Revocable Trust Questions

[samcat]

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!

I'm in California as the state of residence for the deceased might matter and make what I write not correct for a different state. Also, what i have written is in simplified terms but in general, I'm pretty correct.

1. For us, primary reason was the cost of probate but yes, everything is private in a trust. When the surviving spouse dies (assuming you are married), your daughter would get copies of the death certificate and a Certificate of Trust from an attorney naming her as the successor trustee and then she can almost act like she is you. Sell the house, get access to bank accounts and brokerage accounts. Once a house is sold, the selling price might become public.
2. We have been advised to put our partner as 100% beneficiary on our retirement accounts and list our two boys as 50/50 secondary beneficiaries.
3. So simple to handle a trust. House, she can sell as soon as she shows a realtor the death certificate and Certificate of Trust. House would have to be in the trust for that to work. For a brokerage account, she would send them the two documents and whatever form to fill out and the assets would get transferred to an account in her name.
4. Meet with a lawyer. $5k is about right in the SF Bay Area. Easier if you have thought things out as you have. Put all your assets in the trust, except retirement, or add your daughter as a signer. Once you die, if she is a signer, she owns the bank account.
5. Probate in California is regulated by law. Percentages depending on the amount of the estate. The time involved with probate totally makes $5k worth it. i e, in probate to sell a house, you have to have the sale approved by a judge. I'm sure there are filing fees, etc. With a trust, once you are named the successor trustee, you can sell it like you are the owner. No court involved.
6. Wills go hand in hand with trusts in California. Our will says that "anything not in the trust pours over into the trust". Not sure how that holds up in court if disputed but it sounds good
7. RLTs are disregarded entities for tax purposes. Your RLT uses your social security number. No affect on taxes.
8. In California, I know of no downside.

 

[NXR7]

I did not read every post but for my mom, my dad, and my wife's aunt we never had to open the will (file it in probate court and have an executor approved).

We assured that EVERY account had beneficiaries and that their homes were titled as a Transfer on Death. We also did that with their cars.

Sure, it left no money in the estate except insurance refunds to pay debts and taxes but that's not your survivor's problem UNLESS they voluntarily take that debt on.

Any POA expires when you do. As soon as a brokerage, bank, or whatever gets the death certificate they lock the accounts as they are supposed to.

Be certain to ask the attorney how to avoid your daughter taking on any of your outstanding debts. SHE needs educated on that.

 

[RetMD21]

.... Someone said, "of course he does, because when you die, he's going to take a percentage of all your assets". So, that kind of upset me, so I gradually removed my bank accounts and investment accounts including IRAs and just did transfer on death to both my sons.....

I'm interested in what random people say but I would run it by an attorney

 

[vdesalvo]

I don't know why you are making this so complicated. Retirement accounts (401k/IRA's) have benefactors and that is final on who get the funds, and nobody gets to know who that is. All bank account can be setup with who has access to each account funds a pond death and nobody gets to know who that is. House and vehicles are another story, and a good lawyer can solve that problem for you under the state law like maybe a "transfer on death" deed.

 

[CaliKid]

Would a prenup suffice?

If you want to be safe I would have both. My thought is that once month gets comingled it's a lot harder to un-comingle it.

 

[RetMD21]

If you want to be safe I would have both. My thought is that once month gets comingled it's a lot harder to un-comingle it.

Having both makes sense to me. The education component is probably equally important.

 

[Earl E Retyre]

I don't know why you are making this so complicated. Retirement accounts (401k/IRA's) have benefactors and that is final on who get the funds, and nobody gets to know who that is. All bank account can be setup with who has access to each account funds a pond death and nobody gets to know who that is. House and vehicles are another story, and a good lawyer can solve that problem for you under the state law like maybe a "transfer on death" deed.

We are doing retirement accounts as TOD. We could have done bank accounts and brokerages as TOD except Vanguard doesn’t allow TOD on joint accounts so we would have had to move those accounts in-kind to Fidelity. By doing it in a Trust we did not have to move plus the added benefit of making it very simple for daughter to not commingle.

 

[ncbill]

I don't know why you are making this so complicated. Retirement accounts (401k/IRA's) have benefactors and that is final on who get the funds, and nobody gets to know who that is. All bank account can be setup with who has access to each account funds upon death and nobody gets to know who that is. House and vehicles are another story, and a good lawyer can solve that problem for you under the state law like maybe a "transfer on death" deed.

Don't forget incapacity, which is much more likely than sudden death.

I've only used RLTs in that context, for a couple of older relatives after their terminal diagnoses.

For whom I knew I'd be primary caregiver until their death, so I was co-trustee (not successor)

No worries about "we don't accept your lawyer-drafted POA, only our institution's" issues with a RLT.

Lawyer handled transferring any real estate into the RLT as part of their fee.

