Setting up a Living Trust - Advice, anyone?

[Seeking Hobbes]

Recently, while speaking with my older brother, I became a little paranoid.

Somehow we got on the subject of trusts & he suggested that I should set one up in order to protect my estate. In his words, "In case you're driving along and hit the neighbor kid who's chasing a ball into the street. This way, if the parents sue, they can't go after your personal assets and clean you out."

Well, looking into trusts a little further, I learned that a simple trust is great for the smooth transition of assets following death, they do nothing to protect you from law suits or creditors while alive. For that purpose I would need to set up a IEPT or (Integrated Estate Planning Trust), which involves assigning a standby trustee overseas.

Conferring more with my brother, it seems that he chose not to go with an IEPT and opted, rather, for a simple trust with an umbrella insurance policy to cover any unforeseen circumstances.

Now, I am in a much different position than my brother, who is 10 years older, has a larger estate... a wife... kids... rental properties... etc. For me, things are much simpler... I just have myself (age 48)... a dog... a home (paid for) and a NW of approx. 4.3M.

So, I'm seeking a little advice...

- Do I even need a trust?... or would my simple will suffice?
- Would an Umbrella Insurance Policy (tacked onto to my Home & Auto policies) protect my estate?
- Would a trust be advisable solely for the assignment of a trustee, in case I am incapacitated unexpectedly?
- If a trust is advisable, does anyone have experience with an IEPT?
- Any other thoughts? Am I missing something?

Thanks!

 

[growing_older]

I'm not an estate law expert, but you should probably consult one with a 4.3M estate. On the other hand, I can suggest that your dog will probably be just fine, no matter what happens to your estate.

Unless you are concerned that your heirs make sure to get the maximum value of the estate, even if you plow into the neighbor kid, then I don't see how a trust helps you. And if you did in fact cause significant damage to some innocent child, I'm dubious about the ethics that makes your assets unreachable to pay compensation so that you can instead leave them to your already much better off brother. If you want to protect against such a scenario, then an umbrella policy seems wise.

Estate plans and trusts are sometimes useful, but are usually sold by using some kind of highly unlikely worst case scenario. Do you often run over innocent children or try to avoid personal responsibility for your actions? Is it worth thousands of dollars now, and possibly thousands in the future for ongoing updates, to protect against this highly unlikely scenario? Even if so, isn't a great umbrella policy much cheaper?

I don't see any need for a trust in your case, but I'm sure trust attorneys will be happy to draft one for you. It does sound like you want to have a power of attorney so someone (your brother?) can take care of your affairs if you become incapacitated. A trust won't help with that.

 

[Seeking Hobbes]

Thanks "growing older", I appreciate the advice... but your delivery seems a little harsh.

... I'm dubious about the ethics that makes your assets unreachable to pay compensation...

Do you often run over innocent children or try to avoid personal responsibility for your actions?

I'm not sure how an extreme hypothetical example of an unlikely accident, coupled with a desire to protect my estate from an opportunistic suit (or other unforeseen attack), so quickly translated into an assassination of my ethics or sense of personal responsibility.

Sheesh

 

[growing_older]

Lawyers often seem to push these schemes with such extreme and unlikely examples. Unless you are likely to have these problems in real life (for example if you were a professional with malpractice exposure) then they are very highly unlikely and can be more easily be taken care of with insurance.

You used the example of running over neighborhood tykes yourself. If my attempt to lightheartedly point out the absurdity of the position was taken as character assassination, then I'm sorry. I have to say my working assumption was that you are NOT likely to kill or maim neighborhood children and that you are NOT likely to want to avoid personal responsibility. That's what made it absurd to think a trust was needed. In any case, your dog will still be fine, aside from missing you, so the only legitimate purpose I see to the trust is to raise the lawyers income or give you expensive cocktail party conversation topics. I'd still advise avoiding it, but that's just me, not any kind of real legal advice.

Do you often run over innocent children or try to avoid personal responsibility for your actions?

The answer to this is supposed to be NO.

Is it worth thousands of dollars now, and possibly thousands in the future for ongoing updates, to protect against this highly unlikely scenario?

The answer to this is supposed to be NO.

