Hi and a Question about Trusts!

[Janez]

Hello everyone,

I have been reading this forum for about two years now and want to express my gratitude to everyone in this group. You are funny, insightful, kind, helpful, and most importantly, give me inspiration every week that the FIRE life is a great one!

I am 53 years old, with one kid in 11th grade and another a sophomore in college. I left a high stress full time job about 18 months ago to help care for my two parents who died in the past two years, as well as be around for my kids before they left for good. I have been married 30 years next week and my husband is a federal employee who is set to retire at age 57 1/2 in three years with a pension after 30 years of dedicated service. He could FIRE now but it is worth it to us to get the pension for life, plus health insurance before Medicare kicks in.

I have been working 24 hours a week during the pandemic as a Pandemic Pod Tutor, just to get out of the house, and will probably keep working part time in education until my husband retires. We have lots of plans to travel and have more than enough funds to live a comfortable life. The kids colleges are covered, and our mortgage is fully paid off.

My one burning question revolves around estate planning, and I have not seen any clear postings about this area over the past two years and hoping the group could help me figure this out. I am the executor of my father's estate, and he placed most of his assets in a trust to avoid probate, and his estate attorney charged us 1% of the value of the trust assets to settle, and 3% of the non-trust assets to settle. Thank goodness we sold his house before he died, so it is pretty simple to manage. The only probate asset is his car and the rest are stocks in Fidelity that will be disbursed through the trust.

This has left my husband and I to try to figure out if we need to do a trust as well. Our assets are far below the $11 m threshold, and are all in IRAs, cash, stocks, and the house. It is my understanding that if all our assets have direct beneficiaries to our two children, that they will avoid probate and avoid having to pay these legal fees that I am paying right now for my father. Am I missing something here? Is it enough to have a will, advanced medical directive and POA directive, and beneficiaries and not have to go through the hassle of creating a trust, which to me, based on my own experience right now, seems to have made my father's estate attorney a lot of money?

Thanks for your advice or at least where to go to learn more.

 

[Packman]

I have the same question. Seems like trusts are the big thing now, and I don't really understand the benefit if financial assets have beneficiary designations and real property is titled in both spouses names. Looking forward to the knowledgeable folks here sharing their thoughts.

 

[Brat]

I think your father's attorney shafted you. My parents and my MIL had trusts. To the extent their services were needed we paid by the hour.

It is essential to title assets, except IRAs, in the name of the trust. Yes you can designate your children as survivors on your accounts, they would go to them without probate.

DH and I have a revocable living trust. It is important to identify a successor trustee. I think your children are too young for that responsibility. I wouldn't name a lawyer. Perhaps the person who you have designated as your children's guardian should you pass while they are minors.

One thing to consider is what would happen if either you or your husband died and the survivor remarried. Your joint assets could go to the new spouse and that person's children.

 

[RunningBum]

I don't claim to be an expert of any kind at estate planning, but I believe my situation is in good shape. I have beneficiaries set up for my tIRA, Roth, and bank accounts, so they won't go through probate. Transfer on Death set up for my Vanguard individual account, and my house, so they won't go through probates. Not all states allow TOD for real estate. So what's left? My cars (next one I'll set up TOD as well), furniture, personal belongings, etc. I'm not sure if probate can be totally avoided, but probably 95-99% of the assets will, so it won't cost much nor should it be complicated.

I did see an estate lawyer to set up POAs and she agreed that I don't need a trust. If I were to get remarried that would change.

 

[OldShooter]

After we die, our assets will be split among 3 grands, a son, and 3 charities. Grands are presently minors and DS has no financial expertise. So ... 4 trusts, one a special needs trust. This path avoids spendthrift issues, protects assets in the event of lawsuits, divorce, and ensures professional management. Schwab will be the trustee and IIRC the fee is 60 or 70 basis points -- much cheaper than bank trust departments.

Our houses are in rev trusts now, but this is not a big deal as they are both in our home state. The big money is in TIRAs with trusts as beneficiaries. Estate attorney says value of remaining assets may not force a probate but it is not a big deal if it happens.

This kind of planning is not DIY stuff and mistakes will only be detected after you are dead and cannot fix them. Sometimes fixing means an expensive formal hearing before a judge. Find and consult a good estate attorney.

 

[SecondCor521]

This has left my husband and I to try to figure out if we need to do a trust as well. Our assets are far below the $11 m threshold, and are all in IRAs, cash, stocks, and the house. It is my understanding that if all our assets have direct beneficiaries to our two children, that they will avoid probate and avoid having to pay these legal fees that I am paying right now for my father. Am I missing something here? Is it enough to have a will, advanced medical directive and POA directive, and beneficiaries and not have to go through the hassle of creating a trust, which to me, based on my own experience right now, seems to have made my father's estate attorney a lot of money?

