Estate Planning that includes a trust

[SunnyOne]

Working on my estate plan. Have an appointment with an attorney coming up late next week.

I'm seeking the most efficient and cost effective way to leave my estate to my grandchildren in the case of my demise. They are currently minors and live with their father as their mother, my daughter, is no longer with us. She left no life insurance or other provisions for them.

The plan is to disburse funds at ages 25 and 30. It seems I could set up a testamentary trust as part of my will that will take effect upon my death. I have an amicable relationship with their father, but I need to insure these funds go directly to the kids.
I could live another 30 years, so I don't see why I should pay for a trust now every year for years on end should I live into a ripe old age.

Has anyone been in a similar situation or have any advice to share? All of this way out of my knowledge matter. I will take the attorney's advice of course, but according the locals, all the attorneys around here tend to advise the most expensive route. lol.
THANKS

 

[OldShooter]

Sure. We have trusts for each of 3 grands including one special needs trust and there will be a trust for DS as he is not financially savvy. They don't cost any money until they come into effect at your death and a professional trustee comes into the picture.

Re disburse funds at 25 and 30 that type of idea is very common. But what if one of the beneficiaries is seriously injured and needs home care? The trustee can't pay. The attorney will talk to you about "HEMS" or you can Google it. You'll also need to figure out where the money goes if a beneficiary dies. There might be some beneficial divorce-proofing to be done too.

FWIW our grands' trusts are oriented towards paying for college with anything not used for education going to charities when the trusts terminate. Using age 25 for the first payments pretty well excludes paying for college. You might want to modify that.

 

[rodi]

Avoid the testamentary trust. My MIL has one in her will for a BIL who is on disability. It is going to be a nightmare when she passes... might cause him to lose disability benefits, and will eat up some of the inheritance in filing fees every year, not to mention filings with the probate court while the testamentary trust has funds. MIL can't change it now because she has dementia and is under conservatorship.

If you set up the trust with the children as beneficiaries, you can dictate in the trust when the funds are dispersed. SIL, if you choose him as trustee, will have to file taxes on the trust, but no probate since it's in trust.

We set up our trust when our kids were still minors (they are 19 and 21 now). Our trust called for my sister to dole out money at specific milestones. It could be used for college expenses, living expenses within reason through college. And a chunk upon graduation with a bachelors degree. Another chunk at age 25, another chunk at 30, and a final chunk at 35. We set this up because we don't have a crystal ball. And BIL (see above) is a case study how life can be unpredictable... He's bipolar and a sometimes drug user... if he were given a large chunk of money all at once he would probably end up dead of an overdose... Not saying either of our sons will become bipolar, or drug addicts... just that life is unpredictable.

 

[HarveyS]

I don't see why I should pay for a trust now every year for years on end should I live into a ripe old age.


THANKS

Like Oldshooter, my trusts have no ongoing expenses while I am alive. Fees after death are to be expected, even with a non-professional trustee. For example, when my parent passed, a relative was the named trustee. State law allowed him to charge the trust a fee of about 1% per year. On top of this he could also charge fees for tax return preparation, investment planning, legal advice, etc.

Maybe some of the funds could be better used now - for braces/orthodontia, school sports/equipment, field trips, musical instruments/lessons, family vacations, start a 529 for each grand child, ...

My original trust had a plan similar to rodi's. Once my youngest became a legal adult (and we saw the adults they each became), we changed the trust to reflect that and remove many of the restrictions we had as minors. We also changed the trustees.

 

[marko]

Re disburse funds at 25 and 30 that type of idea is very common. But what if one of the beneficiaries is seriously injured and needs home care? The trustee can't pay.

There can always be unforseen circumstances but in many cases trusts can be modified with the court's approval.

I'm trustee for my disabled brother's trust and in the process right now of petitioning the court for changes to address his new situation. In short, it will give me broader powers beyond the original trust's scope to make more/different decisions on his behalf. It's expensive, but not complicated.

 

[OldShooter]

Avoid the testamentary trust. My MIL has one in her will for a BIL who is on disability. It is going to be a nightmare when she passes... might cause him to lose disability benefits, ...

As @Marko points out, the courts can change trusts. It's expensive of course, so its much better to get it right the first time, but in your case it may be worth consulting an expert trusts & estates lawyer to see if might be possible to change this trust to a "special needs" trusts. These are specifically designed to avoid the beneficiary losing government benefits by segregating the trust assets in specific ways. IANAL, but my guess is that the beneficiary would have to approve before a judge would make changes.

I have mentioned before that DW was an SVP in a megabank trusts & estates department. She was in court a few times a year, to the point where the judges greeted her by name when she walked in. Mostly what she was doing was either defending the trust against a greedy beneficiary oir she was asking the court to help the bank fix up some flawed documents. She never lost a case.

A Our trust called for my sister to dole out money at specific milestones. It could be used for college expenses, living expenses within reason through college. ...

