do you have a trust and which kind?

F

frank

Thinks s/he gets paid by the post
Joined
Jan 12, 2010
Messages
1,177
Location
dubuque
I have been thinking about starting a trust to protect assets for my heirs and from having my family to go through probate. I was wondering if any here have a trust and what kind specifically to protect assets. I am in the 1 to 2 mil range and want to make sure my assets are protected and to make sure the assets go where I want them to go in the event of my passing. where would I look to find the positives and negatives to each kind of trust? Who is the best person to form the trust? can I do it myself or is it something better handled by an attorney? thanks
 
Hi Frank:

That's a set of pretty open ended questions you have there. There are several kinds of trusts that could be drawn up to decide who gets what asset over time. How the trust works depends on what state rules there are and how complicated you wish to make the trust.

Most living people set up a revocable trust so you can make changes if needed. If you are not proficient with the legal aspects of setting up this kind of document, it makes sense to hire an attorney that handles trusts.

I suggest Googling "revocable trust and your state" to see what is on the web as far as information.

OK, I think you are in Iowa so here is a good starting point:

http://www.iowabar.org/?page=LivingTrust

Hope this helps you,

Tony
 
What Tony said +1

IMHO, understanding the details and implications comes from doing the upfront work, even if you decide to use a lawyer. Googling for DIY wills and trusts will bring up many source sites. Doing a preliminary "fill in the blanks" trust requires some soul searching, as there are many things to think about.... not just for those who will be included in the trust, but for contingencies and options. For instance: A son who you might want to include, who was divorced. While you want him to have a portion of your estate, what happens to that money, should he pass away. Would you want the money to go to her? Exclusions are just as important as inclusions in many cases.

The other part of this, is that Trusts and Wills are living documents. It's not a one time deal, but like a bank account, need to be maintained and updated. After one year or even less, situations change... for you, and for those for whom you choose to provide. In efforts to balance endowments, values change... cash, stocks, housing values etc. If the jewelry goes to #1, and the house to #2 and other assets go to #3... will this be equitable in 5 years? And what if #1 marries into big money, and #2 goes bankrupt and #3 is in jail?

In the lawyer's office, most of this is cut and dried... and certainly anything you would do yourself should be legally validated. The point is, by going through a step by step process, online and at your own pace, this will go a long way towards making thoughtful decisions and probably offer more thoughtful options on taxes, and the later effects on the beneficiary... especially for things like IRA's, Annuities, Life Insurance.

Having seen some expensive mistakes made by members of our senior community, who blindly followed a estate attorney's advice, I believe that due diligence is in order. It's not an easy process, and if done properly, is not a one or two hour exercise.

Having expounded on this, now, I have to go and look at my own plans again... since it's been two years. :LOL: Do as I say, , not as I do.
 
None here, but Dad set up living trusts for him and Mom. Originally to avoid estate taxes before the limits were increased. I'm not sure if there is much need to have a trust if you are well under the estate tax limit other than it makes probate easier, but given most assets can be distributed via beneficiary designations and TOD titling.

All our financial assets will be distributed via beneficiary designations and our home is joint so unless DW and I go ahe
 
Parents, still living, set up a special needs trust for my disabled brother who I am taking care of. He is on medicaid so the trust is set up so he won't lose the medicaid. The problem I've found is that the trust has to get all income and the tax rate on a trust is almost 40% on all income over about $11,500/year.
 
On my Dad's living trust the income on the trust's assets pass through to my Mom via a K-1 for income tax purposes so it is tax at her personal marginal rate (much less than 40%). Not sure why it would need to be different for your brother.
 
We put our trust together before the estate tax limits were raised. At the time assets were taxed pretty heavily - so we went with a bypass trust, aka an A/B trust.