Thanks for your advice or at least where to go to learn more.

There is a ton of information out there on estate planning. A lot of it is inaccurate or incomplete as far as I can tell. Especially where individual people pass along what their estate attorney said or what they read in an article somewhere. But I will tell you what I am fairly certain is true.

Estate taxes are paid by the estate (the dead person's leftover assets). There is currently an estate tax, and some states have estate taxes also for their residents who die. Inheritance taxes are paid by the recipient. There is no federal inheritance tax currently, but some states have inheritance taxes on residents of their state who receive inheritances.

Beneficiaries override the will and those assets don't have to pass through the probate process. They do generally have to be included in the estate value and therefore may contribute to an estate tax or inheritance tax.

The estate tax exemption is $11.58M per person in 2020; the tax rate is 40% above that amount. Current law has it being adjusted by inflation each year until 1/1/2026, when a law expires and it will drop to about $6M then. The estate tax exemption is changed on a regular basis, and there is some discussion currently of reducing it to $3.5M per person.

Really the only place I would go for trustworthy advice is an attorney in my state who practices estate planning on a regular basis (but see the caveat below). For information, you can read things at the IRS website; the documents there are accurate and thorough but can be pretty challenging to understand. I therefore supplement my reading of that site with professional articles intended for practitioners - I'd trust a journal of accountancy more than a daily newspaper.

You can also read your state laws. Probate in my state isn't hard or costly - other states, I've heard, are much harder and costlier. Even so, my state has a small estate procedure where, if the estate is small enough, you can do things quickly and easily. I know other states have similar laws. I generally find state laws reasonably understandable to a layperson like myself.

In the case of estate planning, whether a state is community property or not can come into play in ways that I can't even explain well because I don't understand them myself. Some states are community property; I believe more are not.

There can be a financial incentive for practitioners such as estate and trust attorneys and CPAs to make things complicated and therefore costly to implement, monitor, adjust, manage, and disburse. Although I think my Mom's estate planning attorney is a nice guy and competent, I do now think that he did things in such a way that we paid him more fees. It sounds like your Dad's attorney may be a similar case. We never had a percentage-of-assets fee arrangement though - it was on an hourly basis.

 

[dadu007]

My FIL's estate was in a trust and went to my wife when he passed. His lawyer that set up the trust was paid a flat fee when it was set up and the lawyer did not receive a dime (or any percentage) from the estate's assets (which was in the mid-six figures) after my FIL's death. I would be wary (and a little pissed off) regarding of your father's estate attorney's percentage.

 

[pjigar]

I think your lawyer scammed you. The revocable trust that was setup for estate planning purpose can be settled as part of a will execution for a flat fee.

 

[Midpack]

My one burning question revolves around estate planning, and I have not seen any clear postings about this area over the past two years and hoping the group could help me figure this out. I am the executor of my father's estate, and he placed most of his assets in a trust to avoid probate, and his estate attorney charged us 1% of the value of the trust assets to settle, and 3% of the non-trust assets to settle. Thank goodness we sold his house before he died, so it is pretty simple to manage. The only probate asset is his car and the rest are stocks in Fidelity that will be disbursed through the trust.

That’s unlike my experience. My parents had a revocable trust and they paid a flat rate to have it developed, and a per hour rate each time it was amended. My sister and I were do-successor trustees. My parents were gone in 2018, and we settled the estate without probate, and the attorney did NOT charge us anything - the amounts above would gave been outrageous IMO.

DW and I just established our trust, and we paid a flat rate as well, in another state than my parents. We don’t pay our estate attorney anything unless we choose to use his services for something, there’s no % charges. It didn’t cost much more than a full will with all the associated docs, POAs, etc.

As for whether you need a trust or not, it depends on your estate, probate in your state (some are easier than others), and whether you care about making it easy on your heirs when you’re gone. The latter was a big reason we went forward with a trust, and having settled my parents in 2018, it was a breeze for my sister and I. Probate can be costly and difficult.

 

[harley]

While I agree that the estate attorney made out like a bandit, those are now sunk costs and of no use to worry about, other than making sure anyone you use is paid on a flat fee only basis. Everyone makes mistakes, and obsessing over them is non-productive. Live and learn.

As far as trusts, there are many more knowledgeable people on this site than me. However, we had estate planning work done (finally) last year, and got a trust. In your case it may not matter as much, as your kids are not married. In my case, my DD is currently married and has two kids by two people, and we want to make sure our assets stay in our family line. I've seen a situation where parents left their money to their married kid, died, then the kid died and the spouse inherited, then he remarried and ended up leaving their money to his new spouse and kids, leaving the original grandparents progeny out of the inheritance. He was a louse, but there are plenty of those in the world. So we used our trust to avoid a situation like that.

