Author Topic: Estate planning. Wills & trusts  (Read 4161 times)

moustache79

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Estate planning. Wills & trusts
« on: January 19, 2016, 06:49:33 AM »
Hi all - ive been on the forum for a while but had to start anew because i wasnt able to reset pw for my old login.  Anyway- need some advice.  I am married w/ 3 kids +amother on way. We have had basic wills for 7 years now and need to update them.  Our lawyer recommends we create a revocable living trust.  Its pricey $700-800 at least.
Our goal is to have right people appointed to take care of finances and kids if anything should happen to both of us over the next 20+ years.  Current net assets mid 6 figures. 

Is there an alternative to a trust that gets us close to the protection it provides but at a lower cost and less work?

I am able to get a new will/living will/POA for free thru my employer but trust is not covered.  Lawyer really pushing the trust. 

Any advice would be much appreciated.  Apologies in advance if already covered at length but search function not working

ReadySetMillionaire

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Re: Estate planning. Wills & trusts
« Reply #1 on: January 19, 2016, 07:12:37 AM »
I don't know as much as your lawyer knows (factually speaking), so I'm not going to comment on his recommendation of a trust. But I'm always amazed by people on this forum trying to be cheap with estate planning.

Several attorneys at my firm are on the probate court's appointment list, and you'd be amazed how many people try to DIY their own wills/trusts/etc. The probate judge looks at most of those, throws them in the trash, then appoints a lawyer to dispense the assets per state law.

You're talking about your family's future should something happen to you. And yes, it takes a good 3-4 hours to put a well t thought out and legally enforceable trust together. That $700-800 is well worth the expense to make sure it's done right.

I guess if you're feeling queezy about the necessity of a trust, then maybe get a free consult and a second opinion. If they tell you the same thing then you need to fork over the $700-800 so your family's future is secure.

TVRodriguez

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Re: Estate planning. Wills & trusts
« Reply #2 on: January 19, 2016, 07:52:24 AM »
I'm an estate planning attorney with over 15 years in this area of practice.  State law and local law matter.  $700-800 is dirt cheap for an estate plan where I live.  My plans typically run $3000-5000.  I've handled estates of millionaires who tried to beat the system by putting stuff in POD (pay on death) accounts and just naming beneficiaries on contracted assets (IRAs, Life Insurance policies).  Those estates make me lots (LOTS) more money than the price I just listed above, and they take a lot longer to administer.  So it's kind of a choice between a minor hassle now and some money out the door while you are alive and able to make the choices you want and a major hassle for your heirs and more money out the door when you're dead and your choices may or may not be taken into account.  Choose your own adventure. 

GizmoTX

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Re: Estate planning. Wills & trusts
« Reply #3 on: January 19, 2016, 08:09:57 AM »
What are the reasons your lawyer is recommending the trust? You need to know exactly what this accomplishes, since trusts are crafted for specific issues -- there is no "universal" trust or even Will. I agree that $700 sounds very low.

We considered 3 scenarios for our estate planning: 1 spouse dies, both parents die, entire family dies. We then came up with a disposition for each, & they are very different. For 1 spouse dead, the other inherits the spouse's estate, no guardianship provision needed, but you may want a trust created for the children should the remaining parent remarry. For both parents dead, either together or after the first, the will should specify guardianship for the children & create a trust for them. The person or entity managing the trust does not have to be & likely should not be the guardian, because s/he might not be financially savvy, but the trust should provide compensation to the guardian as well as support the children. For entire family dead, we split the value of the estate in half for each spouse, who then designated percentages to leave to family & charities.

Our son is now an adult, so we've revised our wills to create trusts for deferring estate taxes, but this is usually feasible with estates over $5 million.




OkieStache

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Re: Estate planning. Wills & trusts
« Reply #4 on: January 19, 2016, 08:30:19 AM »
State law and local law matter.  $700-800 is dirt cheap for an estate plan where I live anywhere . . . . Choose your own adventure.

