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Why would some get a trust vs. giving away assets and claiming against the lifetime x
Old 05-27-2007, 10:22 PM   #1
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Why would some get a trust vs. giving away assets and claiming against the lifetime x

My mother thought about just giving me some assets and just claiming them against her lifetime exemption. Its is a mutual fund with about 7k due in taxes if I were to sell it, since I would have her basis. If she were to set up a trust what would be the advantage? A trust costs about 2k to set up. If my mother were to pass away would the trust then pay out and then be ended or would it go on after her death? We both are new to this :confused:
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Old 05-27-2007, 11:53 PM   #2
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In my opinion the purpose of a living trust is to enable others to manage your assets without the cost of court supervision and to avoid the expense of probate or filing a will.

In your Mother's situation the trust holds title to the assets for her benefit during her lifetime. The trustee manages those assets when she can't pay her bills. When she passes the assets of the trust are disposed of under the terms of the trust. No fuss, no bother.

A will is necessary to take care of anything not in the trust,

Some assets shouldn't be in a trust, such as IRAs. A POA for the IRA should take care of managing the investments. The asset passes under the beneficiary terms in the IRA.

She should also prepare a POA for heath care and 'Living Will' so that her desires are documented.
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Old 05-28-2007, 09:15 AM   #3
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In some states with expensive and draw out probate systems there is an advantage of putting assets into a trust that simply pays out on death. Other states, such as Minnesota where I live, probate is cheap and fast so there isn't that advantage. Either way there is a step up in basis.
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Old 05-28-2007, 01:46 PM   #4
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In my opinion the purpose of a living trust is to enable others to manage your assets without the cost of court supervision and to avoid the expense of probate or filing a will.

In your Mother's situation the trust holds title to the assets for her benefit during her lifetime. The trustee manages those assets when she can't pay her bills. When she passes the assets of the trust are disposed of under the terms of the trust. No fuss, no bother.

A will is necessary to take care of anything not in the trust,

Some assets shouldn't be in a trust, such as IRAs. A POA for the IRA should take care of managing the investments. The asset passes under the beneficiary terms in the IRA.

She should also prepare a POA for heath care and 'Living Will' so that her desires are documented.
What is the issue with IRAs being held in the trust? I was told that the beneficiary for 401K could be my spouse and the secondary beneficiary could be the trust. To get the 401K into trust my spouse would decline (is that the correct term) and the 401k would be part of the trust. Plans are to convert 401k to IRA when retired.
Is this the right way to go?
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Old 05-28-2007, 02:54 PM   #5
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What is the issue with IRAs being held in the trust? I was told that the beneficiary for 401K could be my spouse and the secondary beneficiary could be the trust. To get the 401K into trust my spouse would decline (is that the correct term) and the 401k would be part of the trust. Plans are to convert 401k to IRA when retired.
Is this the right way to go?
By naming your trust as a beneficiary, you put any assets in the IRA/401k into the trust. That doesn't mean the IRA/401k are in the trust prior to your death.

Having the assets go into a trust upon your death takes away some tax benefits available to the heirs but it makes sense if you are concerned about how well the heirs will manage the money. The trust lets you maintain some control after your death which can be good and bad.
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Old 05-28-2007, 03:31 PM   #6
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Estate planning is in large part tax planning. Part of a tax plan may involve what Megacorpfree mentioned: making the spouse primary beneficiary with the trust secondary beneficiary. This allows the surviving spouse, if it makes sense from a tax standpoint, to disclaim all or part of the IRA. This might be done if there are not enough assets to fund a trust and use up the deceased spouse's estate tax exemption. If all the assets go to the surviving spouse that can lead to a big tax hit when the survivor dies. It gets complex to say the least.
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Old 05-28-2007, 05:20 PM   #7
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A couple of weeks ago my mother gave her home to me in a quit claim deed. I would like to know if there is a tax consequence if I return it to her now? The basis on the home is 105k and it is worth 150k. Can a quit claim deed be undone? It sounds like a trust would be of more help to the family its is only mother and I. What kind of trust would be best for her?
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Old 05-28-2007, 06:15 PM   #8
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First, I am not a lawyer or CPA. What I am about to say is my understanding.

If you mother is living in the house and she gifts you the title you will pay taxes on any subsequent increase in value. Also, should anything unfortunate happen to you the house is at risk.

IMHO what should happen is that the house is put in a revocable living trust. When the house is sold after she moves out there will be no tax on the sale and the proceeds will be kept in the trust to meet her future needs. If she dies before the house is sold the trust will describe, just like a will, what happens to the trust assets. The recipient of the house will get the step up in value. She would be the grantor trustee, she could also name you as a trustee. Be sure that the trust addresses what happens if neither she nor you are able to act as trustees.