 

[Earl E Retyre]

Don't forget incapacity, which is much more likely than sudden death.

I've only used RLTs in that context, for a couple of older relatives after their terminal diagnoses.

For whom I knew I'd be primary caregiver until their death, so I was co-trustee (not successor)

No worries about "we don't accept your lawyer-drafted POA, only our institution's" issues with a RLT.

Lawyer handled transferring any real estate into the RLT as part of their fee.

For some reason our lawyer said we should have both the POA and RLT but included the POA and the real estate transfer as part of their fee.

 

[RetMD21]

Don't forget incapacity, which is much more likely than sudden death.

As Albert Einstein may have said "everything should be made as simple as possible but not simpler."

 

[rodi]

Yes, wife and I are on the same page.

I did not know the trust worked that way.

But what I don’t understand from your scenario is, since father still had access to the funds, why couldn’t he just withdraw everything from the trust leaving nothing for brother?

I think he was ok with honoring my mother's wishes. My mother and brother were very close when she was alive.

The big fallout happened when my brother told my father he should not date my (later became) stepmom and he would burn in he**. There were several attempts, by my sister and I, to get my brother to back down and accept our stepmom... Stepmom was truly a wonderful person and made Dad very happy. Brother wouldn't even talk to her to get to know her and stopped talking to Dad entirely because dad had the audacity to fall in love again after our mom passed. When Dad did try to reach out he'd get told he was a sinner and get cursed at. It was a mess.

But Dad respected Mom's side of the trust.

 

[pb4uski]

^^^ I would have been tickled pick if my Mom had found love again after my Dad died. After Dad was dead. And I believe that is what Dad would have wanted.

However, whether Mom found love again or not, Dad and I would have wanted the trust assets to go to their children when Mom died.

 

[Dash man]

For having separate trusts, how do you place your house(s) in each trust? Each trust get 1/2 of each properties, or do you decide which properties go to a particular trust?
Also, by having the IRAs in the trust(s), would it become a taxable event the moment the trustee pass away?
For us, we just put our kids' names in the IRA beneficiary. IRA accounts are not in our trust.

We have each of the trusts as joint owners of the properties. Upon death of one spouse that trust becomes irrevocable. The surviving spouse has access to funds for living expenses and a step up basis for half the estate, but beneficiaries cannot be changed.
The IRAs remain in the trust until liquidated. Traditional IRA pays taxes upon liquidation in accordance with tax law. Upon liquidation, if the funds remain in the trust, they remain protected from judgement and creditors in accordance with State and Federal laws.

 

[Dash man]

Ok, this all good to learn. I didn’t know about the tax implications of a trust. So it would cause daughter hassle and higher tax rates. As you say, she can protect the money keeping it separate without a trust.

So, now I am back to thinking I will likely choose the TOD route. I cannot think of a compelling reason at this point to choose going with the trust.

Income from the trust that is distributed is included on the 1040 and taxed as ordinary or capital gains/dividend income as appropriate. It’s only taxed at trust rates if retained in the trust.

 

[Dash man]

Yes, he could do that. But I trust both my daughter to not be persuaded and her husband who is an honest guy. I wanted to protect her from unknowingly comingling but not from being persuaded and then ripped off. I doubt that would happen but if it did, I could live with that. Not literally.

Inherited money is not divided in divorce unless commingled.

 

[Earl E Retyre]

We have each of the trusts as joint owners of the properties. Upon death of one spouse that trust becomes irrevocable. The surviving spouse has access to funds for living expenses and a step up basis for half the estate, but beneficiaries cannot be changed.

Hmmm … I will have to see how our lawyer words ours but I am thinking I would rather the trust remains revocable until both spouses pass.

 

[jgrdarrash]

Hmmm … I will have to see how our lawyer words ours but I am thinking I would rather the trust remains revocable until both spouses pass.

That defeats one of the main reasons for a trust: remarriage. If your spouse remarried and left everything to their second spouse and nothing to their children. It's happened in our family so we have a trust

 

[Dash man]

Hmmm … I will have to see how our lawyer words ours but I am thinking I would rather the trust remains revocable until both spouses pass.

Talk to your attorney. Between changing Federal tax laws (including estate taxes) and differing state laws, your attorney should be your source of information.

 

[ncbill]

Inherited money is not divided in divorce unless commingled.

Depends on state law.

 

[Wetfly93]

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!