+1 

ditheca

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Re: Estate planning. Wills & trusts
« Reply #5 on: January 19, 2016, 04:04:40 PM »
I've handled estates of millionaires who tried to beat the system by putting stuff in POD (pay on death) accounts and just naming beneficiaries on contracted assets (IRAs, Life Insurance policies).  Those estates make me lots (LOTS) more money than the price I just listed above, and they take a lot longer to administer.

Why doesn't the POD method work?  I don't have millions but my life insurance and retirement accounts are POD to my spouse, and contingently to the designated guardian of our minors.

At this point my last will and testament seemingly covers nothing but my car, my house, and $20 in my wallet.

moustache79

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Re: Estate planning. Wills & trusts
« Reply #6 on: January 19, 2016, 04:06:22 PM »
Thats where my head was.   Does POD work?   If not am I losing anything by putting most accounts/assets into the trust?

mxt0133

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Re: Estate planning. Wills & trusts
« Reply #7 on: January 19, 2016, 05:14:00 PM »
Certain assets must go through probate such as real estate, do you own a house?  If you do, the time it would take to transfer ownership or sell the house in probate will cost you up to 1-2% of the total assets.  So if you own a house by putting it in a revocable living trust will keep it out of the probate process.

Also in the event of your death you cannot just leave funds to minor children.  If you leave your assets to the guardians of your surviving children then it become their assets.  Even if you completely trust them to use the funds properly, should they get sued, divorced, ect the funds intended to be used for your children are at risk. 

If you don't leave your assets to the guardians then the court will manage the funds in the children's name.  Worse you children will automatically get access to the funds when they turn 18.  Most children cannot handle a significant windfall of funds at that age.

A trust allows you select a executor where you can leave specific instructions on how the funds are to be used and when they can be distributed to your future adult children.

cheddarpie

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Re: Estate planning. Wills & trusts
« Reply #8 on: January 19, 2016, 06:32:02 PM »
Why doesn't the POD method work?

In many cases, there are also state laws that override POD directions. For a very simplified example, I don't have a will and I list my sister as beneficiary in my 401k. If I get married and then die, because I live in Washington half my assets (it's more complicated than this, but in a nutshell) are my spouse's as "community property." Not inherited to my spouse, but actually the property of my spouse. Then, of the remaining 50%, 50% of that (25% of total) must be left to my spouse, even if POD directions say otherwise. So of my 401k account, my spouse would get 75% by law and my sister would get only 25%, even though that's not what I said I wanted in the POD instructions. And it takes a court a long time and far more than $700 in lawyer fees to figure that out and make the distributions.

Estate and tax laws get very complicated very quickly and a good lawyer will help you figure them out and will be well worth every penny. Lawyers have a fiduciary duty to act in your best interest and unless you get a really bad egg, they will not sell you stuff you don't need.

moustache79

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Re: Estate planning. Wills & trusts
« Reply #9 on: January 19, 2016, 07:00:26 PM »
Thanks.  Great advice.  My biggest concern was re-title of certain accounts that go into trust.  Is there a rule of thumb on what to include?

mxt0133

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Re: Estate planning. Wills & trusts
« Reply #10 on: January 19, 2016, 10:23:25 PM »
For IRAs, 401ks, and Roth IRAs the general consensus is NOT to put the trust as a beneficiary because they cannot take advantage of the 'stretch rule'.  The stretch rule allows the required minimum distributions (RMD) to be based on the life expectancy of the beneficiary, so if a minor child would be many years, thus making the RMD smaller and making the tax hit smaller as well.  However, if the beneficiary is a trust, and doesn't qualify as a look through trust, for these types of accounts then you only have 5 years to payout the entire amount of the account, which will trigger higher tax rates.

The down side of directly naming your minor children beneficiaries to IRAs and 401ks is that the money will be accessible to them when they become 18.


*"When the trust meets certain requirements set by federal regulations (more about that later), the IRS will “look through” the trust and treat its beneficiary as if he or she were directly named the IRA’s beneficiary. This enables the trust to take advantage favorable minimum-distribution rules that apply to individual beneficiaries. In trusts with multiple beneficiaries, the required yearly withdrawal will be based on the life expectancy, under IRS tables, of the oldest beneficiary.

