Revocable Trust Questions

[Earl E Retyre]

I am thinking of creating a Revocable Living Trust and wanted to validate my understandings. Here is the background and my questions …

We have decided to write our son out of our wills and give 100% to our daughter. I don’t want to get into details as to why, nor need any advice regarding this decision. I have googled Revocable Living Trusts (RLTs) and am thinking it might make sense for us to set one up. Please let me know if any of the following is incorrect:

1. Privacy. The primary reason/advantage for why we would set up an RLT is that I think that the assets that are under the Trust would be hidden from our son. My understanding is that if we did not have a Trust then the assets would go through Probate which would be “public record” and our son could potentially find out how much money we had. We have asked our daughter to periodically help him out which she is happy to do. But did not want her to feel undo pressure as to how much she gives him by him knowing how much she has received through the inheritance. So, my question is, is it true that any assets we have in the RLT would NOT be public record but if we did not do RLT then it would be public record?
2. 401k/IRA. My understanding is that I do not want to put any 401k/IRAs in the name of the Trust or it would be a taxable event. So, my choice would be to either keep those as TOD or else put name of the trust as the beneficiary of the account. Do you agree? Is there an advantage to TOD vs doing the Trust beneficiary? Would TOD take precedence over the Trust? Which would give daughter access to the funds sooner – the Trust or TOD?
3. Is it true that another advantage of doing a RLT is that it would give simpler and quicker access to the assets by not having to go through probate? I think this might be a primary reason others do the Trust (as opposed to my primary reason being privacy). How does daughter receive the money that was previously in our name?
4. Logistics: To do a RLT, I assume the first step is to meet with a lawyer to create the Trust. Then I have to move all my banks from being titled in our names to be titled to the Trust. My understanding is that at Vanguard, you can't retitle the accounts. I would need to establish a brand new account in the name of the trust. Then I can do an in-kind transfer of securities and assets from the old account to new account. And that I should be able to fill out the application online and sign electronically. Is that all true? Is this an easy process? Is Fidelity the same? What about other bank accounts like Ally? If I choose to not do all banks accounts (e.g., ones that have little assets then those could go through probate?
5. Cost: My understanding is that the initial Lawyer cost of setting up the RLT might be around $5,000. I am thinking that if the RLT avoids probate altogether and/or makes probate simpler then Daughter would save that money in the probate process so the cost is a wash anyway. My question is, does $5k sound about right and would her probate costs be less?
6. House: My understanding is that I could choose to retitle my house in the name of the trust or not. If I do, then it avoids probate and passes on like any other asset. If I do not, then it would go through probate and in my Will I would designate that this property goes to Daughter. Is that true? On a related note, I assume I probably need a Will to cover any loose ends just in case and cannot avoid not having a Will (e.g., automobiles and other possessions)?
7. Are there any impacts or changes to filing taxes?
8. Any downsides to doing a RLT? Anything I should be aware of?

Thanks ALL!

 

[OldShooter]

1. ... Anything I should be aware of?

You're doing well, especially the plan to hire a lawyer. Trusts and Estates is a narrow and complex specialty. I'd encourage you to take some time to work your network and other resources to find a couple of candidates to talk to/make sure you "click." DW used to be in this business/SVP at a megabank. She and her troops often had to deal with documents poorly drafted by generalist attorneys or, in one specific case by a guy who actually held himself out as an expert.

One characteristic here is that there are no "do overs." When problems are discovered you're already dead, so they sometimes have to be dealt with by the court system. $$$.

 

[frank05]

From my experience Vanguard, Etrade and Schwab all gave new account numbers to the trust accounts but with short conversations they initiated the transfer after I sent them via email the first and last pages of the trust. Also moved the cars into the trust. The lawyer handled filing the paperwork to put the house in the trust. Decided not to move the bank account into the trust because I have a lot of vendors who auto withdraw from the account.
Moving to a different state my require a new trust or updates to it.

