Trigger point for trusts?

[SecondCor521]

Hi all.

I read over on BH a lot about all sorts of trusts. My general impression is that at a certain point they think you really should have trusts.

They seem to like them to protect against creditors, lawsuits, ill-behaved spouses, and ill-behaved beneficiaries. They like that they bypass probate.
They also imply some estate tax advantages to subsequent generations which I don't quite understand.

They seem to gloss over the setup costs, the additional complexity, the costs of a professional trustee (which BHers also seem to advise often), and the income tax implications associated with trusts (trust tax rates are rather high for income kept in the trust).

There are situations where I think trusts make sense, such as a disabled or very young beneficiary. And possibly in a second marriage situation if the asset levels are quite disparate. And maybe some other complex situations which I don't personally have.

I am single and 52. I have three kids age 26, 21, and 20 who are generally good young adults but are not notorious or especially unusual in any way.

I don't have any trusts set up. My (possibly naive) solutions to the benefits that trusts apparently provide is:

Don't owe creditors (or pay them what you owe)
Try to behave in a way that you don't get sued (not always possible)
Don't marry ill-behaved spouses
Don't be an ill-behaved beneficiary
I live in a state where probate is pretty easy and cheap, and I have beneficiary designations on most of my assets
If you face an estate tax situation, start giving your money away earlier to the next generation and/or charity

My general questions:

1. Am I missing something fundamental or very significant about trusts, especially with respect to their benefits?

2. If you don't have trusts, what would be your trigger points (asset levels or conditions) to start considering them? If you do have trusts, what were your trigger points?

(Yes, I could have asked these at BH. I chose not to because I wanted this crowd's opinions.)

 

[RetiredHappy]

You need to differentiate between 2 different kinds of trust. What you have listed above apply to irrevocable trusts, and it is complicated and gets expensive in a hurry. You also lose control of all money in an irrevocable trust. I would not consider it unless I have $20M and up. We prefer to rely on umbrella policy to protect us.

Many of us have revocable / living trusts where we are both the grantor and the trustee. Revocable / living trusts help avoid probate, and enable fast distribution of the estate. Even with young children, the living trust can be set up in a way of slow distribution of funds to support education and living expenses until they reach a certain age and can be released in stages at ages 25, 30, 35.

 

[steelyman]

I think you are doing the right thing by researching the pros and cons up front. I have a trust and am glad that I established it. I was advised by a CPA/attorney in my former state to wait until I’d moved to set it up and work with an attorney in the new state who was familiar with the law.

That’s what I did (so my trust is sited in NC). There were upfront costs and effort in retitling things but they were worth it to me. I have no recurring costs for the trust but I expect to review the documents with the attorney and update as needed.

 

[PatrickA5]

At this point, we don't feel the need for a trust, but that could change. We have everything set up to avoid probate via TOD, POD beneficiaries - including the house. We have 3 adult kids that all get along. I'm not sure what would trigger the need for a trust for us.

The lawyer that did our Will, POAs, etc said we don't need a trust. My next door neighbor is an estate attorney and after telling him what we have, he also agreed we don't need anything other than a Will - just in case. We'll reconsider down the road.

 

[MrsHaloFIRE]

Talk to a trust attorney. In fact talk to a couple. We just setup a revocable living trust which also contains an LLC holding out otherwise unprotected brokerage accounts and im in the process of transferring all assets into it minus our cars. No fees as long as we are alive with our marbles. Then there's a flowthrough marital trust then a survivors trust for our bebe. Yes we have a tiny bebe now. She's hot and fresh out the kitchen. Cost apprix 8500 to the attorney and they took care of retitling our residence. Taxes flow through straight to personal income taxes. We will have a bank as trustee if the survivors trust is triggerred by both of us departing and leaving bebe. We interviewed a couple banks suggested by our attorney. Got the list of attorneys from a friend who is a CFP (he doesnt do any work for us i just asked for his take). Also did new wills, living wills etc at the same time. The LLC added to the cost. Time suck? Maybe 10 hrs all told for ys to interview think review and sign. Unsure how long will take me to retitle. At the pace of someone with a newborn probs several months going one at a time. For someone with both hands couple weeks probs.