My husband and I are joint owners of the trust - when the first of us dies - half of the trust becomes non-revokable. This protects the dead spouses wishes. The surviving spouse has access to assets in the estate - but can't change the terms for the distribution of assets on half of the estate from what the deceased spouse wanted. This prevents the surviving spouse from giving the entire estate to the 20 year old nurse instead of the kids. More importantly at the time - it breaks the estate into smaller chunks from an estate tax point of view - and might prevent taxes eating into the part the surviving spouse needs to survive.

Now that the estate tax threshold is much higher - it's not as much an issue to do a bypass trust.
 
pb4uski said:
On my Dad's living trust the income on the trust's assets pass through to my Mom via a K-1 for income tax purposes so it is tax at her personal marginal rate (much less than 40%). Not sure why it would need to be different for your brother.
Click to expand...

If the beneficiary of the trust, a disabled person, shows too much income, they may no longer be eligible for SSI or Medicaid or both. K1 income is still income to the beneficiary.
 
We established a revokable trust a couple years ago, using a law firm that does trust seminars and claimed to have an expertise. It was $1500 which seemed a little expensive at the time. But everything is nice and neat in one binder, including our medical directives. You don't ever want to be in a position where some state bureaucrat has the power to decide to pull your plug or not.
Also, remember you might not be able to roll your IRA and 401K into a trust as it will incur redemption taxes. But this is normally not a problem if you have designated beneficiaries in those plans.
 
The question of setting up a trust while still alive depends on the state. I handled my parents estates in Tx and it was fairly painless. The lawyer got the wills admited, then I prepared an inventory in both cases, paid bills, and then distributed the proceeds. It took about 9 months. Note that in Tx if the will is properly written the courts involvement is just to approve the will and receive the inventory.
So I would suggest a good local attorney to set up which ever, and if you ever change your state of residence, get the documents updated.
 
imoldernu said:
What Tony said +1

IMHO, understanding the details and implications comes from doing the upfront work, even if you decide to use a lawyer. Googling for DIY wills and trusts will bring up many source sites. Doing a preliminary "fill in the blanks" trust requires some soul searching, as there are many things to think about.... not just for those who will be included in the trust, but for contingencies and options. For instance: A son who you might want to include, who was divorced. While you want him to have a portion of your estate, what happens to that money, should he pass away. Would you want the money to go to her? Exclusions are just as important as inclusions in many cases.

The other part of this, is that Trusts and Wills are living documents. It's not a one time deal, but like a bank account, need to be maintained and updated. After one year or even less, situations change... for you, and for those for whom you choose to provide. In efforts to balance endowments, values change... cash, stocks, housing values etc. If the jewelry goes to #1, and the house to #2 and other assets go to #3... will this be equitable in 5 years? And what if #1 marries into big money, and #2 goes bankrupt and #3 is in jail?

In the lawyer's office, most of this is cut and dried... and certainly anything you would do yourself should be legally validated. The point is, by going through a step by step process, online and at your own pace, this will go a long way towards making thoughtful decisions and probably offer more thoughtful options on taxes, and the later effects on the beneficiary... especially for things like IRA's, Annuities, Life Insurance.

Having seen some expensive mistakes made by members of our senior community, who blindly followed a estate attorney's advice, I believe that due diligence is in order. It's not an easy process, and if done properly, is not a one or two hour exercise.

Having expounded on this, now, I have to go and look at my own plans again... since it's been two years. :LOL: Do as I say, , not as I do.
Click to expand...
+1. DW and I set up revocable family trusts about 7 years ago and recently made some minor changes to them. They are fairly easy to change and or drop but there are some issues to deal with. For example, our designation of beneficiaries on 401k's et al designate our trusts. If we decided to dump the trusts, we would need to remember to change the beneficiaries or :confused:
 
We have a trust as well, similar to Rodi's - as we are in second marriage. Although our stated purpose of the trust is to support the surviving spouse - anything that is left after that gets divided equally among our kids.

I read two really good books - they look at the how and why and effects of the terms of trusts. I thought they were both great and opened my eyes to a lot of things.

