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Old 04-02-2016, 12:13 PM   #41
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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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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 .
I'm not a lawyer, but my understanding is the an irrevocable trust is one that the terms can not be changed. These are AB or bypass trusts. If I were to die, mine would become irrevocable. If my wife then passes, her's too would become irrevocable. Both of these trusts would then distribute over time and based on conditions that are written in each of the trusts.
Bypass trusts were typically used to capture both spouse's unified exclusions. But the second thing they did was distribute the estate after death (usually of the second spouse).

I'm not saying that some uses of a irrevocable trust may not require specific language or terms to be valid. But my bypass trust (living now) will be irrevocable as soon as I'm not able to change it. An this won't change if I have it distribute more that 5% + earnings or not.

I would be interested if you have a reference that states that all revocable trusts are limited to some fixed distribution terms such as 5%+earnings.
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Old 04-02-2016, 03:24 PM   #42
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I'm not a lawyer, but my understanding is the an irrevocable trust is one that the terms can not be changed. These are AB or bypass trusts. If I were to die, mine would become irrevocable. If my wife then passes, her's too would become irrevocable. Both of these trusts would then distribute over time and based on conditions that are written in each of the trusts.
Bypass trusts were typically used to capture both spouse's unified exclusions. But the second thing they did was distribute the estate after death (usually of the second spouse).

I'm not saying that some uses of a irrevocable trust may not require specific language or terms to be valid. But my bypass trust (living now) will be irrevocable as soon as I'm not able to change it. An this won't change if I have it distribute more that 5% + earnings or not.

I would be interested if you have a reference that states that all revocable trusts are limited to some fixed distribution terms such as 5%+earnings.
A lot of such trusts authorize the trustee to distribute to the beneficiary based upon needs for health education and maintenance. This includes for example medical bills, both k-12 and college and professional school education, as well as maintenance and if phrased can include the beneficiaries family as well under the umbrella. Clearly this could easily go to more than 5% of the principal in some cases. This is called an ascertainable standard for the trustee, i.e. it can be determined if there is such a need. So for example if a beneficiary happend to get cancer the medical bills could be paid.
The bigger issues are the 3 year limit on life insurance into the trust and the 5 year limit for medicaid.
Again it depends on how the trust instrument lays out the powers of the trustee.
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Old 04-02-2016, 03:56 PM   #43
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Our trust had a provision that if the value fell below $40 K, the trust could be dissolved. Last year it hit $38K and it was dissolved.
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Old 04-03-2016, 05:10 AM   #44
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I'm not a lawyer, but my understanding is the an irrevocable trust is one that the terms can not be changed. These are AB or bypass trusts. If I were to die, mine would become irrevocable. If my wife then passes, her's too would become irrevocable. Both of these trusts would then distribute over time and based on conditions that are written in each of the trusts.
Bypass trusts were typically used to capture both spouse's unified exclusions. But the second thing they did was distribute the estate after death (usually of the second spouse).

I'm not saying that some uses of a irrevocable trust may not require specific language or terms to be valid. But my bypass trust (living now) will be irrevocable as soon as I'm not able to change it. An this won't change if I have it distribute more that 5% + earnings or not.

I would be interested if you have a reference that states that all revocable trusts are limited to some fixed distribution terms such as 5%+earnings.
other then i remember seeing that the irrevocable trusts were capped i can't find anything on it . i was hoping someone actually knew .
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Old 04-03-2016, 07:47 AM   #45
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[U]...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
I was looking into buying this book this morning and noticed that Amazon has the new 14th edition up for preorder. Should be out on the 18th of this month.