Wiuld we have done without bebe? Eventually probs. But bebe drove the timeline BC guardianship suggestions and wills etc. Didn't wanna get caught with pants around ankles.

South Texas pricing

 

[gcgang]

What is BH?

 

[SecondCor521]

Thanks all for the replies so far

@RetiredHappy, yes, I combined everything into a generic "trust" category. Beyond revocable/irrevocable, there's also bypass trusts, ILITs, CRUTs, GRATs, intentionally defective, conduit, and more terms and types that I really don't know much about.

In my case, I don't care about avoiding probate (but can do so via beneficiary designations or TODs on a large percentage of my assets), nor do I care about fast distribution. I expect when I pass that my kids will be self sufficient and won't need the money quickly, and if they do they probably made mistakes to get themselves in that situation.

@MrsHaloFIRE, congrats on the baby. They are exhausting at first, aren't they? Anyway, what in your opinion were the benefits that you got from the RLT - mostly to avoid probate I'm guessing? (I don't know much about Texas probate although I was born there so am still an honorary Texan.)

 

[SecondCor521]

What is BH?

Bogleheads (https://www.bogleheads.org/forum/viewforum.php?f=2)

 

[Sunset]

We don't have one.
Here in IL, land trusts are/were popular to avoid the dreaded probate here which is slow, easily takes (I heard) a year to process.
So folks would put their house in a revocable land trust.

Now you can set POD/TOD on the deed so it acts like a bank account for avoiding probate. But this is not advertised as nobody makes $$$ off it.

We have umbrella insurance of course.

 

[Souschef]

At the time when Inheritance tax was at $1 Mil, I set up a trust with a QTIP
AB trust for my late wife and myself. Unfortunately, when the estate tax exemption was raised, I was too lazy to have the trust changed or eliminated.
Fortunately, when the trust assets were less than a certain amount, the trust could be ended. It took me a number of years and filing 1041 returns.
I have remarried, and everything is POD/TOD, so no probate.

 

[OldShooter]

... I read over on BH a lot about all sorts of trusts. My general impression is that at a certain point they think you really should have trusts. ...

BH? SGOTI? I'll start with the recommendation you'll see repeatedly: This is complex stuff and SGOTI is an especially bad source of information because many of the issues are state-specific and situation-specific. Find a good specialist attorney and a good CPA.

... 1. Am I missing something fundamental or very significant about trusts, especially with respect to their benefits?

Yes. You have some things mixed up. DW and my case is probably typical. I'll use us as an example. We have a revocable trust that owns our houses and IIRC will receive the assets of the first to die. Our attorney seems to view this as good housekeeping to minimize probate but otherwise not a big deal. DW and I are trustees of our rev trust and can add or remove assets whenever we like.

When the second person dies, our wills create two [irrevocable; we are dead] educational trusts for two grands, a special-needs trust for one grand, and a fairly vanilla trust for support of our son. The purpose of the educational trust is (gasp!) to make sure the money goes for education. IIRC the trusts for the grands are in the low six figures. Our son is not financially or business oriented, so the purpose of that trust is simply to ensure that someone competent is running his money and keeping it safe from the hucksters and sharks. He knows this and is grateful for it.

Schwab will be our trustee. IIRC they have quoted us a fee of 70bps. Selection of a trustee is highly dependent on the situation. One big risk is a situation where one sibling is trustee and has discretion over money going to the other(s). If the sibling trustee is simply running the money and dispensing on a schedule/no discretion, that minimizes the possibility of bitter family feuds. There are problems with fixed disbursement schedules, though.

@RetiredHappy's response seems to contemplate an irrevocable trust created while the grantor is still living. These seem to come along from time to time. I think Charitable Remainder Trusts and possibly Life Estates fall into this category. You can explore this with your advisors.

IMHO the idea that dollar thresholds are important is false except to the extent that a tiny trust might be swamped with administration expenses. It is the grantor's desire to control or protect money that drives the decision. When DW was an SVP in Investments and Trusts at the megabank, a number of her department's clients were widows where dad had created a trust to protect mom from parasites, including their children. Children are a particularly frequent and egregious class of parasites because they are difficult for a mom with money to resist.