 

[silvor]

You probably want to notify your son once the trust is in place that he’s not getting anything. My friends lawyer suggested this to him so the son 100% cannot contest the trust.

 

[Dash man]

Definitely use an experienced Estate Attorney. They’re worth every penny.
We have five properties in three states in our trusts. We also have our taxable brokerage accounts in the trusts. DW and I each have our own separate trust, but they are basically identically set up with everything going to each other, then split between our sons with contingencies included. We also include some charitable giving. Charles Schwab Trust Company is our Trustee after we’re both gone.
Our Trust has some language to allow the IRAs to retain their ERISA protection after required distributions are made. The Trusts are the beneficiaries of the IRAs.
Our bank accounts are set up with our sons as beneficiaries.
Each state has their own laws, so you need legal experts in your home state.

 

[GrayHare]

FWIW, whether or not real estate is titled in a trust its sale price will be revealed when sold.

 

[ncbill]

I did RLTs for relatives for whom I was primary caregiver after they were diagnosed with terminal illness.

Mostly because they were declining & I didn't want to run into any "we don't accept a lawyer-drafted POA, only our own" situations later in the course of their illness.

Though I had no problem moving their financial accounts into the trust using their existing DPOA.

The lawyer handled retitling any real estate into the trust as part of their fee.

And since they were declining I was named as co-trustee, not successor.

Privacy is a big advantage for your particular situation...if son doesn't know exactly what daughter got then there's less pressure on her for any requests from him.

Though if it's addiction issues with your son (e.g. substances, gambling) you might discuss a separate, "spendthrift" trust for him, administered by a professional trustee (not your daughter to avoid pressure on her) with the attorney.

 

[rk911]

We moved everything we have into our trust except the retirement accounts and our cars. Upon the second death the cars will go to charity as will the retirement accounts.

 

[timbervest]

Have had a RLT since 1996. Hosue, brokerage and checking are in the Trust. 401(k)/TIRA/Roth and life insurance outside w/beneficiaries. Pour over will to take care of everything else. We did this for my DM and it worked out great as assets were sold and/or distributed with little to no problem. Definitely use an estate attorney. It is worth the money.

No impact on taxes that I am aware of. I don't really care much about publicity. Care for minor children (when they were minor) and ease of transfer are the main reason.

 

[DrRoy]

Please let me know if any of the following is incorrect:

1. Privacy. The primary reason/advantage for why we would set up an RLT is that I think that the assets that are under the Trust would be hidden from our son. My understanding is that if we did not have a Trust then the assets would go through Probate which would be “public record” and our son could potentially find out how much money we had. We have asked our daughter to periodically help him out which she is happy to do. But did not want her to feel undo pressure as to how much she gives him by him knowing how much she has received through the inheritance. So, my question is, is it true that any assets we have in the RLT would NOT be public record but if we did not do RLT then it would be public record?
2. 401k/IRA. My understanding is that I do not want to put any 401k/IRAs in the name of the Trust or it would be a taxable event. So, my choice would be to either keep those as TOD or else put name of the trust as the beneficiary of the account. Do you agree? Is there an advantage to TOD vs doing the Trust beneficiary? Would TOD take precedence over the Trust? Which would give daughter access to the funds sooner – the Trust or TOD?
3. Is it true that another advantage of doing a RLT is that it would give simpler and quicker access to the assets by not having to go through probate? I think this might be a primary reason others do the Trust (as opposed to my primary reason being privacy). How does daughter receive the money that was previously in our name?
4. Logistics: To do a RLT, I assume the first step is to meet with a lawyer to create the Trust. Then I have to move all my banks from being titled in our names to be titled to the Trust. My understanding is that at Vanguard, you can't retitle the accounts. I would need to establish a brand new account in the name of the trust. Then I can do an in-kind transfer of securities and assets from the old account to new account. And that I should be able to fill out the application online and sign electronically. Is that all true? Is this an easy process? Is Fidelity the same? What about other bank accounts like Ally? If I choose to not do all banks accounts (e.g., ones that have little assets then those could go through probate?
5. Cost: My understanding is that the initial Lawyer cost of setting up the RLT might be around $5,000. I am thinking that if the RLT avoids probate altogether and/or makes probate simpler then Daughter would save that money in the probate process so the cost is a wash anyway. My question is, does $5k sound about right and would her probate costs be less?
6. House: My understanding is that I could choose to retitle my house in the name of the trust or not. If I do, then it avoids probate and passes on like any other asset. If I do not, then it would go through probate and in my Will I would designate that this property goes to Daughter. Is that true? On a related note, I assume I probably need a Will to cover any loose ends just in case and cannot avoid not having a Will (e.g., automobiles and other possessions)?
7. Are there any impacts or changes to filing taxes?
8. Any downsides to doing a RLT? Anything I should be aware of?