So, unless the above apply to you, then you do NOT need the trust. Furthermore:

Even if so, isn't a great umbrella policy much cheaper?

Even if the above does apply (so at least one of the answers was YES. (yuck)). Then the trust is still a wasteful way to accomplish what the umbrella can more easily and cheaply do for you in all but the most extreme cases.

 

[donheff]

We have a living trust but I am not fully convinced that it is worth while. We got it because DW got some free time with her firm and they have a good trust group. It helps protect our estate (if the market does real well and if the death tax proponents - of which I am one - prevail). It also protects our kids to a certain degree from predation by errant spouses should they not marry well. But trusts are complicated and I doubt many people need them. I needed a plain English outline just to understand ours.

 

[growing_older]

Some people may find a living trust advantageous. Maybe you are one of them. From OPs description, I suspect he is not. Besides, just having the trust, you also need to re-title all your assets and make changes to the beneficiary of all accounts, or else the trust will be an effective way to distribute nothing (that is if nothing is actually made property of the trust). They are complicated.

 

[MichaelB]

So, I'm seeking a little advice...

- Do I even need a trust?... or would my simple will suffice?

You don't need a trust. Your heirs would probably appreciate one, however.

- Would an Umbrella Insurance Policy (tacked onto to my Home & Auto policies) protect my estate?

Yes, if you have enough.

- Would a trust be advisable solely for the assignment of a trustee, in case I am incapacitated unexpectedly?

A trust is one way to deal with sudden incapacitation. There are other ways.

- If a trust is advisable, does anyone have experience with an IEPT?

Can't help you there.

- Any other thoughts? Am I missing something?

WHat you are missing is a clearer expression of what you want. Are you looking to protect your assets? If so, get liability insurance. Do you want to avoid probate? If so, set up a living trust. Do you want to control your assets after you die or creatively minimize taxes? Then you need a trust and a trust attorney. I'm not one, and the term "Integrated Estate Planning Trust" sounds like a marketing term to me.

 

[Nords]

Somehow we got on the subject of trusts & he suggested that I should set one up in order to protect my estate. In his words, "In case you're driving along and hit the neighbor kid who's chasing a ball into the street. This way, if the parents sue, they can't go after your personal assets and clean you out."

Vehicle insurance plus an umbrella liability policy would be a heckuva lot cheaper than setting up a trust... which the plaintiff's lawyer would probably be able to pierce anyway.

Well, looking into trusts a little further, I learned that a simple trust is great for the smooth transition of assets following death, they do nothing to protect you from law suits or creditors while alive. For that purpose I would need to set up a IEPT or (Integrated Estate Planning Trust), which involves assigning a standby trustee overseas.

I think the term "simple trust" is oxymoronic, but if you're using that vocabulary to describe an actual type of trust then I'd love to read more about it. I've also never heard of an IEPT, let alone an overseas trustee. Do you have a link to that? Why would a U.S. trust want an overseas trustee? Heck, I doubt I'd even trust an American trustee.

- Do I even need a trust?... or would my simple will suffice?

I see a few needs for trusts, specifically revocable living trusts:
1. You want someone to be able to take over for you if you're incapacitated.
2. You determine that it's cheaper to set up a trust than it would be to go through probate.
3. You want to avoid a public filing of probate that would tell the world who your heirs are.

There are other types of trusts for complicated estate transfers, or special needs/spendthrift beneficiaries, but you probably don't have those situations.

Otherwise I don't think you care for the hassle.

- Would a trust be advisable solely for the assignment of a trustee, in case I am incapacitated unexpectedly?

It's certainly easier. As my father started slipping into Alzheimer's, his independence became very important to him. He decided that he didn't even want joint names on his checking account, let alone a power of attorney or the "big guns" of a RLT.

As a result of his inaction, now my brother and I have to file for guardianship & conservatorship. I suspect that the legal bills are going to be higher than the cost of setting up a RLT, and certainly higher than notary fees for a POA. Joint names on financial accounts are free. We've also wasted four months to find an attorney that can actually get off their assets and get this done... and still no concrete action has occurred.

 

[bizlady]

Does having your assets in a trust protect them should a spouse enter a nursing home?? That is an advantage that if true, thenI would consider a trust...