Trusts for adult children are often to prevent the child from being a spendthrift and to protect the money from divorce proceedings, judgments, hucksters, and sharks. There was a sad post here a while back where a Fast Eddie advisor was encouraging and helping a beneficiary go to court to break the trust so that the advisor could get his claws on the assets.

... 2. If you don't have trusts, what would be your trigger points (asset levels or conditions) to start considering them? If you do have trusts, what were your trigger points?

Trigger point is need, not dollars, except to the extent that a tiny trust is percentage-wise costly to administer. Creating a good estate plan with trust was, for us, about $4K. It gets a cheaper tune-up every few years as children become adults, our estate changes, and federal and state laws change. As a percentage of the estate that the plan is managing, it is a trivial expense.

 

[silvor]

We have 3 adult kids that all get along. I'm not sure what would trigger the need for a trust for us.

Get along huh? Boy do I have a story for you

 

[SecondCor521]

@OldShooter, thanks for the detailed reply.

As usual, I don't rely on BH or SGOTI. But I do use them for general ideas that I then go off and investigate. I have an excellent CPA and estate attorney in my Rolodex. (Neither of them has recommended any trusts to me yet.)

I'm not clear what you think I have mixed up, although I'll grant you that I conflated a bunch of different kinds of trusts under the umbrella term. I understand that the various kinds of trusts vary greatly in their purposes and benefits - I left that out because I thought it was obvious.

Again, I don't care about minimizing probate particularly much, but I can avoid it on a large percentage of my assets with beneficiary designations and TOD.

I granted in my OP that special needs trusts make sense.

For educational needs, my plan is to just contribute to 529s for any grandchildren (none yet).

As for the spendthrift, divorce, hucksters, and sharks, I generally mentioned those in the OP and my alternative way of addressing those concerns in case it mattered for the conversation.

Finally, I don't believe I wrote that dollar levels were important, and that is also specifically why I wrote "(asset levels or conditions)" (emphasis added). It's also because I've never heard anyone say, "Oh, well you have $XM so now you need a trust", let alone hearing any general number for $X.

Thanks again, your reply was helpful.

 

[PatrickA5]

Get along huh? Boy do I have a story for you

I'm sure there are plenty of stories. LOL!

Right now, with everything TOD with equal percentages, I don't think there is much left to fight over.

A few years ago, I looked into trusts big time. There were no shortage of Lawyers out there that wanted to set one up (typically $3K to $10K). I met with several. The worst were the Medicaid guys that wanted me to set up a irrevocable trust to take assets out of my estate so I could get into a Medicaid nursing home. Uh, no thanks. I plan on spending every last penny to get the best possible nursing home experience - if I need one.

 

[luckydude]

Hi all.

I read over on BH a lot about all sorts of trusts. My general impression is that at a certain point they think you really should have trusts.

They seem to like them to protect against creditors, lawsuits, ill-behaved spouses, and ill-behaved beneficiaries. They like that they bypass probate.
They also imply some estate tax advantages to subsequent generations which I don't quite understand.

They seem to gloss over the setup costs, the additional complexity, the costs of a professional trustee (which BHers also seem to advise often), and the income tax implications associated with trusts (trust tax rates are rather high for income kept in the trust).

There are situations where I think trusts make sense, such as a disabled or very young beneficiary. And possibly in a second marriage situation if the asset levels are quite disparate. And maybe some other complex situations which I don't personally have.

I am single and 52. I have three kids age 26, 21, and 20 who are generally good young adults but are not notorious or especially unusual in any way.

I don't have any trusts set up. My (possibly naive) solutions to the benefits that trusts apparently provide is:

Don't owe creditors (or pay them what you owe)
Try to behave in a way that you don't get sued (not always possible)
Don't marry ill-behaved spouses
Don't be an ill-behaved beneficiary
I live in a state where probate is pretty easy and cheap, and I have beneficiary designations on most of my assets
If you face an estate tax situation, start giving your money away earlier to the next generation and/or charity

My general questions:

1. Am I missing something fundamental or very significant about trusts, especially with respect to their benefits?

2. If you don't have trusts, what would be your trigger points (asset levels or conditions) to start considering them? If you do have trusts, what were your trigger points?