So depending on your situation, a trust may or may not be of value. And if it's not today, things can change and it might be later.

 

[Sunset]

OP - To the question of is a Trust necessary or not.

(IMHO) Since I don't have special circumstances (example handicapped child, or super spender child), I am going with POD/TOD for all my accounts. Then a Will to specify anything left over like my car, house, to be sold and money given to the beneficiaries.

Sure the probate will be needed for the auto and the house, but the cost will be cheaper than forming a trust, then modifying it every X years or finding it's out of date/wrong.

My Parents had POD/TOD and a Will, and it worked.

We are far below the $11 Million fed limit on estate tax, so I don't pay attention to it, and If my kids had to miss out on some money because I was over $11 Million, well too bad, they can skip some caviar snacks.

 

[doneat54]

We took a New Years resolution NYE to stop talking about getting a RT done, and DO it. We did meet with a lawyer a few years back and I think he wanted $1800-$2k to do it. Can folks who have had a revocable trust done post what they paid the attorney? (if you comfortable doing so).

 

[Happyras]

If you know what state you will die in, then it is easy to choose or not choose a trust. However, for us, the trusts allow us to avoid a significant amount of state of Washington estate taxes, preserving our individual exemptions. It is the primary reason we chose the trust structure over TOD, which is available in WA. We plan on gifting as much as we can so the trust has minimal purpose, but ya never know when the grim reaper will strike. Certainly have lost several long time friends recently, ranging in age from 50 to mid 60's.....

 

[Dtail]

My parents had an irrevocable trust set up and it was for a one time flat fee, unless advice or changes needed.

 

[harley]

We took a New Years resolution NYE to stop talking about getting a RT done, and DO it. We did meet with a lawyer a few years back and I think he wanted $1800-$2k to do it. Can folks who have had a revocable trust done post what they paid the attorney? (if you comfortable doing so).

Ours was done in FL last year, for a flat fee of $2500. That included wills, POAs, the trust, and medical directives. We'd been procrastinating for years, but it feels great to have it done. I don't anticipate too many changes, although there will probably be a few over time as the grandkids grow up. Hopefully we'll live long enough to have to make those changes.

 

[EQMAN]

We did our last year. It included the trust, sub-trust setup fur the kids and grandchildren, a will for each of us, two POAs, three healthcare documents for each of us, a nice red binder, a a $4k invoice. Nothing more will be charged by the estate attorney when he helps our successor trustee administer the trusts. If we have changes no charge. We really did it so if we were still alive and could not make our own financial and medical decisions we got to chose the people who would do so. Also wanted to make sure to the extent you can to keep the money away from in-laws and have half the estate skip a generation. That will help keep taxes lower now that IRAs have to be liquidated within 10 years. I have been a successor trustee and a successor co-trustee if estates with trusts. No probate and only paid the attorney for one hour to create a document or two I needed. The first estate had the co-trustee. I selected them and I learned a lot regarding what needs to be done. The second one went much easier (no house and only the property that was in a one bedroom apartment and financial assets),

 

[pb4uski]

Mom and Dad had trusts, but that was back when the estate tax exemption was much lower. While they paid the lawyer to have the trusts set up, there have been no ongoing costs... I manage the trust assets and file the trust tax return, etc. The charges that they OP posted seemed obscene compared to my experience.

73% of our assets are financial accounts that can have beneficiary designations and wold avoid probate. Another 25% are our two paid-for homes... leaving only 2% for our two cars, a boat and a jet ski. I might consider a trust for houses, cars and boats.

The rest of our "stuff" is personal property that will go to the kids, other family or charity.

Given my experience as principal trustee of my Mom and Dad's trusts (I was not involved in setting them up), I don't see any need for trusts for us. That said, thinking all this estate planning stuff through and refreshing our wills, etc. is one of my big goals for 2021.

 

[Souschef]

I agree with Sunset. There is no one size fits all answer. In our case, all our assets are POD with successor beneficiaries.
We went to an attorney to have an estate plan set up and paid a flat fee.

As a result we got Powers of Attorney for each of us for health care decisions and for financial decisions.
There was also a pour over will to take care of things that were not automatically transferred upon death.
I made the mistake of setting up a trust for my late wife and I when the estate tax limit was $1 Mil. When the law changed, I guess I was too lazy to change the trust.
As a result I was forced to divide our assets into two trusts and manage them separately. It took me a number of years and filing 1041 returns before I could terminate the trust.

 

[Dash man]

We took a New Years resolution NYE to stop talking about getting a RT done, and DO it. We did meet with a lawyer a few years back and I think he wanted $1800-$2k to do it. Can folks who have had a revocable trust done post what they paid the attorney? (if you comfortable doing so).