 

[Brat]

A revocable living trust does not protect you from liabilities or responsibilities, that is what insurance is for. The intent of these trusts is to do exactly what Nords described. They provide for the management of your financial affairs should you be unable to do so and directs the distribution of your estate when you pass - but they do no good if you don't put your assets in the name of the trust. In addition a knowledgeable attorney can construct trusts with estate taxation in mind.

 

[Seeking Hobbes]

Thanks all,

This has been very helpful and informative...

Vehicle insurance plus an umbrella liability policy would be a heckuva lot cheaper than setting up a trust... which the plaintiff's lawyer would probably be able to pierce anyway.

I agree... My goals are two fold... First, to protect assets from unforeseen challenges. (For example, home or auto accidents that invite opportunistic law suits, etc.)... and Second, to assign someone I trust to care for things should I become incapacitated.

In general, I don't believe that I engage in "high risk" activities so I imagine an umbrella liability policy might be the best option (at least for my first goal).

I think the term "simple trust" is oxymoronic, but if you're using that vocabulary to describe an actual type of trust then I'd love to read more about it. I've also never heard of an IEPT, let alone an overseas trustee. Do you have a link to that?

I'm sure my lack of experience is clouding my vocabulary... in any respect, I've attached a document that I found regarding an IEPT.

I see a few needs for trusts, specifically revocable living trusts:
1. You want someone to be able to take over for you if you're incapacitated.
2. You determine that it's cheaper to set up a trust than it would be to go through probate.
3. You want to avoid a public filing of probate that would tell the world who your heirs are.

Regarding #1... Can assigning power of attorney to someone I trust allay this need?

Regarding #2... Since I don't have any experience with probate, I don't understand the advantages a trust might have over probate. By having a clear cut will and a competent executor, would probate necessarily be painful or expensive?

Regarding #3... No concerns.

 

[Achiever51]

Regarding #2... Since I don't have any experience with probate, I don't understand the advantages a trust might have over probate. By having a clear cut will and a competent executor, would probate necessarily be painful or expensive?

Not an attorney, but am currently settling my father's estate as the personal representative. The advantage of having a well written trust -- as long as the appropriate assets have been retitled into the trust -- is that those assets do not have to go through probate; they pass to the beneficiaries as directed by the trust.

Insurance proceeds are not part of the probate process, neither are any assets held jointly (e.g., bank accounts, homes, etc. which have either a joint owner, or a POD- pay on death designation).

In my Dad's estate his financial accounts had me and my brother as joint owners (done years ago following our Mom's death); and Bro and I were the sole beneficiaries of his insurance proceeds. As his house and car were titled in his name only, those were the only major assets that I had to probate. Not a major expense or time drain.

YMMV

 

[urn2bfree]

Getting an opinion from a professional estate tax attorney would be advisable and should be done for free-- it is a sales pitch. If after hearing what a trust can do for you you want to get one he sold you... It all varies by state. In some states it will protect your assets from lawsuits, but not all as I understand it. If you just jointly own stuff with tour spouse, that stiff is fair game for litigants... But if the trust owns it and YOU get sued... The trust property- which you as trustee control- is not fair game. Also taxes when you die are avoided up to 5 million under current law but could go down (or up) in future death tax/estate tax law-- trust allows some of your estate to be passed on with no tax liability_ the trust goes on without you when you die and your chosen heirs can use it for health, education, etc- there are regulations as to how the money can be spent... And you can graduate the timing... So only after a certain age can your heirs use it, etc

 

[Nords]

I'm sure my lack of experience is clouding my vocabulary... in any respect, I've attached a document that I found regarding an IEPT.

Never heard of them before.

I suspect that they're a wonderfully overcomplicated and overengineered way to protect assets-- at a price. And with all the recent fuss over offshore trusts to hide investment profits and avoid taxes, I suspect that you'd be a prime candidate for an audit.

If you're a doctor (facing malpractice suits) or a lawyer involved in high-stakes litigation then I could see why you'd be interested. But as someone who doesn't have any high-risk activities and just wants to protect their assets from liability litigation... an umbrella liability policy should more than cover the situation.

Regarding #1... Can assigning power of attorney to someone I trust allay this need?