(Yes, I could have asked these at BH. I chose not to because I wanted this crowd's opinions.)

DW and I have both.

Not sure if our situation applies to yours, but here are (briefly) some of the benefits we see in setting up ours:

Revocable trust:
-Avoid probate of our RE holdings
-Control when assets would be disbursed to our heirs upon our death; in case of our early demise, we don't want heirs to get the money too young.
-As part of trust setup, we also did a pourover will, advance health directive and power of attorney to deal with our possible incapacity due to health, etc. (although you can set the last two without the trust).
-The process of setting up a trust forced us to compile a comprehensive list of our assets; that was a good exercise to make sure we didn't miss anything.

Irrevocable trust:
-Allows us to fund it with annual gift exemption that reduces size of our estates and provide liquidity to heirs to pay estate tax upon our demise (we use a life insurance trust vehicle, so it's a bit more complicated but the general idea holds).
-Assets in irrevocable trust are safe from creditors.
-Disbursement from trust to beneficiaries upon our demise is exempt from estate tax
-Downside with irrevocable trust is you lose control/use of asset in your lifetime. Also trust income (if any) is taxed at a higher rate.

 

[PatrickA5]

Finally, I don't believe I wrote that dollar levels were important, and that is also specifically why I wrote "(asset levels or conditions)" (emphasis added). It's also because I've never heard anyone say, "Oh, well you have $XM so now you need a trust", let alone hearing any general number for $X.

Thanks again, your reply was helpful.

You haven't talked to enough estate lawyers, LOL! I had several recommend a trust just because I have X amount of dollars. Nevermind that 95% of those dollars are in retirement accounts that have beneficiaries.

The ones that are the worst are the "free lunch" lawyers hawking irrevocable trusts. The food wasn't even very good. Oh, and the scare tatics of the lawyers were at times funny. Lot's of mentions of DW marrying "Bip, the pool boy" and stealing the money.

If you haven't read it yet, you might check out Beyond the Grave by Condin.

 

[silvor]

The ones that are the worst are the "free lunch" lawyers hawking irrevocable trusts. The food wasn't even very good. Oh, and the scare tatics of the lawyers were at times funny. Lot's of mentions of DW marrying "Bip, the pool boy" and stealing the money.

Huh. Maybe that’s why my mom pushed for the trust since dad had a girlfriend weeks after she passed.

It was a “free lunch” guy, they overpaid, the lawyer partially lied - BUT, it ended up saving my butt.

 

[PatrickA5]

Huh. Maybe that’s why my mom pushed for the trust since dad had a girlfriend weeks after she passed.

It was a “free lunch” guy, they overpaid, the lawyer partially lied - BUT, it ended up saving my butt.

I wasn't saying that the trust for that purpose couldn't come in handy in some situations. Hopefully, DW is smart enough not to let Bip the Pool Boy take our kids inheritance. But, when the time comes, she may very well want to get a trust to make sure that doesn't happen.

The free-lunch lawyers had a long list of possibilities of situations that "could" happen someday - none of which concern us at this point in time.

 

[Bamaman]

There are going to be many times in a couple's life that they will need to make estate and will revisions due to changing family dynamics.

We have two children that are fiscally irresponsible and one that's a college trained (and trustworthy) accountant. We also are raising one 10 year old granddaughter, and her 14 year old brother stays with his father most of the time. It's the children that we're most concerned about and we've been considering setting up a Special Needs Trust for them.

The accountant daughter is to be the executor of our estate. I've read on E/R recently about the pressures of liquidating an estate and how it can easily alienate a family (over money.) We have too many cars, boats a RV and two houses full of too much stuff. The logistics of getting rid assets would amount to a full time job for a year or longer. And having to administer a special needs trust alone is tough enough.

What's difficult is finding good advice on what is equitable and proper in the situation we're in. The two untrustworthy children are 35 and 55 years of age--past the time that Uncle Sam likes trust funds to even exist. We're afraid to leave the grandchildren too much other than funds educational and basic needs distributions monthly--with payouts at ages 25 & 35.

