I have done lots of reading, have watched several friends go through the process - but, still get the feeling many trusts aren't really necessary ... or are they?
My vote is a strong yes for three reasons:
1. Your disability/dementia care.
2. In case your spouse (or co-trustee) has to sell your rental properties or your home for your long-term care. Lawyers, title companies, and title-insurance companies hate selling homes (via a durable POA) when the owner is still alive yet incompetent. In some states you might even be nudged to file for conservatorship.
3. To avoid probate disputes. Even when probate goes well it’s still fraught with issues.
Here’s the theory: the person who takes over for you (your death or disability) should be able to make all the decisions (for you) that you would make for yourself. There are a number of ways to do that when you die (in addition to a RLT). The most widely-accepted ways to make decisions during your disability are a conservatorship or a RLT. The former can cost $5K-$10K and a protracted approval process (with a court hearing). The latter is about $1500-$5K and a little quicker, with no court hearing.
Spouse and I are checking off our list of "stuff to do" and Living Trust is next on the list - along with about 100 other things
I used to think that estate planning was done poorly (or not at all) because people don’t want to confront their vulnerability or their mortality.
It’s more than that. I’ve learned that the process is just too damn hard, for our own protection. Lawyers can tell you all the ways it goes bad, and you’ll put contingencies in place. However you and your spouse might be a little surprised at the intensity of some of your emotions (and your opinions) and there might be disputes about how to proceed. Even when you think you’ve finally reached consensus on the issues, the lawyer will ask two or three questions and suddenly you’re right back where you started.
Whether or not you actually sign a RLT, the process is worth the effort (and the thoughtful discussions). It’s the disability & death version of pre-marital counseling, and it’s essential to a smooth estate settlement.
It’s also essential to have the discussion with the co-trustees, the successor trustees, the heirs, and even the spouses of the heirs. If you were surprised by some of your spouse’s opinions, then at least you’re ready for the surprising reactions from the rest of your participants.
3. Have several (paid for) single family rental properties
6. House with very small mortgage (no other debt)
In an ideal world your heirs would inherit these (at a stepped-up cost basis). If your state has a transfer-on-death deed (TODD) then that works well... for your death.
However if you’re in a coma or dementia or otherwise incompetent, a conservatorship or a RLT are the best methods for transferring titles to the buyer. A durable POA might not satisfy anyone but the person you paid to prepare it. Everyone’s worried that you’ll recover and second-guess the decision made by the person named in your DPOA. They could even second-guess your conservatorship or your RLT, but the court can easily handle those issues.
1. Married with two grown male children, one of which is married
A RLT is great for situations with minor children (needing a guardian and a trustee), blended families (ex-spouses, kids from other relationships), spendthrifts, and addicts. You could pull all sorts of controversial control-freak strings from the grave.
It’s also great for resolving disputes among heirs. Just as with a will, you can attempt to poison the trust’s shares to anyone who files a legal challenge. Unlike a will, the trustee can more easily take unilateral action like selling the beach house (even if everyone inherited a share) and giving them their portion in cash instead of arguing about shared vacation times or buyouts.
Again, if you’re disabled, a co-trustee can more easily make decisions on your behalf. This is especially good for trustee landlords who might have to raise rents, evict tenants, and spend money on maintenance/repairs. A durable POA could get that done as well, but a judge in a tenant-friendly state might decide that a DPOA is not enough for a landlord to evict a tenant. You’d want the landlord advice of a lawyer (or three) before going the DPOA route.
4. Military and corporate pensions
There’s no way my spouse (a military retiree too) or daughter (a military servicemember) could easily deal with DFAS or the VA on my behalf... let alone for any total civilians to handle veteran’s benefits. I’m pretty sure the only answers to these issues are a medical directive, a healthcare POA (including HIPAA), and a RLT.
Our lawyer pointed out that the healthcare POA needed to have HIPAA access even after death so that we could obtain health records for lawsuits.
I was my father’s conservator during his Alzheimer’s, and it was stressful enough. Very few financial institutions respect a conservator’s appointment, and even if they accept it they’ll still argue with you about more paperwork. It got bad enough that I started doing everything online, where I could more easily give the impression to the financial institution that they were dealing with my father instead of me. I still acted in a fiduciary manner, yet what they didn’t know couldn’t get in the way of my father’s best interests.
With that experience, here’s what my spouse and I decided after interviewing three lawyers and a bunch of friends with RLTs.
My spouse hates having gatekeepers. By that she meant our daughter (or any contingency trustee) having to get two doctor’s certificates of mental incompetence, or having to consult a lawyer, or having a committee to select a successor trustee, or having to use a trust company. She wanted our daughter to be able to act as us whether we were in a coma, or suffering from dementia, or dead. No obstacles or bureaucracies in her way.
I think it puts a lot of trust in a successor trustee. You not only have to know your kid but hope that they won’t join a cult or develop an addiction or be coerced by their spouse. They might have to be comfortable with handling large sums of money... and not (too) tempted by it.
My spouse and I decided to form our RLT with me, my spouse, and our daughter as equal co-trustees. There are successor trustees but we three are starting as equals. That eliminates a lot of the gatekeeping, but you really have to trust. In our case we’ll also have enough pension income (and Social Security) that if our daughter does run amok then we’ll at least have future cash flow to afford to start over.
We’re only putting two assets in our RLT: our primary residence and our rental property. That lets our daughter do everything she’d want to do (“act as us”) without title-transfer issues for our disability. She knows that she wants to inherit those properties through the trust, but she can sell them if she needs money for our care.
Our IRAs will pass by beneficiary, of course, and shouldn’t go in a trust. We’re also working on a durable POA for our daughter to tap them if needed for our disability care.
Our joint taxable account and my personal taxable account will have durable POAs for our daughter. We’ve already done this for my personal taxable account. Fidelity’s instructions aren’t very comprehensive and they made us jump through several flaming circus hoops, but now my account shows up in her Fidelity account summary. She could execute a trade even as I’m writing this, although Fidelity would send a slew of confirmations and alerts to make sure they’re legally covered in case I recover and object to my daughter’s actions.
My spouse and I each have checking accounts, and we’re each joint on the other’s account. We could add our daughter as a signature authority, but not all banks or credit unions offer that feature. We’re going to add our daughter as a joint owner. That exposes our checking accounts to any lawsuits against our daughter, but we don’t keep much money there. If she was sued then we’d just open a new checking account for our future streams of income.
I’m leaving my angel investments outside of the trust. As those wind down, I’ll add the proceeds to our Fidelity brokerage account.
All of our personal property (including vehicles) is under $100K. In Hawaii, that pour-over will does not require probate.
I’m already turning over all of our family finances to my spouse— the monthly bills, the property taxes, the insurance, everything. (She’s asked me to keep doing our income-tax returns, but if I couldn’t handle them then she’d hire a CPA.) It’s nice getting that time back in my life, and it’s quite the exercise in learning to let go. You other nuclear-trained submariner control freaks will appreciate the challenge.
Our spouse says that when she’s 83 years old (our daughter will be 52) she’s turning all of our finances over to our daughter. Everything will be in autopay and we’ll live off our pension, SS, rental, & dividend income. Even our tenants will have to contact our daughter.