Hi and a Question about Trusts!

[pb4uski]

^^^ That would be of limited use to us... even without stepped up basis we don't have near to $500k of unrealized appreciation on our principal residence (or our former principal residence for that matter).

I guess I could see it being of benefit for someone who has a really big/nice home that they have owned for a long time.

So was the difference 100% stepped up basis when in the trust vs only 50% stepped up basis + 50% regular basis if you didn't use the trust?

[Ready]

Quote:

Originally Posted by pb4uski ^^^ That would be of limited use to us... even without stepped up basis we don't have near to $500k of unrealized appreciation on our principal residence (or our former principal residence for that matter). I guess I could see it being of benefit for someone who has a really big/nice home that they have owned for a long time. So was the difference 100% stepped up basis when in the trust vs only 50% stepped up basis + 50% regular basis if you didn't use the trust?

I believe that is correct. Without the trust if my spouse died I would inherit half at the stepped up basis but my half would still be subject to capital gains. At present our gain on sale would be about $2M. If a spouse dies I believe we are back to only getting the $250K exclusion so the savings by using a trust are substantial. Hopefully this is a decision that will be 20 or 30 years down the road though, where the gains could be quite a bit more if real estate continues to appreciate.

[Free2030]

If your husband is a federal employee, he should ask if his agency has referrals for employees' legal needs. I am also a fed and through my agency I was able to find an attorney that did the package for around $1K, including POA, wills, medical directives, and trusts. We did it mostly because I don't want our kids to be able to access our assets until they turn 25. My SIL is the backup trustee if both DH and I pass away at the same time.

(Long-term lurker but first time poster. Will do an intro in the near future. As my name indicates, I'm planning on retiring in 2030 so still have a ways to go)

[Scratchy]

From what I understand your concern is that your assets pass on to your children without the hassle of probate, or the expenses that a trust might incur.

You could probably accomplish this by naming your children direct beneficiaries on your accounts and even for your home with a transfer on death deed. However, leaving your estate to your spouse and your children in trust would have the advantage of allowing you to control your children's access to funds while they are young (if that is your wish). It can also protect their inheritance from future step-parents, spouses, creditors and bankruptcy. Since the federal estate tax exemption and the size of your estate will change in the future, there are also potential estate tax advantages in some types of trusts that may be worth your consideration.

Therefore, I recommend you hire a good trust and estates attorney to draft an estate plan that meets your needs. Considering you are married with minor children, a boilerplate trust document from online or even some trust and estates attorneys will not be sufficient. Try to educate yourself on the basics of what a trust can do (the book "Beyond the Grave" by Jeffrey Condon is a decent introduction) and then ask people you trust for references to good attorneys. When you interview an attorney, ask lots of questions to try to see if they are able and willing to meet your needs.

Best wishes and good luck.

[Scratchy]

Quote:

Originally Posted by pb4uski ^^^ That would be of limited use to us... even without stepped up basis we don't have near to $500k of unrealized appreciation on our principal residence (or our former principal residence for that matter). I guess I could see it being of benefit for someone who has a really big/nice home that they have owned for a long time. So was the difference 100% stepped up basis when in the trust vs only 50% stepped up basis + 50% regular basis if you didn't use the trust?

You are probably aware, but just in case, a trust in not necessary to get 100 % step up. Assuming you live in a community property state, the 100 % step up in basis can be claimed for any community property, not just property held in a marital trust. For example, a home held as JTWROS is eligible for full step up upon the death of one spouse. Same with bank accounts held JTWROS or jointly as community property.

In fact, even property or accounts titled individually are eligible for a 100 % step up if one can demonstrate that the assets are marital property (such as by showing they were purchased with marital funds or with a community property declaration preferably prepared by an attorney).

Here are a couple of good articles that address this:

https://www.cpajournal.com/2017/08/1...ty-step-basis/

https://www.calcpa.org/public-resour...th-of-a-spouse

[pb4uski]

^^^ Yes, I was aware of the first part... I assumed that Ready doesn't live in a community property state.

[Ready]

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Originally Posted by pb4uski ^^^ Yes, I was aware of the first part... I assumed that Ready doesn't live in a community property state.

We do. California is a community property state.

We purchased the home together 20 years ago but we only got married five years ago. I’m not sure how that complicates matters but our attorney told us the trust solves any potential problems that might arise.

