimer trust in place which protected us from ny's estate tax . the beauty of a disclaimer trust is the surviving spouse has 9 months after death to elect to split the estate in half with irrevocable trusts .

as of today though ny went to 4 million as a threshold so thankfully we no longer need to worry about activating the trusts effectively cutting each other off from 1/2 the assets .

once the trust is activated by law a spouse gets only the gains a year plus 5% of principal .

crappy way to live but in ny we had an estate tax cliff .

if you went over the years limit by 10% you just didn't pay on the overage , you lost every thing as far as an exclusion and taxes were due from dollar one .

most tax planning and medicaid planning can only use irrevocable trusts
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Old 04-01-2016, 07:47 AM   #22
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Making an error while engaging in estate planning has the potential to completely undermine everything you are trying to accomplish (it can also create a nightmare for your heirs if you do it incorrectly). I just went through a rather exhaustive estate planning exercise and strongly recommend not taking any action without reading this book or one like it (I read it twice before going forward):

Plan Your Estate - Legal Estate Planning Book - Nolo
Thanks I downloaded the book from the library. And you are quite right about the pitfalls. DW and I have trusts designed to ultimately direct the estate to our kids while enabling the survivor to use the proceeds to maintain standard of living until he second death. A well regarded estate attorney at DW's big deal firm put the initial plan together and recommended that we split our assets up as much as possible with an eye to potential future changes in estate tax limits. That way if we got past the limit in total the first to die might be able to slide past with a lower amount. He had us divvy things up including the houses and set the 401K designations to the trust. Several years later I discovered that DC is unusual in its estate tax limits -- they do not adopt the Federal limits as do most states. Had DW died the transfer of the houses and 401 K's would have triggered a tax event requiring a big payment. We quickly consulted a good local attorney and now have teh houses in joint ownership and the 401Ks designated with each other primary and the trust secondary. But I think for most, a trust may be risky overkill.
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Old 04-01-2016, 08:03 AM   #23
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i already experienced a defective will and a defective trust in my lifetime .

the defects would have been known to an estate attorney . in both cases a general practitioner did the documents and these are seperate cases .

nothing is ever a problem until it is a problem .

one thing i learned is INTENT means nothing to the probate court if there is defective verbiage or missing words .

the trust specifically ruled out by name some estranged grand kids yet as the judge said " it is clear what grand pa's intent was and these children were to get nothing , but i can't re-write history or add missing verbiage "
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Old 04-01-2016, 11:18 AM   #24
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crappy way to live but in ny we had an estate tax cliff .

if you went over the years limit by 10% you just didn't pay on the overage , you lost every thing as far as an exclusion and taxes were due from dollar one .
That's not the way Federal estate taxes work. Federal Estate taxes are only on the amounts over the exclusion amount. For 2016 the exclusion amount is $5.45MM.

Can't speak for NY though.
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Old 04-01-2016, 12:25 PM   #25
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Here is a more helpful site from Nolo I should have posted up thread. Note the various links providing an overview of estate planning (I still recommend getting the book, though):

Estate Planning: An Overview - Nolo.com
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Old 04-01-2016, 01:15 PM   #26
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That's not the way Federal estate taxes work. Federal Estate taxes are only on the amounts over the exclusion amount. For 2016 the exclusion amount is $5.45MM.

Can't speak for NY though.
yep , the federal is the way it should work but this isn't what new york went and did .

it was an oversight at first in the wording in the rush to do this but they left it in place as is
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Old 04-01-2016, 02:30 PM   #27
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A trust can also ensure that your children are not inadvertently disinherited when a surviving spouse remarries.
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Old 04-02-2016, 05:11 AM   #28
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we hate trusts and although we have disclaimer trusts in place we hope to never have to activate them .

cutting each other off effectively from full use of the assets can be an awful way to live . except for 5% of principal and the yearly gains laws limit the withdrawals from irrevocable trusts .

they do have their use at times , like if my wife or i ever remarried and we wanted to protect our kids but nothing we would ever want to do to each other even though this is a 2nd marriage .

we would never disinherit each others children because we both had it done to us . so that agreement we have is a moral one and not a legal one .
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Old 04-02-2016, 07:29 AM   #29
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cutting each other off effectively from full use of the assets can be an awful way to live . except for 5% of principal and the yearly gains laws limit the withdrawals from irrevocable trusts .
Back in the day of the AB trust, I think that was the typical way to capture both spouse's unified exclusion. The catch to getting both was to leave the portion (+ growth) of the first to die unified exclusion in the trust. Now with portable unified exclusions, this function of a trust is not functional. (just talking federal).
Living in a state where that had eliminated estate taxes, I'm not sure why there would be a limit to withdraw rate from a irrevocable trust in my situation. But then again, I still have AB trusts. It is time to rethink estate planning.
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Old 04-02-2016, 08:28 AM   #30
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all trusts are subject to the same restrictions to protect the longevity of the money for whom the trust is ear marked since it isn't for the owner of the trust . that is the whole idea of many trusts , to restrict one party from gaining access and depleting the funds
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Old 04-02-2016, 08:40 AM   #31
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all trusts are subject to the same restrictions to protect the longevity of the money for whom the trust is ear marked since it isn't for the owner of the trust . that is the whole idea of many trusts , to restrict one party from gaining access and depleting the funds
The trust I had done years ago did not have that restriction. It was set up after our deaths to distribute our estate when the children reached certain milestones. The trust was set up to fund needs as they grew and then at fixed ages distribute significant chunks at 30 and 40 years old. The intent was not to conserve $, but not just drop everything to them at 18 years old.
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Old 04-02-2016, 08:54 AM   #32
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then it was not irrevocable which is what is used to protect assets from taxes or medicaid or spouses remarrying.

