Setting up trust after receiving a small inheritance?

[gauss]

Gauss is going to receive a small (mid five figure) inheritance from his recently dearly departed father. It is not a life changing amount of money.

Instead of taking possession of the funds and assets directly and combining it with our other funds, I had an idea of transferring the inheritance assets into a revocable trust.

This would have the advantage of keeping the funds separate. We could see over time what DD's money has grown into and the possible good it could do down the road.

We could name it something like "The Dear Dad of Gauss' Memorial Trust" so that when we see financial statements we would be reminded of Dad.

I have pointed out purely emotional reasons for considering doing this. I am not doing this for any particular financial advantage.

Has anyone else considered doing something like this and does anyone have any thought on if it might be a particularly good or bad idea.

Thanks for your input.

-gauss

p.s. FWIW, Gauss and Mrs. Gauss do not have any children or siblings. Once 2 remaining parents and 1 grandmother have passed we will have no legal heirs outside of each other.

 

[steelyman]

I will do this (but it'll be "The Steelyman Trust"). I haven't done it because I want to change states. You retain control over the assets even in trust.

 

[ERD50]

Basically, what you are doing is 'compartmentalizing' these funds. Often, that's not a good thing, as it makes people think they are somehow magically different, but money is fungible.

In this case though, you clearly point out that it is for emotional reasons. I don't think that's 'bad' in any way. I think it makes perfect (emotional) sense for what you want to achieve.

Maybe, at some point in the future, if you feel your finances are in good shape and you would never need to tap that money, you might want to make a charitable contribution in your Dad's name, to something he would have wanted to support. That would work out nicely.

-ERD50

 

[GrayHare]

You don't need a trust just to keep things separate. It's less expensive to simply open a new account.

 

[38Chevy454]

You don't need a trust just to keep things separate. It's less expensive to simply open a new account.

X2, just open a separate account and you can see progress of that money. In your situation I see no advantage to making a separate trust for the amount of money you are talking about.

 

[gauss]

You don't need a trust just to keep things separate. It's less expensive to simply open a new account.

Thank you for the comments.

I already have a bunch of accounts in DW and/or my name. Adding a few more would just seem to further complicate things. Having a separate entity to hold the funds would provide more the separation that I was thinking of.

I haven't studied trusts for a number of years. Could you please briefly describe the costs? Are they one time or recurring? I would probably avoid using an attorney in that I am really a DIY type. If there are significant unavoidable costs then that may be a reason to rethink this.

-gauss

 

[gauss]

Basically, what you are doing is 'compartmentalizing' these funds. Often, that's not a good thing, as it makes people think they are somehow magically different, but money is fungible.

Ah yes, "Behavioral Economics 101".... To tame the beast, you must first know the beast. grin.

 

[Z3Dreamer]

Step A - Set up trust using legal documents. You say your are a DIY. If so, you can find documents yourself. Please make it a simple trust which distributes income annually. Complex trust does not always distribute and therefore pays tax on income. Get EIN for trust.

Step B - Fund the dern thing and get it going. This is putting the money is an account in the name of the trust.

Step C - Do the annual IRS forms for trusts. I am sure TurboTax has a module for this.

Step D - Use the K-1 on your 1040.

BTW, trusts have been muchly discussed on this forum as a way to keep marital assets separate.

 

[Z3Dreamer]

FWIW, I have no license to practice anything. I have left out state filings as your state may not have any. But I think you wanted the highlights. If you are in real doubt as to how to do it, Google or Bing the question.

 

[GrayHare]

Thank you for the comments.
I already have a bunch of accounts in DW and/or my name. Adding a few more would just seem to further complicate things.

Putting the assets in a trust would not solve that: you'll still have to add another account (one for the trust). Plus, if your trust gets its own TIN you add the complexity of more tax filings.

A simple trust from an attorney will probably cost about $1000. Suze Orman sells an RLT kit online for much less though I have no idea if it is any good.

 

[kaneohe]

Seems easier to change your brain/thinking than to do the trust. If the trust is really its own entity, you'll have to file a separate trust tax return. Trusts have much smaller tax brackets so you'll reach higher brackets much faster so depending on your personal situation and the trust status, you might end up paying more in taxes.

Perhaps using a separate bank/broker might help your brain do the separation.

 

[MRG]

Minimually put it in a different account. The trust can be done as you decide what's best.

I got the shock of my life when the state DF passed away in, froze my account because of their estate tax. Five months and counting.
MRG

 

[45th Birthday]

Step A - Set up trust using legal documents. You say your are a DIY. If so, you can find documents yourself. Please make it a simple trust which distributes income annually. Complex trust does not always distribute and therefore pays tax on income. Get EIN for trust.

Step B - Fund the dern thing and get it going. This is putting the money is an account in the name of the trust.

Step C - Do the annual IRS forms for trusts. I am sure TurboTax has a module for this.

Step D - Use the K-1 on your 1040.

BTW, trusts have been muchly discussed on this forum as a way to keep marital assets separate.

There is no need at all for simple revocable trusts to have a separate TIN and to file separate tax returns.

Having said that, there is also no need for a trust in this situation. Maybe a tad more "separate" than another account, but this will still be another account plus.

Depending upon where you open the account and the types of things you do with the money, doing it inside a trust is usually more complicated.

We have almost all our assets in various trusts for estate planning reasons and it is a little more complicated and getting more so as time goes on. For example, some financial institutions won't open trust accounts online, or they want to see the entire trust document, or they want a medallion signature guarantee, etc.

 

[mpeirce]

This may or may not be the situation in some of the posts above, but there is a pretty big difference when talking about revocable and non-revocable trusts.

Revocable trusts, like a living trust, aren't usually very complex and don't have much of a tax foot print (before death at least).

Irrevocable trusts take on a life of their own in many ways having to file taxes and comply with more rules than revocable trusts. And, you know, they're irrevocable - that can be a big deal.

I now my DF runs the two together all the time. He's always telling me that one of his friends "set up a trust" and shouldn't he do the same? When I ask him a few questions about what kind of trust, that's never clear.

 

[JakeBrake]

When my mother died and I received my inheritance (mid five figure), DW and I gifted most of it equally to our adult children (my mother's grand children) ASAP after the next Christmas. No taxes due. We said nothing about it before then. I don't know what they have done with the money. I didn't ask and they didn't tell. They are very frugal.

I told them to not expect any more until DW and I die.