... I'm trustee for my disabled brother's trust ...

Be very careful with naming a family member as trustee if there is any degree of discretion involved in making payments. This has frequently proven to be highly destructive to family relationships. One workaround is to name a professional co-trustee, maybe the family attorney, whose specific job is to be the bad guy when disagreements break out between the beneficiaries and the trustee. ("Grandma promised me I could buy a Ferrari.")

 

[marko]

Be very careful with naming a family member as trustee if there is any degree of discretion involved in making payments. This has frequently proven to be highly destructive to family relationships. One workaround is to name a professional co-trustee, maybe the family attorney, whose specific job is to be the bad guy when disagreements break out between the beneficiaries and the trustee. ("Grandma promised me I could buy a Ferrari.")

This is a good point.

In my case I inherited the trustee-ship from my late uncle who inherited the trustee-ship from his grandfather.

This is a relatively large, old and broad family trust fund with some degree of oversight by outside counsel. I might get away with the Ferrari but might have to return it after a while.

 

[CaliKid]

Really simple. Get a living trust, put everything in, name someone you highly trust as trustee after you are unable to serve, and leave the distributions in the discretion of the trustee (NOT set at ages 25 and 30). You lose any creditor protection when you do that and you never know what life will bring. Give a highly trusted person the ability to do what they think is best at that time. Maybe it's 25 and maybe it's not until 55. There is no reason to pay any annual fees for a trust. Go to a different attorney if they try to sell you that crap. That's strictly for their benefit to do the "free amendments and an annual meeting for $300." Garbage!

 

[ncbill]

Really simple. Get a living trust, put everything in, name someone you highly trust as trustee after you are unable to serve, and leave the distributions in the discretion of the trustee (NOT set at ages 25 and 30). You lose any creditor protection when you do that and you never know what life will bring. Give a highly trusted person the ability to do what they think is best at that time. Maybe it's 25 and maybe it's not until 55. There is no reason to pay any annual fees for a trust. Go to a different attorney if they try to sell you that crap. That's strictly for their benefit to do the "free amendments and an annual meeting for $300." Garbage!

A run-of-the-mill RLT wouldn't have any creditor protections anyway, unless there's some specific state law providing such.

Or do you mean after you're dead when it switches to an irrevocable trust where the trustee has HEMS authority?

 

[OldShooter]

Really simple. Get a living trust, put everything in, name someone you highly trust as trustee after you are unable to serve, and leave the distributions in the discretion of the trustee (NOT set at ages 25 and 30). You lose any creditor protection when you do that and you never know what life will bring. Give a highly trusted person the ability to do what they think is best at that time. Maybe it's 25 and maybe it's not until 55. ...

Einstein: “Everything should be made as simple as possible, but not simpler.”

Sorry, well designed trusts are not simple. Many contingencies are dealt with in a good document, including trustee resignation and appointment of successor trustee(s), a trustee who predeceases the grantor, beneficiaries who die or who are minors, ... This is over and above the questions how the money is to be distributed. Oh, and tax strategies to minimize the necessity for the trust to pay income taxes at rates as high as 37%. The OP's attorney will help with things like this.

 

[SunnyOne]

"Get a living trust, put everything in, name someone you highly trust as trustee after you are unable to serve, and leave the distributions in the discretion of the trustee "

I come from a family of gamblers. What kind of fees would be typically be involved in hiring a bank to perform as a trustee?

 

[OldShooter]

... I come from a family of gamblers. What kind of fees would be typically be involved in hiring a bank to perform as a trustee?

DW's megabank charged IIRC 1.5%. Our trustee will be Schwab at IIRC 60-70 bps.

 

[gayl]

Be very careful with naming a family member as trustee if there is any degree of discretion involved in making payments.

I named DS as he's relatively savvy on investing; single parent of 2 of the minors & the other 2 are my DD's. Other 2 already adults (21 & 25), gainfully employed, & minimally investing. The only 1 I'm concerned about is DD but she's an adult.

I have to trust his judgment

 

[OldShooter]

I named DS as he's relatively savvy on investing; single parent of 2 of the minors & the other 2 are my DD's. Other 2 already adults (21 & 25), gainfully employed, & minimally investing. The only 1 I'm concerned about is DD but she's an adult.

I have to trust his judgment

Sorry, I didn't make my point clearly enough. The issue with a family member as trustee arises when the trustee has discretion in making payments to other family members. Disagreements over payments can easily put everyone in court and burden the trust with significant legal fees, not to mention fractured family relationships. The investing is the easy part.