The mother of an acquaintance put her home in the name of her children without their knowledge. One of the kids died before they found out. Straightening out the title took a long time and was messy as the deceased kid had a widow and children.
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Old 05-29-2007, 07:04 AM   #9
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Since the amount is so small, it wouldn't be worth setting up a trust. You can give gifts up to $11K (or is it $12K now) a year without any tax issues.
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Old 05-29-2007, 08:41 AM   #10
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rec, I would go talk to a lawyer, with or without your mother. If you haven't recorded the deed, it may be very simple to undo the transaction. If you have, it may be more complex. I would talk to the lawyer about the gifting plan, and other options, including just allowing assets to pass via will. We just don't have enough facts here to even guess what is best.
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Old 05-29-2007, 10:43 AM   #11
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rec, I would go talk to a lawyer, with or without your mother. If you haven't recorded the deed, it may be very simple to undo the transaction. If you have, it may be more complex. I would talk to the lawyer about the gifting plan, and other options, including just allowing assets to pass via will. We just don't have enough facts here to even guess what is best.
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Old 05-29-2007, 05:43 PM   #12
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Thanks Everyone for your help!

Thanks Everyone for your help!
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Old 11-10-2007, 06:31 PM   #13
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There are lots of reasons to use a trust. One would be to put limits on what kids can do with the money (e.g. how much they get access to right away) while they are young and potentially irresponsible. Another is to get the full benefit of the estate tax limits. If you have a big estate and your portion goes to your spouse when she or he dies the total may exceed the estate tax limit. If you divide up your assets and leave them to the kids in a trust that your spouse can control until her death (i.e. she can use the trust to support herself) your portion passes to the kids separately and does not get lumped in with her portion when she dies.
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Old 11-11-2007, 11:05 AM   #14
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There are lots of reasons to use a trust. One would be to put limits on what kids can do with the money (e.g. how much they get access to right away) while they are young and potentially irresponsible.
I have a question about this, hoping someone/anyone can answer.

Is it relatively easy for an irresponsible (but, unfortunately, NOT young ) person to 'sell' the future interest in a trust to someone for an immediate cash value?

I'm thinking there may be a market in these things, similar to the 'viatical' life insurance buy-outs? If they are available, this means that the intent of a trust can be circumvented. In general, I believe that if someone has not learned how to control their finances, doling it out in small doses may not make much difference anyhow. Their die is cast.

-ERD50
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Old 11-11-2007, 04:19 PM   #15
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I have a question about this, hoping someone/anyone can answer.

Is it relatively easy for an irresponsible (but, unfortunately, NOT young ) person to 'sell' the future interest in a trust to someone for an immediate cash value?

I'm thinking there may be a market in these things, similar to the 'viatical' life insurance buy-outs? If they are available, this means that the intent of a trust can be circumvented. In general, I believe that if someone has not learned how to control their finances, doling it out in small doses may not make much difference anyhow. Their die is cast.

-ERD50
This is a Martha question but my unlearned opinion is that a properly designed "spendthrift" trust can keep someone from selling out their interest. A good lawyer can set up a MESH trust (maintenance, education, etc -- I'd have to look up what the letters mean ). This allows the trustees to control the flow of cash to the beneficiary for "approved" and "reasonable" financial needs. Obviously, if you are trying to protect the assets from an irresponsible individual, you wouldn't have them as a trustee. For a typical spousal bypass trust, you would have the spouse as a trustee and, possibly, the only trustee.

So, a well designed trust wouldn't keep the beneficiary from selling his future benefits but the trustees would simply smile and wait for the beneficiary to blow his windfall. They would then resume paying for those items covered by the trust. Nobody in the payment purchase business would touch something like this.
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Old 11-11-2007, 04:32 PM   #16
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This is a Martha question but my unlearned opinion is that a properly designed "spendthrift" trust can keep someone from selling out their interest. A good lawyer can set up a MESH trust (maintenance, education, etc -- I'd have to look up what the letters mean ). This allows the trustees to control the flow of cash to the beneficiary for "approved" and "reasonable" financial needs. Obviously, if you are trying to protect the assets from an irresponsible individual, you wouldn't have them as a trustee. For a typical spousal bypass trust, you would have the spouse as a trustee and, possibly, the only trustee.

So, a well designed trust wouldn't keep the beneficiary from selling his future benefits but the trustees would simply smile and wait for the beneficiary to blow his windfall. They would then resume paying for those items covered by the trust. Nobody in the payment purchase business would touch something like this.
OK, makes sense. I guess I was picturing a trust that just pays out $X/month or something. But if the trustees have to approve the purchases, then yes, they simply wouldn't approve payment to a 'business' like that, and no business would touch it, as you say.

Thanks, -ERD50
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