Thanks ALL!

I would first say: refer all questions to the lawyer. That is where the detailed knowledge is, and things could vary by state. My experience has been:

1. I think it is private.
2. I do not think the tax situation would change. When I inherited an IRA with no trust from my mother it was taxable.
3. Yes
4. Not familiar with Vanguard on this. Yes you have to title all your assets into the trust - bank and investment accounts. Anything you want to be covered. Our lawyer had stories about people who set up trusts and never moved the assets there so it was like it didn't exist.
5. Yes, cheaper than probate. Don't know the going cost now.
6. My state has a particular type of deed that bypasses probate.
7. We file our taxes the same as before. You take responsibility for everything in the trust.
8. Haven't found one except for the setup hassle.

 

[folivier]

There may also be the possibility that your estate may not be included in assets if one of you need medicaid for a nursing home. Possibly.
Definitely use an estate attorney, our estate documents are about 4" thick.

 

[CaliKid]

You probably want to notify your son once the trust is in place that he’s not getting anything. My friends lawyer suggested this to him so the son 100% cannot contest the trust.

I would definitely NOT do this. There is absolutely no need to tell your son anything. It's common to put some dollar amount to son in the trust so that if he contests the trust there's something for him to lose. So maybe it's 95% to daughter and 5% to son so if he contests it he risks something.

FWIW, whether or not real estate is titled in a trust its sale price will be revealed when sold.

Depends on what state. Some states do not disclose real estate sales information.


To the OP your initial post sounds about right. $5k is a good target. I would say $2,500-$7,500 depending on your location, attorney selected, etc.... People will say they got a trust for $1,000 and we'll find out after they die if it was good. I would say $5k it a good target to find a focused and experienced estate attorney.

I would put all non-retirement assets into the trust. When I used to do this work we typically left cars out of the trust as California DMV was easy to deal with after death outside of trust. Different states different of course.

Get it done! Getting a trust done is generally more useful than planning and thinking and then dying without one!

 

[Exchme]

I would only caution that whatever condition is causing you to disinherit your son could change for the better or your daughter could pass first, so you have contingencies to think about.

 

[pb4uski]

OP has a good handle. It is private and avoids probate. I recently went through this with my aunt and uncle and the bill was ~$4k. On vehicles, their state allows TOD so the cars are in uncles name and TOD to trust (aunt has dementia and doesn't drive).

Their intent was for their assets to be distributed equally to 2 individuals and 3 charities. For tax efficiency we had the 3 charities as beneficiaries of their IRAs with commensurate increases to what the 2 individuals received from the trust for what the 3 charities get from the IRAs. So at the end of the day everyone gets their 1/5th but the individuals don't get IRA money and the related tax burden.

For my parents trusts, I was able to distribute the financial assets to the beneficiaries within a month of Mom's passing... all private and no probate. The single commercial rental property owned by the trust is under contract and should close later this month and the sale proceeds distributed to the beneficiaries shortly thereafter.