Best Intentions: Colleen Barney, Victoria Collins: 9780793151967: Amazon.com: Books

Beyond the Grave revised edition: The Right Way and the Wrong Way of Leaving Money To Your Children (and Others): Gerald M. Condon, Jeffery L. Condon: 9780060936310: Amazon.com: Books
 
RE2Boys said:
If the beneficiary of the trust, a disabled person, shows too much income, they may no longer be eligible for SSI or Medicaid or both. K1 income is still income to the beneficiary.
Click to expand...

Thanks, I think it's worth pointing this out to people that may have special needs folks that receive medicaid and/or ssi because they could inadvertently disqualify them by directly distributing funds from a special needs trust to them. The trap is that the trust tax rate is so high on a relatively small amount of income, $11,500 or so. That's why we limited the amount we are putting in the trust.
 
thanks for all the good advice and suggestions on books. I will check these out. a lawyer I was talking to was saying an irrevocable trust is the best way to go but I had my doubts. I notice none of you have the irrevocable trust, so I might be getting the wrong advice.
 
We have a irrevocable Delaware asset protection trust for a couple years in order to safeguard a significant amount from a previous business relationship that went south.
 
we set up disclaimer trusts 2 months ago. they can be used as irrevocable trusts if needed down the road, otherwise they are just normal accounts.
 
Last edited:
We set up, in NOLO Press talk, an A/B Disclaimer Trust, plus all of the other stuff, POA, Pour-over Will, Medical stuff, etc.

I researched it a lot at the time, and at one point seriously considered doing it ourselves. But I was concerned that if we didn't do something right, or did not cover some eventuality, that our failings would not be known until tested... the worst time!

Went to a lawyer who specializes in this, was impressed by the thoroughness of it all. Every question must have an answer, nothing undefined. They provided text pages for us to use to contact all of the mutual fund companies with, so the beneficiary would be modified to be the trust text. They said expect problems with IRA funds, trying to get the fund cos. to do it. Taxable accounts no problem, Vanguard was the only problem with IRAs. Lot of back and forth with Vanguard "we don't do that", "we DO do that, don't know why they told you we don't", "we don't do that". Back and forth, on and on. Finally they sent me a "last word" letter that they don't... but it was cagely worded to imply that if I had a much larger account with them, they might...
 
The main benefit of a trust is to avoid probate. Different states this is more or less painful and more or less time consuming. It really does not avoid taxes, unless you have especially large estate assets. Items with beneficiaries (such as 401k/403b/IRA accounts, after tax accounts) are usually left to named persons and not part of the trust. Best advice I can give is to set up a mtg with estate attorney and discuss your situation and your state's rules.

Your trust will include the will portion with instructions for distribution of your assets. It also is common to have financial and medical power of attorney authorizations. Assuming you and spouse are in good health and mentally competent, a revocable living trust is what you should have. What specific type trust is best left to your talk with estate attorney(s).
 
I have a revocable trust set up in California more than 15 years ago. While my largest assets have been put in the trust, I have significant amount example all my real estate that I have not bother putting in the trust.

I guess one of these days I should find an estate attorney in Hawaii and update and change it. However, I am not sure that trusts are as valuable now as they were when estate tax limits were much lower.
 
clifp said:
I have a revocable trust set up in California more than 15 years ago. While my largest assets have been put in the trust, I have significant amount example all my real estate that I have not bother putting in the trust.

I guess one of these days I should find an estate attorney in Hawaii and update and change it. However, I am not sure that trusts are as valuable now as they were when estate tax limits were much lower.
Click to expand...


Note that revocable living trusts don't affect estate taxes one bit. In fact the executor can claw back from the beneficiaries if need be to pay the estate tax. It really is the issue of probate, which in Tx costs a little more than 1% of the assets for lawyer fees (including court costs). My experience with both my parents estates in tx was: the will is admitted to probate, an inventory is due some time later, and once the inventory is filed if your under the federal estate tax limit your done, and can distribute the assets. It took about 10 months for each estate. Now depending on the state your mileage may vary greatly. Other states may call the independent executor a different name so ask if there is the equivalent to the independent executor in your state. The only other advantage to a trust is if you don't want the inventory to be public record.
 