[Scratchy]

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Originally Posted by pb4uski ^^^ Yes, I was aware of the first part... I assumed that Ready doesn't live in a community property state.

Ready lives in California, which is a community property state. If they did not live in a community property state, my understanding is that marital property would not be eligible for a full step up, whether or not they placed it in a trust. So, if you do not live in a community property state, my understanding is that placing a jointly owned home in a revocable living marital trust will not qualify you or your spouse for 100% step up.

My spouse and I also live in California and faced a similar issue as Ready. For our brokerage accounts held outside of our individual trusts, we were advised by an attorney that we could hold them as JTWROS and they would be eligible for 100 % step up on the death of the first spuose, although he suggested that we keep a document signed by both of us that we were transmuting the holdings to marital property. I confirmed this by speaking with the estate departments at Schwab and E*trade. They stated that upon the death of either spouse, we could request they adjust the cost basis of all the assets in our JTWROS accounts and they would comply. Our accountant said that even if the brokerage did not cooperate, the surviving spouse could claim the full step up on the tax return in the year the assets were sold.

I had thought this would apply to real estate as well, but as I look online now I see some sites that state real estate should be held as community property with right of survivorship to get a full step up (or in a marital trust). This strikes me as odd and I will have to triple check understanding that our brokerage accounts held JTWROS will get a full step up.

One thing I would note is that my understanding is that placing the home in a marital trust was the only way Ready could have qualified the home for 100 % step up on the death of the first spouse. That could have been done by retitling the home as community property WROS. Of course, I'm not saying it was a mistake to place their home in a trust, just that that was not the only way to accomplish the goal of qualifying for the 100 % step up on the death of the first spouse.

[PatrickA5]

I helped my dad set everything up POD/TOD/Joint. When he passed, everything except household furniture was passed to my brother and me automatically - even the house. He had a will, but there was no need to probate the will. It couldn't have been easier.

DW and I have our stuff set up the same way. If we were to die today, no probate would be needed. However, I may take a relook into trusts for some of the reasons stated above concerning our money possibly ending up in the hands of ex-spouses and their kids instead of my grandkids. That's really the only issue that bothers me.

[PatrickA5]

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Originally Posted by OldShooter Our houses are in rev trusts now, but this is not a big deal as they are both in our home state. The big money is in TIRAs with trusts as beneficiaries. Estate attorney says value of remaining assets may not force a probate but it is not a big deal if it happens.

Are the IRA's in the trust, or are they outside the trust with the trust being beneficiary? I've always heard that real people should be beneficiaries of retirement assets, not trusts. Maybe this has changed with the new 10 year rule?

[PatrickA5]

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Originally Posted by harley As far as trusts, there are many more knowledgeable people on this site than me. However, we had estate planning work done (finally) last year, and got a trust. In your case it may not matter as much, as your kids are not married. In my case, my DD is currently married and has two kids by two people, and we want to make sure our assets stay in our family line. I've seen a situation where parents left their money to their married kid, died, then the kid died and the spouse inherited, then he remarried and ended up leaving their money to his new spouse and kids, leaving the original grandparents progeny out of the inheritance. He was a louse, but there are plenty of those in the world. So we used our trust to avoid a situation like that. So depending on your situation, a trust may or may not be of value. And if it's not today, things can change and it might be later.

This is probably the only situation that I really worry about. I'm not that into controlling my money "beyond the grave", but it would be nice to know my grandkids get my money instead of a some potential future spouse (and kids) of one of my children.

I'm not too worried about my DW remarrying Biff the Pool Boy and him getting our money. I think she'd do the smart thing and make sure our kids inherit our money - but you never know.

[OldShooter]

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Originally Posted by PatrickA5 ... However, I may take a relook into trusts for some of the reasons stated above concerning our money possibly ending up in the hands of ex-spouses and their kids instead of my grandkids. That's really the only issue that bothers me.

Since DW was in the trust business and saw hundreds of trust beneficiary issues, we are not neutral on this. Irrev trusts after death protect against all kinds of problems beyond just divorce.

Beneficiary befriended by nice man from Eddie Jones, who helps out by using all the money to buy annuities except what he retains to pay future wrap fees.