 

[Rianne]

Definitely worth it. We paid our estate attorney @ $2000, relatively simple revocable trust. Our Vanguard taxable accounts are in the trust, bank accounts, house, assets. The IRAs have beneficiaries and are designated in Vanguard. I don't think you can put IRAs in a trust. Who is the trustee? We have one trustee and a backup that we trust in the family. If they choose, they can pass the responsibility to the estate attorney for a fee. We don't care, we'll be dead. If everyone agrees the attorney will take care of everything. We also have a lock box at the bank. It holds a considerable amount of I-bonds that we must get under $100K in the next few years to avoid probate. They are paper bonds. It is in the trust as well. So our trustee can walk into the bank with our death certificates and have access to everything.

We did this to avoid probate. If you or your wife passes, everything goes to you or your wife if you set it up that way. You can set it up to your preference. If you get complicated, it's more expensive. I would make it seamless and to the point.
I trust my DH to keep our promise to our beneficiaries if I pass. Once I pass, it's up to him and honestly, he can change it. IF he finds a new wife...well then it gets complicated.

 

[Brat]

I agree with leaving a small something to your son. That eliminates him claiming he was 'forgotten'. When my mother passed her attorney told us to provide a copy to my sister (who was essentially written out of the trust and will) as the will had a poison pill - if she contested she got nothing.

Absolutely consider what you want to happen if your daughter predeceases you.

 

[Earl E Retyre]

OP, here. Thanks all for your replies – that really helped. I knew I would get quick and useful replies from you all. So, here is my bottom line summary from your responses:

1. Yes, I would get privacy by doing the Trust and it would not need probate
2. Retirement accounts - keep out of the Trust and do TOD
3. Yes, daughter should get quicker access to funds (vs probate)
4. Meet with a good lawyer who does estate planning as first step and then transfer into the Trust; Vanguard - I will create new accounts and then move money into it.
5. $5k sounds about right for a good lawyer, and it should be offset by saving money in probate
6. I should get a “pour over will” so any assets left out of the trust would move under the Trust; and I may as well move our house under the Trust as well.
7. No impacts to how I file my taxes
8. No downsides other than the hassle. I should consider leaving a small amount to Son so if he contests then he has something to lose. Also need to consider what happens if daughter passes.

 

[pb4uski]

.... Once I pass, it's up to him and honestly, he can change it. IF he finds a new wife...well then it gets complicated.

My parents had A/B revocable living trusts for estate planning a la 1991. Each trust had 50% of their assets. For Dad's trust he as the grantor, trustee and beneficiary while he was alive. Upon his death the trust became irrevocable and mom, sister and I became co-trustees and mom became the beneficiary. Upon her death sister and I remained co-trustees and us 5 siblings were all equal beneficiaries.

My point is that after dad died the trust became irrevocable so if mom had remarried the assets still would have passed to us unless we conceded to it since sister and I were co-trustees. But since mom's trust was still revocable after dad dies, if she had remarried then she could have chosen to revoke that trust.

 

[Earl E Retyre]

OP here … I just thought of another option instead of creating the Trust and wanted to get your opinion. The primary reasons for the trust are privacy and limiting how much son gets. I believe Vanguard does not allow TOD on joint accounts but Fidelity does. I could transfer in kind all my joint accounts from Vanguard to Fidelity and make it all TOD to daughter. I believe those funds would not be subject to probate and therefore be private. I believe Ally and other banks allow ToD on joint accounts. If the majority of my assets transferred TOD to daughter then I believe this solves my problem without expense of creating trust or modifying will. True?

 

[CaliKid]

OP here … I just thought of another option instead of creating the Trust and wanted to get your opinion. The primary reasons for the trust are privacy and limiting how much son gets. I believe Vanguard does not allow TOD on joint accounts but Fidelity does. I could transfer in kind all my joint accounts from Vanguard to Fidelity and make it all TOD to daughter. I believe those funds would not be subject to probate and therefore be private. I believe Ally and other banks allow ToD on joint accounts. If the majority of my assets transferred TOD to daughter then I believe this solves my problem without expense of creating trust or modifying will. True?