We paid $3,500 to set up new trusts, wills, POAs and such back in 2017. We just did a major update and created an IRA Inheritance Trust for each of us as a result of the SECURE Act for another $1,900.
The IRA Inheritance Trust allows the protection of the IRA funds after the required distribution within ten years as is now required for an inherited IRA. Basically, they take a distribution from the IRA and can put the money after taxes are paid into the trust, which allows protection from creditors, divorce, etc.

 

[Ready]

We set up a trust for one very specific benefit applicable to us. By placing our house in a trust, if either spouse dies the other one inherits the entire house at the fully stepped up cost basis, which could save us a substantial amount of money that would otherwise go to paying capital gains tax if the surviving spouse wanted to sell and downsize.

But we never would have known about this if we hadn’t hired an estate planning attorney. So it was worth it to us to pay their fee.

 

[pb4uski]

^^^ That would be of limited use to us... even without stepped up basis we don't have near to $500k of unrealized appreciation on our principal residence (or our former principal residence for that matter).

I guess I could see it being of benefit for someone who has a really big/nice home that they have owned for a long time.

So was the difference 100% stepped up basis when in the trust vs only 50% stepped up basis + 50% regular basis if you didn't use the trust?

 

[Ready]

^^^ That would be of limited use to us... even without stepped up basis we don't have near to $500k of unrealized appreciation on our principal residence (or our former principal residence for that matter).

I guess I could see it being of benefit for someone who has a really big/nice home that they have owned for a long time.

So was the difference 100% stepped up basis when in the trust vs only 50% stepped up basis + 50% regular basis if you didn't use the trust?

I believe that is correct. Without the trust if my spouse died I would inherit half at the stepped up basis but my half would still be subject to capital gains. At present our gain on sale would be about $2M. If a spouse dies I believe we are back to only getting the $250K exclusion so the savings by using a trust are substantial. Hopefully this is a decision that will be 20 or 30 years down the road though, where the gains could be quite a bit more if real estate continues to appreciate.

 

[Free2030]

If your husband is a federal employee, he should ask if his agency has referrals for employees' legal needs. I am also a fed and through my agency I was able to find an attorney that did the package for around $1K, including POA, wills, medical directives, and trusts. We did it mostly because I don't want our kids to be able to access our assets until they turn 25. My SIL is the backup trustee if both DH and I pass away at the same time.

(Long-term lurker but first time poster. Will do an intro in the near future. As my name indicates, I'm planning on retiring in 2030 so still have a ways to go)

 

[Scratchy]

From what I understand your concern is that your assets pass on to your children without the hassle of probate, or the expenses that a trust might incur.

You could probably accomplish this by naming your children direct beneficiaries on your accounts and even for your home with a transfer on death deed. However, leaving your estate to your spouse and your children in trust would have the advantage of allowing you to control your children's access to funds while they are young (if that is your wish). It can also protect their inheritance from future step-parents, spouses, creditors and bankruptcy. Since the federal estate tax exemption and the size of your estate will change in the future, there are also potential estate tax advantages in some types of trusts that may be worth your consideration.

Therefore, I recommend you hire a good trust and estates attorney to draft an estate plan that meets your needs. Considering you are married with minor children, a boilerplate trust document from online or even some trust and estates attorneys will not be sufficient. Try to educate yourself on the basics of what a trust can do (the book "Beyond the Grave" by Jeffrey Condon is a decent introduction) and then ask people you trust for references to good attorneys. When you interview an attorney, ask lots of questions to try to see if they are able and willing to meet your needs.

Best wishes and good luck.

 

[Scratchy]

^^^ That would be of limited use to us... even without stepped up basis we don't have near to $500k of unrealized appreciation on our principal residence (or our former principal residence for that matter).

I guess I could see it being of benefit for someone who has a really big/nice home that they have owned for a long time.

So was the difference 100% stepped up basis when in the trust vs only 50% stepped up basis + 50% regular basis if you didn't use the trust?

You are probably aware, but just in case, a trust in not necessary to get 100 % step up. Assuming you live in a community property state, the 100 % step up in basis can be claimed for any community property, not just property held in a marital trust. For example, a home held as JTWROS is eligible for full step up upon the death of one spouse. Same with bank accounts held JTWROS or jointly as community property.

In fact, even property or accounts titled individually are eligible for a 100 % step up if one can demonstrate that the assets are marital property (such as by showing they were purchased with marital funds or with a community property declaration preferably prepared by an attorney).

Here are a couple of good articles that address this:

https://www.cpajournal.com/2017/08/18/greatest-hits-community-property-step-basis/

https://www.calcpa.org/public-resou...-up-on-my-securities-on-the-death-of-a-spouse