Just used an estate lawyer to setup revocable living trust (and living will, power of attorney and pour over will). Cost $4000 as they also did rental house deed transfer docs.

Our setup is about as simple as possible with 3 kids. The only driver was to avoid CA probate fees upon second death. Offers option to create irrevocable bypass? trust at time of first death that may be useful to avoid death taxes (currently well below limit). Presumably there would be a tradeoff between capital gains step up basis advantage and estate tax limit trigger... the 9? month option lets them do the calc at time of death valuations.

No asset protection provided to us by this setup. Upon second death, $ are divided into 3 trusts for the 3 kids (totally under their individual control) which runs until they are 50 and I think might give them a bit of protection from their spouse/divorce/lawsuit.

I had done a bit of prep reading, but learnt a lot from the process. I do a lot of teach myself stuff, but I think it is fairly easy to miss key points... so paid for expert in this case. Kids currently do not have spouses, and apparently if kid dies before us, the surprising (for me) default is for $ to go to their offspring and not their spouse (obviously their spouse would administer offspring $ in that case anyway so perhaps no material difference).
 
the problem with a/b trusts are unless you got a lot of money ,far more then you think your spouse will need it is to hard to predict what can be decades down the road and there are no do overs.

we found a disclaimer trust to be a far better way of going than an a/b trust which locks the spouse out with restrictions to far in advance of things playing out..
 
I never heard of a disclaimer trust, but I am going to check into it. I tried one of those nolo do your own trust a few years ago and found that with the way things change so fast it really does need update fairly often.
 
frank said:
thanks for all the good advice and suggestions on books. I will check these out. a lawyer I was talking to was saying an irrevocable trust is the best way to go but I had my doubts. I notice none of you have the irrevocable trust, so I might be getting the wrong advice.
Click to expand...

I have set up both revocable and irrevocable trusts. And, you can set up a revocable trust that becomes irrevocable upon your death. And, remember the possibility of "elder" trust needs. Your trust can include instructions based on your inability to manage your own affairs. I really would suggest spending a few hours with an estate planning attorney after reading the very best book I have read on any subject; "Estate Planning Smarts" by Deborah L. Jacobs. It's so good I bought one for my very competent lawyer and CPA. And, some States tax assets distributed through a will but not a trust. Each State has its own laws, you really need professional help provided by an estate planning lawyer working on an hourly basis. A lot of professional planners will do if "for free" but they want to sell you commission products as part of your plan. Your financial position sounds exactly like my in laws.....they read the book, did their plan and are very, very, happy. I think their cost was about 3k. Good Luck....
 
frank said:
I never heard of a disclaimer trust, but I am going to check into it. I tried one of those nolo do your own trust a few years ago and found that with the way things change so fast it really does need update fairly often.
Click to expand...

a discalimer trust is a trust where the surviving spouse can ELECT to either take all the money up to 9 months after the death of the spouse or disclaim it and let it convert in to what is basically an a/b trust at that time.

it is mostly used to get 2x the state exclusion for estate taxes.

if the trust option is selected the surviving spouse is limited to all income and 5% of principal a year but there are exceptions where more money can be taken.
 
You must log in or register to reply here.

Similar threads

R
Prevent Disinheritance of Heirs After Remarriage
2
Replies
27
Views
3K
Slim11
S
T
Has anyone set up Charitable Remainder Trust?
Replies
11
Views
749
rk911
rk911
W
Anyone one with separate trusts?
Replies
0
Views
183
Wupot2020
W
A
1041 trust return questions
Replies
6
Views
429
Montecfo
M
S
Estate Planning Question
Replies
4
Views
491
CRLLS
C

Latest posts

Back
Top Bottom