Beneficiary befriended by nice lady from Rapem Insurance company, who helps out by using all the money to buy a variable annuity.

Common disaster takes husband and wife, leaving minor children. Children's guardian is given control of the funds. Investment strategy and fees charged by the guardian totally unknown. Guardian may be unknown.

Dad dies, leaves his money to mom, who ends up in a nursing home and Alzheimer-y. Children move mom out of a private room for cheaper digs. "She's spending my money." Actually this was a common scenario in DW's professional life but as trustee she would just tell the greedy kids that Dad's priority was mom's comfort, which is why he set up the trust and why mom won't be moving.

And on, and on, and on ...

[PatrickA5]

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Originally Posted by OldShooter Since DW was in the trust business and saw hundreds of trust beneficiary issues, we are not neutral on this. Irrev trusts after death protect against all kinds of problems beyond just divorce. Beneficiary befriended by nice man from Eddie Jones, who helps out by using all the money to buy annuities except what he retains to pay future wrap fees. Beneficiary befriended by nice lady from Rapem Insurance company, who helps out by using all the money to buy a variable annuity. Common disaster takes husband and wife, leaving minor children. Children's guardian is given control of the funds. Investment strategy and fees charged by the guardian totally unknown. Guardian may be unknown. Dad dies, leaves his money to mom, who ends up in a nursing home and Alzheimer-y. Children move mom out of a private room for cheaper digs. "She's spending my money." Actually this was a common scenario in DW's professional life but as trustee she would just tell the greedy kids that Dad's priority was mom's comfort, which is why he set up the trust and why mom won't be moving. And on, and on, and on ...

What would you say is the minimum amount of money involved that you would think a trust (for the situations above) would be advantageous. Obviously, any of these things "can" happen, but I'm not sure I have enough money to really worry enough about it. A couple of years ago I took a deep dive into trusts reading, contacting lawyers, going to seminars (i.e. sales pitches), etc. At that point, we decided to stay the course. The estate lawyer we worked with felt we really didn't need a trust - but at that point we were mainly concerned with avoiding probate.

[OldShooter]

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Originally Posted by PatrickA5 What would you say is the minimum amount of money involved that you would think a trust (for the situations above) would be advantageous. ...

To quote Hamlet: "Ay, there's the rub."

Considerations:

Professional trustee or family member?
Professionals cost money, family members controlling other family members' money has a high risk of creating nasty and permanent family schisms. Risk can be reduced to the extent that the family member does not have discretionary authority but rather disburses based on things like beneficiary age, fixed monthly amount, etc. Beneficiaries can still complain and even go to court to get the terms of the trust changed, but the risk is less.

Fees?
DW's megabank was at 1 1/2% for trusts. IIRC the quote we have from Schwab for our four testamentary trusts was 50 basis points.

How much money does the trustee want?
IIRC the megabank wouldn't look at a trust that wasn't several million $$. From a quick internet search it looks like Schwab charges a minimum fee of $5K, which is 50bps on a $1M balance. So for $500K you would effectively be paying be paying 1%. Really not too terrible if you remember that it includes management of the securities in the trust as well as all the trust bookkeeping, tax filing, etc. and dealing with beneficiaries.

At what $$ level does the grantor begin to want protection and what is an acceptable cost?
Completely subjective; for us it is probably a few hundred $K but our trusts will be somewhat bigger than that. It is entirely possible that a grantor will have a number that is too small for hiring a trustee.

Have I successfully dodged your question? You really will have to shop around on your own and, if the money is relatively small, you may want to weigh the costs and benefits of using a no- or low-cost family member trustee.

Disclaimer: I mention Schwab here because I am familiar with them as a customer. Given the competitive nature of the business I'd be surprised if Fido doesn't have or isn't headed toward having a trust division too. As the boomers' money begins changing hands, offering trust services is probably a growth market. It will probably also attract the usual lowlifes, too.

[Brat]

OH, OH... I do not recommend making more than one beneficiary of your home or any other asset that is not easily divided!

Let me share a specific experience: a widow of my acquaintance put her home in the name of each of her children without telling them. When she needed care the family wanted to sell the home and discovered what she had done. The problem was that one of the children had died and his share was now held by the daughter in law. They needed a lawyer to clear up the title, luckily the DIL was fine with the sale.

