Author Topic: Question about trusts  (Read 387 times)

frugaldrummer

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Question about trusts
« on: January 08, 2019, 10:14:41 AM »
So I received my monthly alimony check and noticed that this time, the check said "Ex-husband's last name family trust" And the line below said "Ex-husband's new wife's name, trustee".

Now I'm wondering what the purpose or benefit of him having a trust is? We live in a community property state (hopefully he got a pre-nup before marrying his much younger wife but he may not have.) To the best of my knowledge, his assets consist of about $500k in 401k/Keogh retirement funds, the duplex he owns and lives in (Probably worth $1.5 - 1.8 million with maybe $600k-800k in mortgage owed) and a pension that he cannot receive for another year. His wife may have received some inheritance as her parents died a year or two back but I don't believe they were wealthy and she has at least one sibling to share it with and student loans to pay so ?maybe she could have gotten $100 k or something.  My ex has not gotten any inheritance yet, although he might get something eventually when his parents die.

Is there really any benefit to having a revocable trust in a situation like this? It was always my impression from reading that there wouldn't really be. 

I also wonder why he is paying the alimony out of the trust? I wonder if he mistakenly believes that the new tax laws about deductibility of alimony payments applies to him (it doesn't - old divorces stay the same, only new divorces are governed by the new tax law. He can still deduct his alimony payments to me and I still have to pay taxes on them).

None of this affects me directly, I'm just wondering about the possible benefits of a trust in his situation (including how it might affect my children's inheritance from him).  I prefer not to ask him any questions directly.  What do you think?  (Btw he is 58 and in good health. His second wife is 19 years younger.).

frugaldrummer

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Re: Question about trusts
« Reply #1 on: January 08, 2019, 10:47:00 AM »
Btw I am assuming it is just a simple revocable trust.  I suppose it's possible that given her much younger age, he put things in a trust so that if he died, his wife has the use of the funds in the trust until her death and then the remainder gets passed on to my kids?

I did ask him a couple of years ago obliquely if the kids were covered in his will as I was about to give up my life insurance and wanted to be sure the kids would be able to finish college if I died, and he assured me they were covered.

frugaldrummer

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Re: Question about trusts
« Reply #2 on: January 08, 2019, 10:49:32 AM »
OUR kids, btw - mine with him.

blackletterlaw

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Re: Question about trusts
« Reply #3 on: January 08, 2019, 10:54:22 AM »
if the trust is revocable, and/or his wife is the trustee, he's not necessarily getting an immediate tax benefit, it is a grantor trust where he is treated as the current owner

with the unified exemption being $20m now...unless they are making a lot of charitable gifts...a trust here doesn't make sense based on what details you've shared...it might be a way to get out of mandatory inheritance rules in whatever state they live in

maybe someone else has an idea

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just saw the issue about your kids with him...hmm perhaps it is a way for him to try to alienate property from mandatory inheritance rules?...not sure how it would work thought...it is a state by state issue...

honeybbq

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Re: Question about trusts
« Reply #4 on: January 08, 2019, 10:54:38 AM »
If you have substantial assets, a living trust can be the easiest way to lump all your finances under a single roof. My spouse and I are likely going to do this actually so I've been reading up on it. You can avoid estate taxes and probate easier, and with minor children, the trust can pass to someone who can provide for the children out of the trust, with the trust eventually being turned over to the child when of age. A will is also public (in some ways) and  a trust keeps everything private. Another big one is the ability to list your revocable trust as a contingent beneficiary on your retirement accounts.  I also think there are tax savings if your estate is more than ~5mil.

I think  (personally) a living trust will be harder to challenge - i.e. spouse's ex-wife cannot challenge a living trust as easily as a will that will go through probate. Although I'm not a lawyer or judge, so I guess we'll see. (she is crazy and even though we've been together 15 years she is still always asking for money)

https://www.forbes.com/sites/christinefletcher/2018/08/16/9-reasons-why-you-should-consider-a-living-trust/#6b36260435df
« Last Edit: January 08, 2019, 10:58:08 AM by honeybbq »

maizeman

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Re: Question about trusts
« Reply #5 on: January 08, 2019, 11:16:08 AM »
One reason a person in that situation might set up a trust is so that, on his death, his much younger second wife could get the use of assets (like a house) and the income from investments, but ensure that the assets themselves would pass to his biological children on her death.

This is a concern a fair number of folks have in second marriages where there is a major age gap, and the new spouse didn't have a close relationship with the children from the first marriage (so divorce happening when the kids were teenagers or older, or primary custody of the kids when to the other biological parent).

The person wants to A) make sure your spouse isn't thrown out of the house you own together/forced to dramatically cut their retirement lifestyle after you die B) make sure your children ultimately receive your assets, and not a new husband/wife when/if your spouse remarries after you die.

It's not entirely effective because one can often find ways to drain out the trust anyway, but it at least makes the older spouse feel better while alive about making sure both their adult children and younger spouse will be taken care of.

frugaldrummer

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Re: Question about trusts
« Reply #6 on: January 08, 2019, 12:56:22 PM »
Quote
One reason a person in that situation might set up a trust is so that, on his death, his much younger second wife could get the use of assets (like a house) and the income from investments, but ensure that the assets themselves would pass to his biological children on her death.

I imagine this is the case - if so, it could mean my children do not receive any inheritance for a very long time, as she is only a few years older than them.  Perhaps he has listed them as beneficiaries of his life insurance. Not that it's my business really - he can do as he likes with his money and it makes sense for him to look after her.  It doesn't really color my own estate planning at this time, as my kids would split my home and 401k. 

I doubt there is any tax advantage for him as it's not that big an estate.  I just wondered because I've read many articles about trusts being sold to people who had no need of them.

Catbert

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Re: Question about trusts
« Reply #7 on: January 08, 2019, 01:13:45 PM »
Although Federal government no longer collect inheritance tax on most estates ( up to $11million single/$22million couple) your state might still tax inheritances.    There is also the cost of probate.
 
Honestly, this might be a good sign as far as your children inheriting goes.  If he was leaving everything to the new wife the easiest way to do that is just make everything joint and/or list her as beneficiary.  The trust is a way to easily bequeath assets to a non-spouse, i.e., your children.

His estate attorney probably recommended that all assets be placed in the trust including the checking account.  I wouldn't read anything into his new checks.

 

maizeman

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Re: Question about trusts
« Reply #8 on: January 08, 2019, 09:23:06 PM »
I imagine this is the case - if so, it could mean my children do not receive any inheritance for a very long time, as she is only a few years older than them. 

This is true, but on the other hand, while that kind of trust can be circumvented, it does take work and creativity to do so.

So on the bright side this potential development likely substantially increases the odds that they, or their own children, will ultimately inherit something from their father vs the previous default in the absence of a will (current spouse inherits everything).