Living Trust vs TOD

[mathjak107]

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

 

[523HRR]

A trust can also ensure that your children are not inadvertently disinherited when a surviving spouse remarries.

 

[mathjak107]

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 .

 

[bingybear]

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.

 

[mathjak107]

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

 

[bingybear]

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.

 

[mathjak107]

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 .

 

[ERD50]

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'... ?

-ERD50

 

[mathjak107]

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 .

 

[meierlde]

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).

 

[mathjak107]

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 .

 

[Ready]

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.

 

[ERD50]

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.

-ERD50

 

[mpeirce]

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.

 

[523HRR]

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.

 

[bingybear]

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 .

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.

 

[meierlde]

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.

 

[Souschef]

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.

 

[mathjak107]

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 .

 

[mpeirce]

...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.

 

[Happyras]

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.

 

[frugal-one]

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
Nwsteve

What is RLT?

 

[frugal-one]

most tax planning and medicaid planning can only use irrevocable trusts

Why is this?

 

[Souschef]

What is RLT?

Revocable Living Trust (I had to look it up. Another TLA(3 letter acronym))

 

[mathjak107]

Why is this?

because you can't own the assets anymore and or have control over them .