Living Trust vs TOD

[Dan32]

My wife and I have a simple will and have been discussing whether we should establish a living trust. The size of our "estate" would be ~$2 MM.

Main benefits of a revocable living trust: Bypass probate, easier for children, privacy of transfer.

In our state we can get all of the above benefits by establishing all of our financial accounts, house deeds, etc as either transfer on death or payable on death accounts. Cars can not be transferred.

So..... Can someone provide reasons why a trust would be better for us than a simple will with TOD / POD provisions? Am I missing something else that a trust could do for us?

Your comments, suggestions, and experiences are appreciated.

 

[kaneohe]

Living Trust vs. "Payable On Death" Forms | Standard Legal Law Library

mostly about managing during disability and what things you can control/title

 

[calmloki]

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.

 

[Sunset]

The advantage of TOD is it's free, and you can change parts of it at any time, so it's really flexible.

 

[calmloki]

The advantage of TOD is it's free, and you can change parts of it at any time, so it's really flexible.

While trusts seem to require constant lawyer maintenance ($) to track changes in property, location of residence, changes in the law...

 

[bingybear]

Main benefits of a revocable living trust: Bypass probate, easier for children, privacy of transfer.

Are the children minors? Are your children ready emotionally to get the $2MM in a day? Or should it be distributed over time.

If you have multiple kids and all are married. Then one of the kids passes leaving a family, do you want that child's family to get some of the assets?

How would your TOD work in these cases?

I agree with the other poster who noted about when you are incapacitated.

just thoughts.

 

[kaneohe]

The advantage of TOD is.................you can change parts of it at any time,..................

assuming you're not incapacitated to the extent that you can't......

 

[Fedup]

I only put real estates in living trust. Everything else has beneficiaries.


Sent from my iPad using Early Retirement Forum

 

[Dan32]

The children are not minors and doing well. I don't think they would think or act differently receiving any money all at once or over a several year period.

 

[MasterBlaster]

Private trusts are at risk of unfair disbursement when morally-challenged executors help themselves.

There are no trust-police and pretty much no one is watching.

The good thing about a will and probate is that it is open for everyone to see and supervised by the court. There is less chance for funny-business.

If you have Pay-on-Death arrangements with most of your financial assets, there may be little need for a trust. Most Pay-on-Death arrangements pass outside of probate. If your entire $2MM estate goes to probate the fees (in California) would be around $66k. The $66k is a fair amount of money but only about 3% of a $2MM estate. The fees would be less with assets outside of probate being subtracted off the estate.

In my opinion most people of moderate means do not need a trust. The exception, where a trust would be useful, would be to provide for children of mixed marriages.

- Just my two cents after watching a number of these things unfold.

 

[Options]

While trusts seem to require constant lawyer maintenance ($) to track changes in property, location of residence, changes in the law...

This is not correct. Whether a trust is long-term depends on the type of trust you have created. Some trusts (such as mine) can be completed quickly, in a manner of months.

Making an error while engaging in estate planning has the potential to completely undermine everything you are trying to accomplish (it can also create a nightmare for your heirs if you do it incorrectly). 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

 

[calmloki]

This is not correct. Whether a trust is long-term depends on the type of trust you have created. Some trusts (such as mine) can be completed quickly, in a manner of months.

Making an error while engaging in estate planning has the potential to completely undermine everything you are trying to accomplish (it can also create a nightmare for your heirs if you do it incorrectly). 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

Strange. We sat through a California estate planning "exercise" by a lawyer in Palm Desert. Talked with the man after the seminar and when I mentioned I was an Oregon resident and asked how that would affect having a living trust drawn up by his firm he noped right out - different trust laws between the two states. We were concerned and when we got back to Oregon spent the bucks for an hour with a top trust lawyer in Salem - at the end she said with our current and projected assets and our lack of kids that our JTWROS planning was optimal and that a trust DID require regular review. I stand by what I wrote, but am not a lawyer - all should do as they see fit.

 

[DrRoy]

We evaluated the options and have had a living trust for 9 years. Bypassing probate is well worth it.

 

[Options]

Strange. We sat through a California estate planning "exercise" by a lawyer in Palm Desert. Talked with the man after the seminar and when I mentioned I was an Oregon resident and asked how that would affect having a living trust drawn up by his firm he noped right out - different trust laws between the two states. We were concerned and when we got back to Oregon spent the bucks for an hour with a top trust lawyer in Salem - at the end she said with our current and projected assets and our lack of kids that our JTWROS planning was optimal and that a trust DID require regular review. I stand by what I wrote, but am not a lawyer - all should do as they see fit.

Regular review of a trust during your lifetime and management of a trust after your passing are two different things. All trusts require regular review (perhaps every ten years or so) as one's circumstances change. Whether your trust will requiring ongoing management after your passing will depend on the type of trust created. There are many different types of trusts.

This may help:

https://www.hg.org/types-of-trusts.html

I would now personally never be comfortable doing as I "see fit." I did that previously (when I didn't know any better) and had to revoke that old trust in its entirety while creating the new one this year (when I did know better). Even if you intend to spend money developing a comprehensive estate plan with an attorney, I still recommend reading the Nolo book I posted above (they are experts on law publications) or one like it, before seeing the attorney. The Nolo book is an easy read, and in layman's language. Estate planning is complex, and the reading an EP book before seeing an estate attorney will save you money and give you a better understanding of the entire estate planning process. It will also give you a better idea of what questions to ask when meeting with an attorney, if using an attorney is even necessary.