 

[HarveyS]

Or the trustee goes on a power trip and refuses to communicate. This ends up with trustee taking the position "talk to my lawyer", who, of course, is being paid for by the trust (as OS points out). Then, when all is said and done, you find the trustee took a hefty trustee fee. Yeah, fractured family relationships.
In my experience, picking the trustee is not a decision to be taken lightly. My parents took that decision lightly and it had horrible consequences.
YMMV

 

[pb4uski]

Sorry, I didn't make my point clearly enough. The issue with a family member as trustee arises when the trustee has discretion in making payments to other family members. Disagreements over payments can easily put everyone in court and burden the trust with significant legal fees, not to mention fractured family relationships. The investing is the easy part.

Or the trustee goes on a power trip and refuses to communicate. This ends up with trustee taking the position "talk to my lawyer", who, of course, is being paid for by the trust (as OS points out). Then, when all is said and done, you find the trustee took a hefty trustee fee. Yeah, fractured family relationships.
In my experience, picking the trustee is not a decision to be taken lightly. My parents took that decision lightly and it had horrible consequences.
YMMV

I agree that this can be a nightmare, especially when one or more heirs are desparate for money and paranoid that the trustee is out to screw them. At the same time, there are horror stories of attorneys appointed as executors who rape and pillage the estate one little fee at a time, so both approaches have problems.

DSister and I will be the co-trustees for my parent's living trust which names us 5 kids as beneficiaries. Luckily, we all get along well and are all financially secure so our financial future isn't riding on the outcome.

Similarly, for DW and me, DD will be the successor trustee for our trust and handle our estate. She is a CPA, doing well financially and has a good relationship with her brother. If there is a gray area question, I suspect that she will favor her brother because he is less wealthy than she is and she doesn't need the money.

 

[OldShooter]

There are a couple of things that can be done for fireproofing. First, a professional co-trustee. This person will communicate even if his/her cotrustee does not. The professional might well moderate other bad things, pointing out that the bad boy trustee might be personally liable for "breach of fiduciary duty" claims. From another angle, our state has enacted laws around the concept of "Trust Protector." This is a person named in the trust and given certain duties. In our testamentary trusts, those duties include the power to remove a trustee and to name a successor trustee. My limited understanding of the Trust Protector is that the role does not exist in many states' statutes, so YMMV and do your homework. IANAL; there are probably other possible fireproofing techniques. Again, do your homework by consulting an expert in your state.

 

[MrsHaloFIRE]

We have similar. Use an attorney that specializes in trusts nor dabbles. Use a professional trustee (our attorney recommended 2 locally owned banks whom I interviewed and selected one(. Consider divorce, demise, remarriage, disability of all beneficiaries. We have an incentive trust to match earnings to encourage work ethic

 

[SunnyOne]

I've met with two different estate planning attorneys this week - neither of them were very helpful. Both wanted $1200 just to plug and play my information into the forms they already have drafted...no advice on customizing to my situation.

$400 wasted. Maybe I need to look at the NOLO kits for my state.

 

[Sunset]

I've met with two different estate planning attorneys this week - neither of them were very helpful. Both wanted $1200 just to plug and play my information into the forms they already have drafted...no advice on customizing to my situation.

$400 wasted. Maybe I need to look at the NOLO kits for my state.

Sure lawyers are expensive, but sometimes needed.

I'm not sure why you think your situation is so special it's not already covered by the expensive software lawyers use.
Having a Will with some trust for young children and releasing a percentage at certain ages is pretty standard.

 

[marko]

Sure lawyers are expensive, but sometimes needed.

And sometimes not having had one is incredibly expensive!

 

[perinova]

I've met with two different estate planning attorneys this week - neither of them were very helpful. Both wanted $1200 just to plug and play my information into the forms they already have drafted...no advice on customizing to my situation.

$400 wasted. Maybe I need to look at the NOLO kits for my state.

“never ask a barber if he thinks you need a haircut”

 

[perinova]

We have similar. Use an attorney that specializes in trusts nor dabbles. Use a professional trustee (our attorney recommended 2 locally owned banks whom I interviewed and selected one(. Consider divorce, demise, remarriage, disability of all beneficiaries. We have an incentive trust to match earnings to encourage work ethic

Hi MrsHalo:
How much does a bank trustee charge? Vanguard charges .25pct for the first $5M. I am curious if better can be found.

Thank You.
PN.

 

[SunnyOne]

Get a living trust, put everything in, name someone you highly trust as trustee after you are unable to serve, and leave the distributions in the discretion of the trustee (NOT set at ages 25 and 30).

I am totally unfamiliar with these..."put everything in" - that means you replace your name currently on your brokerage (or bank) account, with the name of the trust? Can it be that simple? Will the bank or brokerage require some kind of paperwork to prove it's your trust? Thanks

 

[38Chevy454]

The "put everything in the trust" is really for more substantial assets that have a title deed or ownership document. As example you put your residence in name of the trust, as well as vacation property. You can put valuable vehicles in name of the trust. Bank accounts can have TOD (transfer on death) so not put into trust. IRA accounts have beneficiaries so not put into trust. Although a trust can be a beneficiary of an IRA.