Plan Your Estate, April 2016 13th Edition

Not sure what has changed in the last two years since the 12th edition, but I'm going to wait for the new one.
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Old 04-04-2016, 01:11 PM   #46
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I have the 9th edition which came with my Willmaker software version Premium 2010, I wonder if the new edition and other ebooks still come with this software package. The upgrade to 2016 is only $55. Less at Costco.
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Old 04-04-2016, 07:46 PM   #47
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We recently did a RLT, primarily to deal with any risk of cognitive impairment as well as simplifying the management of the rental property post death. Also included our taxable investment accounts but none of the IRA/Roths
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What is RLT?
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Old 04-04-2016, 07:52 PM   #48
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most tax planning and medicaid planning can only use irrevocable trusts
Why is this?
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Old 04-04-2016, 08:05 PM   #49
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What is RLT?
Revocable Living Trust (I had to look it up. Another TLA(3 letter acronym))
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Old 04-05-2016, 03:06 AM   #50
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Why is this?
because you can't own the assets anymore and or have control over them .
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Old 04-05-2016, 06:15 AM   #51
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If you don't need to restrict your kids' access to the money and you don't need a tool to avoid estate taxes (Those currently start at 5 million I think, so you don't need to worry about that quite yet) I don't know why you'd choose a trust over a TOD. TODs are cheap and simple to process. In our office heirs usually have the money within 2 weeks of us receiving a death certificate, which is handy for paying funeral bills and that sort of thing. But I'm not a lawyer.
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Old 04-05-2016, 07:49 AM   #52
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Why is this?
Some states (not all) allow assets in an irrevocable trust be excluded from medicaid spend down. My state does not. I learned this was possible in NY state from Mathjak's posts on this forum.

I am not a lawyer - so take everything I say with a pound of salt - but that's my understanding.
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Old 04-05-2016, 08:06 AM   #53
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yep they are not counted
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Old 04-05-2016, 05:27 PM   #54
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other then i remember seeing that the irrevocable trusts were capped i can't find anything on it . i was hoping someone actually knew .
You were right about the $5,000/5% cap. I looked up the Internal Revenue Code for this topic. It's covered under Title 26 U.S. Code § 2041 - Powers of Appointment. The holder of a General Power of Appointment is treated for estate tax purposes as if he or she is the owner of the property. Therefore any trust assets for which a decedent is deemed to have had a "General Power of Appointment" will be included in their gross estate for federal estate tax purposes. The objective of a Credit Shelter trust is to avoid this.
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§ 2041 (a)(2) To the extent of any property with respect to which the decedent has at the time of his death a general power of appointment...such property would be includible in the decedent’s gross estate... inclusive.
There are a few exceptions specified in § 2041 that can AVOID having a General Power of Appointment and therefore AVOID the trust assets being included in the estate of the surviving spouse, including:

(b)(1)(A) having distributions limited to the "health, education, support, or maintenance" of the decedent or
(b)(2) having distributions limited to the greater of "$5,000 or 5%" of the assets (commonly referred to as the "Five or Five Power").

So either language in the credit shelter trust will work such that the assets will not be included in the estate of the surviving spouse for federal estate tax purposes.
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Old 04-05-2016, 05:46 PM   #55
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Of course unless and until the estate tax changes you need 10 million + to have the problem, (unless you live in a state that still has the taxes). (The trust destroys the ability to pass unused exemptions between spouses as well)
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Old 04-05-2016, 05:55 PM   #56
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You were right about the $5,000/5% cap. I looked up the Internal Revenue Code for this topic. It's covered under Title 26 U.S. Code § 2041 - Powers of Appointment. The holder of a General Power of Appointment is treated for estate tax purposes as if he or she is the owner of the property. Therefore any trust assets for which a decedent is deemed to have had a "General Power of Appointment" will be included in their gross estate for federal estate tax purposes. The objective of a Credit Shelter trust is to avoid this.


There are a few exceptions specified in § 2041 that can AVOID having a General Power of Appointment and therefore AVOID the trust assets being included in the estate of the surviving spouse, including:

(b)(1)(A) having distributions limited to the "health, education, support, or maintenance" of the decedent or
(b)(2) having distributions limited to the greater of "$5,000 or 5%" of the assets (commonly referred to as the "Five or Five Power").

