Advice on Trust

[Russman]

Hi all...great forum,

Need some advice regarding trust planning.

I have some IRAs bank accounts and life insurance which already have named beneficiaries, so those accounts bypass probate, as they go directly to the beneficiaries...so no problem there.

Also, have a home that my wife and I wish to leave to my 3 adult children, to be equally divided, in the event we both pass away.
I was initially thinking of putting a Transfer on Death Deed on the house, with the 3 listed as beneficiaries.
But after reading about it more, once the recorded transfer takes place after death, the 3 kids would jointly own the house, and any creditors can go after the property, as well as any spouses of the kids could cause problems in any downstream decision making on the property (under community property laws for married couples).

So now, I'm leaning towards putting it into a revocable trust (I know I should have taken care of this earlier, but better late than never).
My idea is that the house gets sold first and then any profit is divided equally amongst the 3.

Is there a way to structure the trust so that the sale of the house takes place before it's distributed to the children ?
And is that the most appropriate way to handle my concerns ?

Thanks,

 

[OldShooter]

You need a trusts and estates specialist, not SGOTI. And yes IIRC, creditors et paid first.

 

[RetiredHappy]

Creditors can go after revocable trust owners (trustees) and beneficiaries as well. Only irrevocable trusts are sort of protected. Irrevocable trusts are irrevocable, so be very much aware of it, as well as irrevocable trusts having different tax brackets/consequence.

 

[Ronstar]

I agree - you need an estate planning lawyer to answer your question.

But in our trust, I believe that the trust sells the house. Then the Trustee transfers proceeds to our beneficiaries.

 

[OldShooter]

Comments are somewhat meaningless unless the poster precedes "trust" with "revocable" or "irrevocable." They are two different animals.

 

[MarieIG]

Yes, depending upon the language of the trust documents, a trust can sell the house first and divide the proceeds. I don't see how a revocable trust protects the holdings from creditors. Typically, inherited funds are separate property unless co-mingled - BUT - agree with seeking the assistance of a seasoned T&E attorney.

 

[marko]

Hitting Ctrl+Alt+5 for my usual auto-response: Talk to an estate attorney.

 

[OldShooter]

Hitting Ctrl+Alt+5 for my usual auto-response

ROFL. I may try that!

 

[Ronstar]

Comments are somewhat meaningless unless the poster precedes "trust" with "revocable" or "irrevocable." They are two different animals.

My trust is revocable until I die. then it becomes irrevocable. DW's trust is the same way.

 

[MichaelB]

Hi all...great forum,

Need some advice regarding trust planning.

I have some IRAs bank accounts and life insurance which already have named beneficiaries, so those accounts bypass probate, as they go directly to the beneficiaries...so no problem there.

Also, have a home that my wife and I wish to leave to my 3 adult children, to be equally divided, in the event we both pass away.
I was initially thinking of putting a Transfer on Death Deed on the house, with the 3 listed as beneficiaries.
But after reading about it more, once the recorded transfer takes place after death, the 3 kids would jointly own the house, and any creditors can go after the property, as well as any spouses of the kids could cause problems in any downstream decision making on the property (under community property laws for married couples).

So now, I'm leaning towards putting it into a revocable trust (I know I should have taken care of this earlier, but better late than never).
My idea is that the house gets sold first and then any profit is divided equally amongst the 3.

Is there a way to structure the trust so that the sale of the house takes place before it's distributed to the children ?
And is that the most appropriate way to handle my concerns ?

Thanks,

I’m only SGOTI, but it seems to me that if the house is titled to a trust, the beneficiaries are named and the instructions are to sell and divide the net proceeds, that’s what will happen.

One possible downside is, one parent passes away, the other lives on for another decade or two. On the first spouse passing the cost basis resets, but then the value appreciates over a decade. When the surviving spouse passes, the house sells at a sizable gain above the exempted amount, which the trust has to declare and pay tax on at much higher rates.

 

[timbervest]

I’m only SGOTI, but it seems to me that if the house is titled to a trust, the beneficiaries are named and the instructions are to sell and divide the net proceeds, that’s what will happen.

One possible downside is, one parent passes away, the other lives on for another decade or two. On the first spouse passing the cost basis resets, but then the value appreciates over a decade. When the surviving spouse passes, the house sells at a sizable gain above the exempted amount, which the trust has to declare and pay tax on at much higher rates.

Another SGOTI but I think the reset happens on the second to die in community property states. In non CP states, I believe 1/2 the value gets stepped up on the first death and the remainder on the second death even in a revocable trust.

 

[OldShooter]

My trust is revocable until I die. then it becomes irrevocable. DW's trust is the same way.

Yup. I think this is the most common, but there are many many alternatives. Also other factors like life estates and basis step-up to be considered. Be careful out there!

 

[pb4uski]

I'm SGOTI but have experienced this as a trustee so I'll give you my 2 cents so you can be better prepared before you talk with a lawyer.

My dad had a revocable living trust and their house and a commercial rental property was owned by the trust. Dad was the grantor, beneficiary and trustee. Mom was the contingent beneficiary and I was the successor trustee.

When dad died in 2005, the trust became irrevocable, mom became the benefciary and I became the trustee. I managed the trust on mom's behalf. Around 2015, mom moved in with my sister and we sold the house and the proceeds from the sale remained in the trust.

Mom died in late 2023. We had the commercial rental appraised for step-up basis purposes and negotiated with our 40-year+ single tenant for them to buy the property. The sale closed in January 2025. After the sale the only assets remaining in the trust was cash, which was distributed to the 5 beneficiaries.

The above is fairly typical for revocable living trusts. My aunt and uncle have a joint revocable living trust that is structured similiarly.

In their case, my uncle and my aunt are grantors and beneficiaries and my uncle and I are co-trustees (my aunt has cognitive issues) and their house was re-titled to be an asset of the trust. If my uncle predeceases my aunt, the trust becomes irrevocable and I become the sole trustee and will manage the trust assets for the benefit of my aunt who will then be the sole beneficiary. When my aunt dies, the trust provides that I distribute the trust's assets to 8 beneficiaries (2 individuals and 6 charities). While the trust doesn't specify that the house be sold, that is what would most likely happen.

In you case, you could estabilish a revocable living trust with the house deeded to the trust with you and your wife as beneficiaries and include a provision that upon the death of the second beneficiary that the house is to be sold and the proceeds from the sale and any other trust assets distributed to your 3 kids. Talk with a lawyer.