After the holidays, we plan to search for a good trust attorney and begin paring down unused "stuff." After recent health issues with my wife, this is better done now and not later.

 

[PatrickA5]

T
After the holidays, we plan to search for a good trust attorney and begin paring down unused "stuff." After recent health issues with my wife, this is better done now and not later.

Exactly what we've been doing over the last few years. I've simplified our assets down to 3 financial institutions. Fidelity has about 95% of our assets. Hope to scale that down to two soon.

Same with our belongings. I've been on a 5 year purge of stuff. After going through my dads house when he died, I don't want my kids having to deal with a bunch of junk. We have a few things left (that the kids won't want) that I need to figure out how to get rid of, but we're mostly there.

 

[meierlde]

also there are testimentary trusts

It is possible to set up trusts in a will that can pay out a given ages and all the other things trusts can do. (One thing that may or may not be useful, depending on estate value and the estate tax limit, is when the first dies put the assets into a trust with income to the second, that dissolves on the death of the second.

 

[foxfirev5]

At this point, we don't feel the need for a trust, but that could change. We have everything set up to avoid probate via TOD, POD beneficiaries - including the house. We have 3 adult kids that all get along. I'm not sure what would trigger the need for a trust for us.

The lawyer that did our Will, POAs, etc said we don't need a trust. My next door neighbor is an estate attorney and after telling him what we have, he also agreed we don't need anything other than a Will - just in case. We'll reconsider down the road.

Other than real estate, life insurance and bank accounts the bulk of our assets are in retirement accounts. We've set up beneficiaries for each account and have had no attorney tell us we need more than a simple will. However depending on the state YRMV.

 

[MrsHaloFIRE]

Thanks all for the replies so far

@RetiredHappy, yes, I combined everything into a generic "trust" category. Beyond revocable/irrevocable, there's also bypass trusts, ILITs, CRUTs, GRATs, intentionally defective, conduit, and more terms and types that I really don't know much about.

In my case, I don't care about avoiding probate (but can do so via beneficiary designations or TODs on a large percentage of my assets), nor do I care about fast distribution.

@MrsHaloFIRE, congrats on the baby. They are exhausting at first, aren't they? Anyway, what in your opinion were the benefits that you got from the RLT - mostly to avoid probate I'm guessing? (I don't know much about Texas probate although I was born there so am still an honorary Texan.)

Advantages: probate simplicity without complicated taxes. And then llc inside shielding our unshielded assets from liability. In TX retirement accts and homestead are protected all else is fair game for lawsuits. Umbrella insurance not all that effective either it seems. Which we also have

Re: bebe. Yes exhausted. C section. Surgeon told me if I was a muddle aged male getting that surgery I would get 3 weeks of care off my feet by family and the whole neighborhood would bring food and do my yard. But since im female they sent me home 48 hrs later with a tiny newborn and wished good luck. Luckily we got (rented) the exceedingly expensive and apparently very effective Snoo bassinet. Look it up. Its responsive to her fussing with white noise and motion. She is knock on wood sleeping like a dream. We set alarms to wake us up to feed her. I think she would sleep 8 hrs if the pediatrician would OK it. She's a little lightweight, not bad but he's concerned about glycogen stores and blood sugar if we let her sleep. Heres to longer sleep blocks in the new year!

 

[kgtest]

It is possible to set up trusts in a will that can pay out a given ages and all the other things trusts can do. (One thing that may or may not be useful, depending on estate value and the estate tax limit, is when the first dies put the assets into a trust with income to the second, that dissolves on the death of the second.

That's how my deceased sister's trust / estate is setup. To distribute when each of her three kids hits a certain age. That's how she wanted it done.

 

[mrfeh]

One potential use of a trust is to dictate how the funds can be used from beyond the grave. I know of a woman who left her assets in a trust for her 4 kids, with all kinds of restrictions on how the money could be spent (ie. need a new roof for your house? ok. want to buy a Maserati? nope).

Eventually the kids got the courts to grant access to all of the money without the restrictions. I don't know what the process was, but it wasn't quick or easy.