My sister and I just finished closing out our mother’s trust. It s a lot of work. You basically have covered everything and it is better then going through probate. I left Vanguard, because of the mess ups.
A word of caution about removal of son, a lawyer may tell you to give him something and if that is mentioned in the trust document on your death he gets a copy of the whole trust from beginning including all amendments. In some states the Will will state there is trust and give the name of the trust.
Please speak with your lawyer about drafting things such that your daughter does have to deal with your son, her brother contesting or saying your daughter asserted undue influence.
Your bank accounts and retirement accounts can go by beneficiary designation so the son will never know about those accounts. Speak with your lawyer about your home it can be placed in the trust and while you are alive it can be sold by you no problem. Look into what your daughter will have to do as the trustee. Who will help her file the papers and what will she be paid for administration of the trust. Name the percent if possible in the trust document. Do your daughter a big favor and begin to list every asset you own, the year bought, serial numbers etc so you have a full inventory in place updated each year. Good idea to go room by room. Most states will allow you to attach to your Will a document giving gifts on death present this with the Will and make sure she keeps copies. So items not in the trust can me gifted in this way, without triggering probate. You an also open a bank account with your daughter and title it so it becomes hers on your death. These items like an insurance policy go by contract. You have a good handle but deaths create friction between siblings that may never heal. You earned your money you should be able to decides who gets it when you are done using it.
If possible leave little in non-retirement savings. Then everything goes by contract/ beneficiary and no one is the wiser.

 

[USGrant1962]

...
If possible leave little in non-retirement savings. Then everything goes by contract/ beneficiary and no one is the wiser.

Brokerage accounts, iBonds, and other non-retirement savings can certainly have beneficiaries.

 

[Earl E Retyre]

My sister and I just finished closing out our mother’s trust. It s a lot of work. You basically have covered everything and it is better then going through probate. I left Vanguard, because of the mess ups.

Thanks Wetfly for all the comments. Question for you, do you mind elaborating on the mess ups from Vanguard?

We have more assets in Vanguard than we do Fidelity ... and one of the minor advantages of going with the Trust (as opposed to TOD) was not having to move our joint accounts from Vanguard to Fidelity since Vanguard doesn't support TOD on joint accounts for some odd reason. But when I see comments about Vanguard messing up, it makes me wonder.

 

[rodi]

Thanks Wetfly for all the comments. Question for you, do you mind elaborating on the mess ups from Vanguard?

We have more assets in Vanguard than we do Fidelity ... and one of the minor advantages of going with the Trust (as opposed to TOD) was not having to move our joint accounts from Vanguard to Fidelity since Vanguard doesn't support TOD on joint accounts for some odd reason. But when I see comments about Vanguard messing up, it makes me wonder.

There are whole threads in this forum about vanguard's sometime failures. Here's my personal experience. My dad had half his money at vanguard and half at Schwab. My sister was trustee and mailed in the form and the certified death certificate . Nothing happened after a few weeks so she called. They had no record. So she went through the process again, this time with return receipt. Again, crickets. Third try she did certified mail with return receipt. Magically they received that one and renamed the iras in my sister and my names (we were listed as beneficiaries).

So that's two extra death certificates and about 6 weeks time.

Schwab was seamless and fast.

My dad had also started small 529's for my sons at Vanguard I called and they said they could see that the brokerage account had received the death certificate, but they needed their own copy. I mailed it in with the appropriate form and death cert. Crickets. I send it in again after confirming the address and that they had not received it. This time certified. Voila, they receive it.

So basically, their processes in house are not so good on death. They lose death certificates.

I am dreading dealing with hubby's IRA stuff if he passes since his money is at vanguard. My money is at Schwab and Fidelity... With only the 529 at vanguard. And since the kids are graduating this year, I'll be fine with vanguard soon.

 

[ut2sua]

We have each of the trusts as joint owners of the properties. Upon death of one spouse that trust becomes irrevocable. The surviving spouse has access to funds for living expenses and a step up basis for half the estate, but beneficiaries cannot be changed.
The IRAs remain in the trust until liquidated. Traditional IRA pays taxes upon liquidation in accordance with tax law. Upon liquidation, if the funds remain in the trust, they remain protected from judgement and creditors in accordance with State and Federal laws.

This is very interesting. Trading off half the estate step up for 1/2 estate protection of an irrevocable trust (shielding from lawsuits etc.) My brain is not on top of the pros vs cons here, but it sounds like a thoughtful trade-off. Thanks for sharing.

 

[PatrickA5]

That defeats one of the main reasons for a trust: remarriage. If your spouse remarried and left everything to their second spouse and nothing to their children. It's happened in our family so we have a trust

We had the same situation happen in DW's family. FIL (age 83) met a nice lady and got married. He died at age 84. Sometime in the last few months of his life he changed the beneficiary of his IRA to his new wife. It was a shock to DW when we found this out after his death as he had always said everything was going to his two children. We didn't have a problem with his wife getting the IRA, but she won't spend any of it and it will end up going to her kids, not his own grandkids.

Not sure how this situation can be totally eliminated. When we asked lawyers, it seems the only way is to: make the trust Irrevocable after the first spouse dies AND have an outside party as Trustee. We weren't willing to go that route. Also, 80% of our investable assets are in IRAs, which is another problem.