There was a buyer of the house and an accepted offer. This delayed the sale. Complicating that was the fact that the widow was no longer competent.

[Midpack]

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Originally Posted by doneat54 We took a New Years resolution NYE to stop talking about getting a RT done, and DO it. We did meet with a lawyer a few years back and I think he wanted $1800-$2k to do it. Can folks who have had a revocable trust done post what they paid the attorney? (if you comfortable doing so).

Our estate planning attorney was $2500 to $5000 depending on what you want included - kids/gkids, business ownership and/or expectations of contested settlement can add $. [He charges $1500 for a Will based plan FWIW] That's all he does, so he's very good at it, and charges accordingly. He provided every doc we should ever need, followed up with us to make sure we funded the trust (reportedly some/many people don't which makes the trust a bunch of worthless paper), advised us what additional docs we should provide - and we now have EVERYTHING our executor/successor trustee should ever need all in one BIG notebook (and digital).

You can find less expensive estate planning attorneys, but you get what you pay for (as usual).

NOTEBOOK Contents

· Attorney Name & Contact Info
· Letter of Explanation (a 3 page summary)
· Revocable Living Trust & Certificate of Trust
· Pour-Over Wills
· Durable General/Finance POAs
· Health Care POAs, HIPAA Medical Authorizations, Living Wills
· Memorial Instructions
· Personal Property Memorandum
· Trust Assets

o Warranty Deed
o Brokerage & IRAs statement
o Online cash statement
o Bank (checking)
§ Autopay (Medicare, Utilities, Credit Cards, Insurance)

o Credit Cards
o We do not have pensions, annuities or life insurance policies.

Other NOTEBOOK/SAFE Contents

· Car Titles, Marriage Cert, Soc Sec cards, Birth Certificates, Voter ID, Passports
· Auto, Home & Umbrella Insurance
· Medicare Cards
· Doctors Name & Contact Info
· Real Estate Records & Utilities
· Tax Returns (complete records on desktop computer)
· Login Info/Passwords & Online Subscriptions
· Digital Estate Plan (closing online accounts)
· No Long Term Care Insurance
· Names and phone numbers to neighbors and trusted friends who live nearby that can look out for the house temporarily and provide a key

[Midpack]

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Originally Posted by PatrickA5 Are the IRA's in the trust, or are they outside the trust with the trust being beneficiary? I've always heard that real people should be beneficiaries of retirement assets, not trusts. Maybe this has changed with the new 10 year rule?

That's our understanding too. Our IRAs are outside the trust, with spouse 1st bene and estate 2nd bene (only when we're both gone).

[ExFlyBoy5]

DW and I have a pretty simple estate...no children. We didn't do the trust route, just have beneficiaries/PODs on financial accounts and joint ownership of real estate and vehicles. Pretty simple will in case we die simultaneously and of course the appropriate power of attorneys (healthcare/financial/etc.) so a trust would be overkill. Oh, although I am attorney (but don't do estate planning). **IF** we decided to do the trust route, I wouldn't do it on my own...I would find a reputable attorney to do it for me.

Lots of comments on the fee charged by the attorney to the estate. Somewhere, there is most likely a signed retainer agreement that both parties agreed to. Remember, there are lots of practitioners out there and pricing methodologies are all over the place so buyer beware.

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Originally Posted by EQMAN We did our last year. Nothing more will be charged by the estate attorney when he helps our successor trustee administer the trusts.

Is said counselor of law immortal?

[Janez]

Thank you so much to everyone for their input and advice. This is so helpful! It is just a reminder and incentive to me to tell your own kids what is going on. My parents told my brother and I some things but never introduced us to their estate attorney until my mother passed. And then the train had left the station so to speak, and we were on the hook. I am glad my instincts were right about this estate attorney, I wish there was a way to publicize what they did and how they operate. It really makes me mad!

So I am a lot to go think about and it sounds like my next steps are to do the reading that was suggested, go talk to an estate attorney in my state, and consider putting our home in a trust at some point if its value continues to go up.

Thanks again!

[38Chevy454]

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Originally Posted by Midpack That's our understanding too. Our IRAs are outside the trust, with spouse 1st bene and estate 2nd bene (only when we're both gone).

That is how DW and my IRAs are set up as well, with the trust as the secondary beneficiary. Primary is each other.