If the trust doesn’t qualify as a look-through, or see-through, trust, it will still get the money. However, it may be required to take the payout within as little as five years if the account owner hadn’t reached the required beginning date for taking IRA withdrawals (April 1 of the year after the account owner reaches 70 ˝) before he or she died."

REF: http://www.forbes.com/sites/deborahljacobs/2014/09/04/iras-and-trusts-what-you-need-to-know/#2715e4857a0b19262fc71da5

TVRodriguez

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Re: Estate planning. Wills & trusts
« Reply #11 on: January 21, 2016, 03:16:07 PM »
Certain assets must go through probate such as real estate, do you own a house?  If you do, the time it would take to transfer ownership or sell the house in probate will cost you up to 1-2% of the total assets.  So if you own a house by putting it in a revocable living trust will keep it out of the probate process.

Also in the event of your death you cannot just leave funds to minor children.  If you leave your assets to the guardians of your surviving children then it become their assets.  Even if you completely trust them to use the funds properly, should they get sued, divorced, ect the funds intended to be used for your children are at risk. 

If you don't leave your assets to the guardians then the court will manage the funds in the children's name.  Worse you children will automatically get access to the funds when they turn 18.  Most children cannot handle a significant windfall of funds at that age.

A trust allows you select a executor where you can leave specific instructions on how the funds are to be used and when they can be distributed to your future adult children.

I agree with much of this.  (Although the executor is technically the fiduciary under the Will and the successor trustee is the fiduciary under the trust.  But same idea.  Plus in some states we don't use the word "executor" but instead say "personal representative," just to make it confusing.)  (And also it may be necessary to go through probate on a real property even if that real property is held in the trust.)  (And also that the court may not necessarily be the "manager" of the children's funds, but the court would require annual plans to be filed - which cost time and attorneys fees - if a guardianship is appointed.)  I most strongly agree with the comment that most 18 year olds are not up for handling large sums of cash--especially considering their parents will be dead and not able to guide them.

For IRAs, 401ks, and Roth IRAs the general consensus is NOT to put the trust as a beneficiary because they cannot take advantage of the 'stretch rule'.  The stretch rule allows the required minimum distributions (RMD) to be based on the life expectancy of the beneficiary, so if a minor child would be many years, thus making the RMD smaller and making the tax hit smaller as well.  However, if the beneficiary is a trust, and doesn't qualify as a look through trust, for these types of accounts then you only have 5 years to payout the entire amount of the account, which will trigger higher tax rates.

The down side of directly naming your minor children beneficiaries to IRAs and 401ks is that the money will be accessible to them when they become 18.


*"When the trust meets certain requirements set by federal regulations (more about that later), the IRS will “look through” the trust and treat its beneficiary as if he or she were directly named the IRA’s beneficiary. This enables the trust to take advantage favorable minimum-distribution rules that apply to individual beneficiaries. In trusts with multiple beneficiaries, the required yearly withdrawal will be based on the life expectancy, under IRS tables, of the oldest beneficiary.

If the trust doesn’t qualify as a look-through, or see-through, trust, it will still get the money. However, it may be required to take the payout within as little as five years if the account owner hadn’t reached the required beginning date for taking IRA withdrawals (April 1 of the year after the account owner reaches 70 ˝) before he or she died."

REF: http://www.forbes.com/sites/deborahljacobs/2014/09/04/iras-and-trusts-what-you-need-to-know/#2715e4857a0b19262fc71da5

One comment to add to this: it's not always a bad result if you name the trust as the contingent beneficiary of an IRA.  Sometimes paying it out more quickly is fine.  Sometimes the sibling/beneficiaries are close in age, so a 2 year difference doesn't make much difference in the stretch IRA judged by the oldest bene's life expectancy.  But a good estate planning attorney will be able to tell you how to name the beneficiaries so that you can use the terms of the trust but still get look-through status so each bene gets the stretch.  And I doubt you're gonna get that attention and advice for $700.  It's possible, I suppose.  But not likely.