Yup. They expire periodically (usually a year) so a joint checking account is certainly a lot easier. You could also try a "durable POA" for financial matters, but banks & financial institutions seem to be real PITAs about them.

Regarding #2... Since I don't have any experience with probate, I don't understand the advantages a trust might have over probate. By having a clear cut will and a competent executor, would probate necessarily be painful or expensive?

Some states charge probate taxes & fees amounting to as much as 4-5% of the size of the estate. In that situation a few thousand bucks for a revocable living trust is certainly cheaper... but it's a paperwork & maintenance hassle to set up correctly.

Probate is easier for you, because you're dead!

 

[Seeking Hobbes]

Thanks again (everyone)!

I now feel like I have a pretty good plan for talking with my lawyer (and Insurance guy).

But as someone who doesn't have any high-risk activities and just wants to protect their assets from liability litigation... an umbrella liability policy should more than cover the situation.

My thoughts as well!...

You could also try a "durable POA" for financial matters...

Something I'll need to explore a little further...

Some states charge probate taxes & fees amounting to as much as 4-5% of the size of the estate.

Fortunately, for my heirs I suppose, my state has a statutory maximum probate fee. So charges shouldn't get too out of hand (as long as I don't move). Texas, it seems, may be the best state to die in... they are one of the few states that allow for independent administration of probate.

Probate is easier for you, because you're dead!

Something I need to keep reminding myself

 

[grumpy]

We plan to have a revocable living trust set up soon. I have been successor trustee for my parents' trust and executor for DW's father's estate. I intend to set up the trust just so that my kids don't have to go through the hassles of probate. My folks estate was a snap for me to handle - no lawyers or accountants, no court filings, took me 8 weeks to take care of everything. DW's father's estate took nearly a year to get through probate with significant legal and accountant costs plus supervision by an out of state court.

 

[gerntz]

- We have an umbrella policy about equal to our NW. Why that amount? Just seems the more one has the more that is at risk. It's real cheap insurance.
- Have living trusts. Easier to disperse assets to beneficiaries than going thru probate. But probate isn't the end of the world. At least have a will.
- Having DPof A for both health & finances seems quite prudent for a single person without kids as who gets to decide what for you without those & who knows what you want to be done in the case of life/death?
- You're at a good age to start thinking & acting on this, particularly with your substantial NW. Good thinking on your part.

 

[youbet]

We have a living trust but I am not fully convinced that it is worth while. We got it because DW got some free time with her firm and they have a good trust group. It helps protect our estate (if the market does real well and if the death tax proponents - of which I am one - prevail).

Help me here Don........

You say you are a proponent of the so-called "death tax," yet you have a trust to protect your estate from it? I've never noted you to be one bit a hypocrit, so I must be misunderstanding this. What did you actually mean?

If you meant literally what you said, does that mean you'd like a "dealth tax" to be in place but you'd pay legal fees to get yourself out of it? That is, you'd like a "death tax" for others but not for yourself?

 

[donheff]

Help me here Don........

You say you are a proponent of the so-called "death tax," yet you have a trust to protect your estate from it? I've never noted you to be one bit a hypocrit, so I must be misunderstanding this. What did you actually mean?

If you meant literally what you said, does that mean you'd like a "dealth tax" to be in place but you'd pay legal fees to get yourself out of it? That is, you'd like a "death tax" for others but not for yourself?

We have divided up our assets to minimize estate taxes - if one of us dies our assets go into a trust for the kids (proceeds available to the other spouse as needed during life). When the other dies his or her assets go into the trust. Estate taxes still apply but are reduced by being assessed against two pots at different times. If all assets moved over to the other spouse and were taxed jointly upon his or her death taxes would be higher.

I firmly believe in taking advantage of all tax breaks the American public chooses to give me. At the same time, I think estate taxes make sense -- even if they affect me. Just like I thought the Bush tax cuts were insane, even though they benefit me. There is nothing inconsistent with calling for higher taxes and taking advantage of the breaks available. When I have ranted against the Bush cuts in the past various posters here (not saying you were among them) suggested that I should put my money where my mouth is and just send a check for the difference to the Treasury. That is a cheep shot argument. Voluntary tax payments have no material effect on the Nation's economy - for that we need tax policy, not futile gestures. Warren Buffet recently said we should tax the rich (speaking of the cuts set to expire in January) but you can bet your bottom dollar he takes careful advantage of all cuts available to him.