Bad idea for many reasons. Everybody talks about death with trusts but the other key is disability. Making sure a trustworthy person has access to your funds if you are not able. Secondly, what if daughter dies before you but you are incompetent at that time so can't fix? Or daughter dies after you but before she gives anything to brother. Many reasons why this is a bad plan. Hire a good lawyer and get it done right.

 

[Earl E Retyre]

Bad idea for many reasons. Everybody talks about death with trusts but the other key is disability. Making sure a trustworthy person has access to your funds if you are not able. Secondly, what if daughter dies before you but you are incompetent at that time so can't fix? Or daughter dies after you but before she gives anything to brother. Many reasons why this is a bad plan. Hire a good lawyer and get it done right.

Hmmm …. I do have medical and durable power of attorney documents. I am not sure but that may cover the disability part I also have a Will that I assume if daughter passes before us then the TOD would not execute and the money would transfer to my estate which would then go to my son??

 

[Rianne]

My parents had A/B revocable living trusts for estate planning a la 1991. Each trust had 50% of their assets. For Dad's trust he as the grantor, trustee and beneficiary while he was alive. Upon his death the trust became irrevocable and mom, sister and I became co-trustees and mom became the beneficiary. Upon her death sister and I remained co-trustees and us 5 siblings were all equal beneficiaries.

My point is that after dad died the trust became irrevocable so if mom had remarried the assets still would have passed to us unless we conceded to it since sister and I were co-trustees. But since mom's trust was still revocable after dad dies, if she had remarried then she could have chosen to revoke that trust.

The revocable trust was set up to become irrevocable upon death? I guess I don't completely understand irrevocable. Mom could not touch Dad's trust if she decided to remarry. But her trust remained revocable. So if Mom remarries and passes, she can decide to make her new husband beneficiary?

 

[OldShooter]

The revocable trust was set up to become irrevocable upon death? ...

No setup required. It's automatic upon the grantor's death. No one left to revoke it. DW and my rev trusts become irrev upon our deaths but the language of the trust changes things quite a bit on our deaths, distributing some money and property and creating several successor trusts for the grands and DS. All running on automatic.

 

[nwsteve]

The disability benefit is not to be overlooked
It allows the trustee to act when you can not—could be from extended coma, lost of cognitive ability —even if temporary. The Trustee can continue to use all Trust assets to meet financial obligations (eg mortgage), repair home after a storm etc assuming the asset is titled to the Living Trust.
One thing we learned with FIL LT, he had failed to retitle a checking account as part of the trust and had terrible time getting bank to open a new account for the trust
,

 

[Earl E Retyre]

I just looked up the wording of my Power of Attorney's that my Lawyer created for me and it has a Declaration of Guardian in the event of later incapacity or need of guardian which says
(1) The Guardian of my person has the rights and powers to perform all the tasks necessary to care for my person, and shall serve without bond if permitted by State law
(2) The Guardian of my estate shall have all the rights and powers to perform all the tasks necessary to care for my estate, and shall serve without bond if permitted by State law

And the Medical Power of Attorney says:
(1) I designate my agent to make any and all health care decisions for me ... if I become unable to make my own health care decisions and this fact is certified in writing by my physician

So, I assume I am covered via the Power of Attorney's for the disability part.

While it would be a hassle to move all my Vanguard non retirement accounts to Fidelity, I think that would be less of a hassle versus rewriting my Wills and creating a Living Trust (and would be totally free). I will give it more thought but am thinking this is a better option since it still gives me the privacy I wanted and still transfers almost 100% of my assets to daughter - which were my two goals of wanting to create the Trust and update my wills in the first place.