revocable trusts have no restrictions but deal with other issues like distribution of assets to minors , they are not acceptable for the above and can actually create problems in the above areas .
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Old 04-02-2016, 08:57 AM   #33
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we hate trusts and although we have disclaimer trusts in place we hope to never have to activate them .

cutting each other off effectively from full use of the assets can be an awful way to live . except for 5% of principal and the yearly gains laws limit the withdrawals from irrevocable trusts . ...
I'm pretty sure that with the trusts I've seen, the 5% (or any income generated) is the default, but I think it allows for a pretty general 'or amount necessary to provide for health and comfort'... ?

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Old 04-02-2016, 09:02 AM   #34
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there are provisions for requesting more money under certain conditions but that is up to the discretion of the trustees .

we would hate to have to go begging for the use of our money if we could avoid it .
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Old 04-02-2016, 09:03 AM   #35
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all trusts are subject to the same restrictions to protect the longevity of the money for whom the trust is ear marked since it isn't for the owner of the trust . that is the whole idea of many trusts , to restrict one party from gaining access and depleting the funds
It largely depends on how the trust is written (thus the choice of a good lawyer becomes important). One could provide for more than 5% etc, but that is the choice of the creator of the trust, that hopefully the lawyer can express in the proper language. It might provide for example for any item that helps the comfort or education of a beneficiary (in the trustees judgement).
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Old 04-02-2016, 09:05 AM   #36
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i am not a lawyer so don't quote me but i believe all irrevocable trusts that provide income to a spouse have the max's determined by law . i think 5k or 5% of the principal and the years gains are the limits .

if anyone knows for sure chime in here .
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Old 04-02-2016, 09:34 AM   #37
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A couple of thoughts on the subject:

1) a POD works fine if one person dies. But if both you and your spouse die together (for example in a bad car accident), a POD doesn't work unless you have multiple named beneficiaries. A trust gives more flexibility to a variety of difference scenarios.

2) We put our house into a trust so that if one of us dies, the other person inherits the entire house at the stepped up basis and avoids paying capital gains taxes. Without the trust, only half of the house would be inherited at the stepped up basis. If you have an expensive home that you have owned for a long time, this becomes significant.

3) My Dad had one bank account with me as named POD when he passed. My sister is now threatening to sue me claiming undue influence. A will and trust could have avoided this situation.
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Old 04-02-2016, 10:45 AM   #38
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i am not a lawyer so don't quote me but i believe all irrevocable trusts that provide income to a spouse have the max's determined by law . i think 5k or 5% of the principal and the years gains are the limits .

if anyone knows for sure chime in here .
Not a lawyer either, but I just looked at my departed FIL's trust - while it mentions $5,000 or 5% annually, it has a provision to use principal as necessary or advisable for health and maintenance in reasonable comfort.


'Advisable' and 'reasonable comfort' seems pretty subjective, I suppose that could be fairly loose and would come under the 'reasonable man' view, and as I understand, would only be questioned if some beneficiary claimed that money was 'wasted' on the surviving spouse, and should have gone to the beneficiaries. Unlikely for that to happen, but I'm sure it has come up before.

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Old 04-02-2016, 10:50 AM   #39
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A couple of thoughts on the subject:

1) a POD works fine if one person dies. But if both you and your spouse die together (for example in a bad car accident), a POD doesn't work unless you have multiple named beneficiaries. A trust gives more flexibility to a variety of difference scenarios.
Routing an account through a will/trust may well be the best approach for most people, but many financial accounts allow both primary and secondary beneficiaries.

I know Vanguard does. I have an IRA at Vanguard that specifies DW as the primary and the kids as secondaries. Fine for now.
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Old 04-02-2016, 12:12 PM   #40
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i am not a lawyer so don't quote me but i believe all irrevocable trusts that provide income to a spouse have the max's determined by law . i think 5k or 5% of the principal and the years gains are the limits .

if anyone knows for sure chime in here .
Also not a lawyer, but my understanding is that, while a $5K or 5% limit on principal distributions may be the language included in a particular trust, there is no such legal restriction, at least in federal law (individual state laws may vary). The IRS limits the power to distribute principal only for the "health, education, support, or maintenance" of the surviving spouse. In practice, this language is relatively broad (our own trusts allow that the trustee is not required to take into consideration any other income or property which is available to the surviving spouse from any other source). However, the IRS has ruled it is a sufficient limitation to allow the "credit shelter" trust not to be counted in the estate of the surviving spouse - the primary objective. An additional benefit is that any future growth of these trust assets pass to future beneficiaries also free of estate tax. This can be a significant savings for those couples with significant assets when there are many years between the deaths of the two spouses...an advantage not provided by simply relying on portability which freezes the estate tax exclusion amount at the death of the first spouse.
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