 

[gerntz]

^ I don't see how it's a tax break that you can divide your & your spouse's combined assets in half for estate tax purposes to reduce the total taxes. It's fairness. And you shouldn't have to be sophisticated enough to know that splitting the assets helps to achieve those savings. To me, needing to do that is another example of what's wrong with the tax code and the predatory nature of government.

 

[MrEd]

Trusts

I am not an attorney but know professionals in the trust businees. I have been told by them that 80% of the trusts formed are unnecessary.

Accounts payable on death, transferred on death, joint accounts, and property jointly held are trusts as well..."poor man's trusts" since they are free to set up, do not involve accountants or attornies, and accomplish the exact same thing as a trust as well as avoid probate. These types of arrangements pass outside a will, are non probate property, avoid probate court. They are just like a trust and serve the exact same goals.

Generally, it is best to start estate planning with the least complicated approach. You can accomplish a great deal by keeping it simple.

The above is paraphrased from the book "Estate Planning Smarts" the best book I have read on the subject.

 

[Brat]

Well, unnecessary from an attorney's POV because they collect fees when people who don't have a trust pass away or a guardianship must be established. They may not be necessary for tax reasons but in my opinion they are well worth it when someone needs to step in to pay bills or distribute the assets after the grantor(s) died.

 

[donheff]

I am not an attorney but know professionals in the trust businees. I have been told by them that 80% of the trusts formed are unnecessary.

Accounts payable on death, transferred on death, joint accounts, and property jointly held are trusts as well..."poor man's trusts" since they are free to set up, do not involve accountants or attornies, and accomplish the exact same thing as a trust as well as avoid probate. These types of arrangements pass outside a will, are non probate property, avoid probate court. They are just like a trust and serve the exact same goals.

Generally, it is best to start estate planning with the least complicated approach. You can accomplish a great deal by keeping it simple.

The above is paraphrased from the book "Estate Planning Smarts" the best book I have read on the subject.

I agree with this for the most part. But joint accounts, joint ownership of real property and the like can result in larger estate taxes if the value is high enough. Under current law this may not affect most of us but if the estate tax threshold was dropped to say $1M or $2M it easily could. DW and I could have waited to see how things go tax wise but if, in the meantime, one person dies it is too late to split ownership. That said, I doubt we would have bothered if we had to pay the attorney fees.

 

[Brat]

Consider for a moment the number of senior citizens where neither party are able to manage their financial affairs.

Most of the members on this board are in their 40s & 50s. Once you approach 60 and are dealing with frail parents a new window opens.

 

[SteveR]

My second wife and I had living trusts created to address the "potential" increase of our assets going above the threshold for generations skipping estate taxes. She had no children from her previous marriage and we had none together but I had two kids from my first marriage so we followed the advice and created our trusts along with Living Wills and Power of Attorney for Medical and Financial. We also had Pour Over wills created to address putting any assets we missed into the trust upon our death.

When she passed away I was the trustee for her estate. Even with all that stuff we created I still had to go to Probate twice over a 3 year period (once was due to a mis-wording in the title to some property I wanted to sell after her death) and the other was because it was required by state law. The Living Trust changes into a Family Trust upon the death of the owner and the trustee has to file annual tax returns for the trust and meet all the trust requirements. It appears our original lawyer made it much more complex and difficult to manage than was required (should have known that) and once a death occurs the instructions cannot be changed.

My current wife has a living trust too because I she has children from a previous marriage and we want to keep the assets separate between the two groups of children to keep any in-fighting to a minimum once we are both gone. The trust appears to be the best tool for that and to reduce generation skipping estate taxes (provided our final estate is large enough).

In retrospect, my late wife's part of the estate was not yet up to the amount to worry about taxes but I guess over the next 30+ years it could have and would have been needed later rather than sooner. The problem is you don't know when your neighbor might run over you or your spouse so having a trust makes sense if you believe your combined estates will be large enough to warrant the expense (and headaches).