 

[Souschef]

Living trusts

My late wife and I had a living trust, because at the time the estate tax started at $1M, and with a home in California that amount is easy to pass. I admit when the lower limit was increased, I was lazy and did not change the trust from an AB trust to something easier.
When my wife passed I had to divide all our assets between the 2 trusts. It took me 10 years to get everything back into my name within the terms of the trust.I dissolved the trust in accordance with the trust document, and now have everything in either joint tenancy or TOD accounts.

 

[meierlde]

One does have to check the costs of various secenarios in your state For roughly $1 million estates for both of my parents the legal bills in tx where on the order of 15k. (including the lawyer checking the 1041s for the estates). So probate costs depend greatly on the state in question.

 

[nwsteve]

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

 

[523HRR]

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.

 

[Rickt]

Private trusts are at risk of unfair disbursement when morally-challenged executors help themselves.

There are no trust-police and pretty much no one is watching.

The good thing about a will and probate is that it is open for everyone to see and supervised by the court. There is less chance for funny-business.

If you have Pay-on-Death arrangements with most of your financial assets, there may be little need for a trust. Most Pay-on-Death arrangements pass outside of probate. If your entire $2MM estate goes to probate the fees (in California) would be around $66k. The $66k is a fair amount of money but only about 3% of a $2MM estate. The fees would be less with assets outside of probate being subtracted off the estate.

In my opinion most people of moderate means do not need a trust. The exception, where a trust would be useful, would be to provide for children of mixed marriages.

- Just my two cents after watching a number of these things unfold.

+1

I visited my attorney last week and that is pretty much what i understood from what he said to me. One thing he did recommend was to set up a durable power of attorney (medical )/or something similar and establish trust worthy kids/siblings etc to execute my desires in the event I am unable to make decisions regarding my healthcare towards end of life.

Thanks

 

[ERD50]

We evaluated the options and have had a living trust for 9 years. Bypassing probate is well worth it.

I think you may have missed some of the content of the previous posts, or misunderstand probate.

A trust is only one way to bypass probate. Naming beneficiaries, and keeping accounts as TOD, and other techniques avoid probate as well. There are pros/cons to each.

... All trusts require regular review (perhaps every ten years or so) as one's circumstances change. ...

Even if you intend to spend money developing a comprehensive estate plan with an attorney, I still recommend reading the Nolo book I posted above (they are experts on law publications) or one like it, before seeing the attorney. ...

Absolutely agree on a NOLO or similar book. Possibly to DIY, but definitely to educate yourself before seeing the 'pros'.

But do all trusts require regular review? I mean, if I open a new account, it's not hard to figure out if it should be in my, or DW's trusts name. Sure, if your life-status changes, a review is in order. But otherwise?

-ERD50

 

[mathjak107]

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.

we had a disclaimer trust in place which protected us from ny's estate tax . the beauty of a disclaimer trust is the surviving spouse has 9 months after death to elect to split the estate in half with irrevocable trusts .

as of today though ny went to 4 million as a threshold so thankfully we no longer need to worry about activating the trusts effectively cutting each other off from 1/2 the assets .

once the trust is activated by law a spouse gets only the gains a year plus 5% of principal .

crappy way to live but in ny we had an estate tax cliff .

if you went over the years limit by 10% you just didn't pay on the overage , you lost every thing as far as an exclusion and taxes were due from dollar one .

most tax planning and medicaid planning can only use irrevocable trusts

 

[donheff]

Making an error while engaging in estate planning has the potential to completely undermine everything you are trying to accomplish (it can also create a nightmare for your heirs if you do it incorrectly). 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

Thanks I downloaded the book from the library. And you are quite right about the pitfalls. DW and I have trusts designed to ultimately direct the estate to our kids while enabling the survivor to use the proceeds to maintain standard of living until he second death. A well regarded estate attorney at DW's big deal firm put the initial plan together and recommended that we split our assets up as much as possible with an eye to potential future changes in estate tax limits. That way if we got past the limit in total the first to die might be able to slide past with a lower amount. He had us divvy things up including the houses and set the 401K designations to the trust. Several years later I discovered that DC is unusual in its estate tax limits -- they do not adopt the Federal limits as do most states. Had DW died the transfer of the houses and 401 K's would have triggered a tax event requiring a big payment. We quickly consulted a good local attorney and now have teh houses in joint ownership and the 401Ks designated with each other primary and the trust secondary. But I think for most, a trust may be risky overkill.

 

[mathjak107]

i already experienced a defective will and a defective trust in my lifetime .

the defects would have been known to an estate attorney . in both cases a general practitioner did the documents and these are seperate cases .

nothing is ever a problem until it is a problem .

one thing i learned is INTENT means nothing to the probate court if there is defective verbiage or missing words .

the trust specifically ruled out by name some estranged grand kids yet as the judge said " it is clear what grand pa's intent was and these children were to get nothing , but i can't re-write history or add missing verbiage "

 

[MasterBlaster]

crappy way to live but in ny we had an estate tax cliff .

if you went over the years limit by 10% you just didn't pay on the overage , you lost every thing as far as an exclusion and taxes were due from dollar one .

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.

 

[Options]

Here is a more helpful site from Nolo I should have posted up thread. Note the various links providing an overview of estate planning (I still recommend getting the book, though):

Estate Planning: An Overview - Nolo.com