So either language in the credit shelter trust will work such that the assets will not be included in the estate of the surviving spouse for federal estate tax purposes.

wow , i wasn't so sure it applied across the board but i guess it really does . thanks for researching it .

it is those limits that make using the irrevocable trusts so restrictive . i am glad at this point we cleared the estate tax threshold this year in ny and no longer need the disclaimer trusts at this point .

they are no good for medicaid planning , not that i need to but the disclaimer trusts are really to pass 2x the state limit .
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Old 04-06-2016, 04:56 AM   #57
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You were right about the $5,000/5% cap. I looked up the Internal Revenue Code for this topic. It's covered under Title 26 U.S. Code § 2041 - Powers of Appointment. The holder of a General Power of Appointment is treated for estate tax purposes as if he or she is the owner of the property. Therefore any trust assets for which a decedent is deemed to have had a "General Power of Appointment" will be included in their gross estate for federal estate tax purposes. The objective of a Credit Shelter trust is to avoid this.


There are a few exceptions specified in § 2041 that can AVOID having a General Power of Appointment and therefore AVOID the trust assets being included in the estate of the surviving spouse, including:

(b)(1)(A) having distributions limited to the "health, education, support, or maintenance" of the decedent or
(b)(2) having distributions limited to the greater of "$5,000 or 5%" of the assets (commonly referred to as the "Five or Five Power").

So either language in the credit shelter trust will work such that the assets will not be included in the estate of the surviving spouse for federal estate tax purposes.
one of the problems of putting your home in revocable trusts or any living trust is that home is a protected asset as far as medicaid goes when personally owned .

it's value is not counted in the asset test to get medicaid .

folks use revocable trusts because medicaid can't go after the trust assets but the catch 22 is a home loses its protected status when put in a revocable trust . so now the value of the home counts in the test .

while medicaid can't take the home in the trust the reality is you may have to sell the home to spend down the money in order to qualify to get medicaid in the first place .

so revocable trusts can hurt you if you ever do any medicaid planning .

only irrevocable trusts help in that case but then you have the restricted access to the assets .
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Old 04-06-2016, 06:44 PM   #58
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very nice explanation

"You may be asking yourself: Why $5,000 or 5%? What’s so magical about those numbers? Well, put most simplistically, because that is what the Internal Revenue Code (IRC) says. In order to avoid certain consequences, this annual withdrawal power is limited to $5,000 or 5% of the trust’s assets under the IRC. Why is it important to abide by the IRC? Well, for instance, if instead, you gave the beneficiary more than a $5,000 or 5% annual power to withdraw, the beneficiary’s withdrawal power could be deemed a general power of appointment over the trust and some or all the assets in the trust could be included in the beneficiary’s estate for estate tax purposes. This could create devastating tax consequences for the beneficiary."

5 and 5 power | Crummey Estate Plan
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Old 06-02-2016, 02:38 PM   #59
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Gal and I are "not as tenants in common but with right of survivorship" on all property and joint on all accounts and cars - or TOD/POD on the few things we can't do that on. If one of us dies the other will have the entirety with pretty much no taxable event. We have a verbal agreement that the survivor will pass a certain sum to the others relatives - IF that is doable without hurting the survivor's retirement. The survivor will suddenly have an estate that they will need to worry about for tax purposes - one of us doesn't care about that, the other can do as they wish then. If we are both hit by the same asteroid then our relatives will have to deal with the hassle of reaping the benefits of our estates. Poor babies. Not like we had to do anything to pile up said estate.
Thats what I have done to date, though I'll likely write up a will to ensure certain belongings go back to where they should so there isn't any bickering.
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Old 06-03-2016, 05:11 AM   #60
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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.

Ok. This is where I get a little confused. I went to a few legal sites online and from I could gather they all say "All assets (including property ie a home) left to a surviving spouse is exempt from any federal and state estate tax regardless of the amount." The only stipulation is that the surviving spouse is a US citizen. Also today the estate tax and the gift tax are unified. So in this scenario Bill Gates could leave his wife Melinda an estate worth $50 billion and she would not owe a dime in estate tax. Is this correct?
( Let's also make the assumption for this example that Washington did have a state income tax/estate tax and there was no Bill and Melinda GAtes Charitable Foundation).
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