Talk to me about trusts: what happens when you inherit one?

[Villanelle]

My parents recently updated some of their trust information, since they moved to a different state.   (ETA:  It is a revokable trust, set up for the purposes of avoiding probate.) They sent copies to my sister and me (we will inherit it, and are the only people listed in the will, Sister is executor and first in line as trustee; I'm second.)  They asked us to review everything, and in doing so, we found some minor issues (sister's middle name misspelled in a few places, the 3rd option for trustee is someone they've had a falling out with so they might want to change that, etc.)  But that caused a phone call between sister and I to discuss, which led to a longer conversation, which led to some confusion.

When chatting with my sister, we realized we don't really understand how this works.  I've done some interneting, but figure someone here can break it down simply for me.  Essentially everything my parents own that can be put in the trust is.  Let's call it "MaidenName Family Trust", OR MFT.  Their will stipulates that sister and I share equally in everything.

So, when they die, all the appropriate paperwork is done, fees paid, etc., let's say the total value of MFT is $1m after fees and expenses and taxes, for the sake of easy math. And let's also say that sister and I decide to sell everything, so there's $1m in cash.  She gets $500k, and  I get $500k. (Or she gets an imaginary $100,000 stamp collection and $400k, or whatever.) At that point, does MFT get dissolved and cease to exist?

That's my understanding, but she has some notion that the money somehow stays in the MFT trust, but that we can spend it.  She said we need to at some point talk about what we want to be done with the MFT money once she and I die.  (Neither of us have any children, and this was in the context of "what charity would we want it to go to", essentially.)  I'm pretty sure that my $500k just becomes my $500k, and I could leave whatever is left--if anything--it to charity A (or waste it on hookers and blow, or leave it to my husband or my friend's kid's college fund, or...) and she could leave hers to charity B.

So basically, I guess the crux of the question is, does that money go to her and me and just become ours, and it doesn't matter that the assets were transferred via the MFT?  Or does it somehow stay under the umbrella of the MFT and if so, how does that work if I decide I want to put my half on black at my favorite Vegas casino, while I'm still alive?  (Or she wants to buy a house with hers, or I want to donate $100k to the zoo, or...?) 

(I should note that my family is very open about this stuff, which s why all these candid conversations are happening.  I have good reason to optimistic that there will be no fighting about money between sister and me, though we may end up in heated debate about who gets the favorite charm bracelet of our mother's, but that's about it.  So this isn't a question about legal battles or anything ugly.  And it's not about either her or me hoping to get our hands on the MTF ASAP, or anything along those lines.  She just seems to think that the MFT money remains separate from the rest of our personal assets, and we need to agree on a plan for what happens to it after she and I die, since we are unlikely to spend it all because we are both doing well and live semi-modestly.  And I don't think that's necessary or that either of us will have any involvement in the other's half once the dust settles on the estate distribution.) 

[BeanCounter]

A good place to start would be to find out WHY your parents have a trust. Sounds like they don’t need one. This will help you know if the trust will stay in force after they both die or dissolve.

[Rob_bob]

Disclaimer, I'm not an expert.

It depends on what type of trust it is.  An Irrevocable Trust would be the type used if the heir was not financially responsible and money would be out of their control and might be paid out like an annuity.

A Revocable Trust is basically the same as a will but it is not a public record and avoids probate court.  The assets are distributed and the trust goes away.

I have received an inheritance from both a will and a revocable trust of which I was the backup executer.  The will took about a year before assets were disbursed, the trust a matter of a few weeks.

[Telecaster]

Interesting.   My wife and I were doing estate planning yesterday, so I was reading up on trusts.   She had a free phone consult with an attorney though her work, and the attorney recommended we put everything in a trust, for reasons that weren't entirely clear to me and then distribute our assets out of the trust.   Apparently this avoids probate or something.  Again, I don't really know the reasoning. 

However, my understanding is the same as yours.  Once the assets are distributed out of the trust according to the grantor's wishes, then the trust is dissolved.  I don't see why in this case there would be a stipulation that the money remain in the trust until you spend it. 

[former player]

I think the point here is that your sister and you are trustees and your sister and you are beneficiaries, with no one else being involved?

In that case, as long as you both agree you can do what you like: there is no-one else with an interest who is going to be bothered or get involved, legally or otherwise.

I would suggest that you both write up a simple document saying 1) we are the trustees and beneficiaries of this trust, 2) we have agreed to sell the trust assets and distribute the proceeds equally and 3) that the trust is wound up upon the final distrubution of the assets.  Both sign, have it witnessed if you feel it is necessary, and each keep a copy.

Or get a lawyer to draft something for you. It will basically say the same thing, but there might be some local legal niceties or tax/financial issues to deal with.

(Not a lawyer, not in your jurisdiction, comments above worth what you've paid for them.)

[Catbert]

Disclaimer, I'm not an expert.

It depends on what type of trust it is.  An Irrevocable Trust would be the type used if the heir was not financially responsible and money would be out of their control and might be paid out like an annuity.
so
A Revocable Trust is basically the same as a will but it is not a public record and avoids probate court.  The assets are distributed and the trust goes away.

I have received an inheritance from both a will and a revocable trust of which I was the backup executer.  The will took about a year before assets were disbursed, the trust a matter of a few weeks.

IANAL but this is my understand also.  If there were minor children, a spendthrift or adult with mental problems you would want a Irrevocable Trust where the money stays in the trust and gets doled out in some fashion.  I'm *sure* your parents have a Revocable Trust which goes away after assets are distributed.

[Villanelle]

Disclaimer, I'm not an expert.

It depends on what type of trust it is.  An Irrevocable Trust would be the type used if the heir was not financially responsible and money would be out of their control and might be paid out like an annuity.

A Revocable Trust is basically the same as a will but it is not a public record and avoids probate court.  The assets are distributed and the trust goes away.

I have received an inheritance from both a will and a revocable trust of which I was the backup executer.  The will took about a year before assets were disbursed, the trust a matter of a few weeks.

Yes, I should have specified, and I'll edit.  It's revokable. 

[snic]

So basically, I guess the crux of the question is, does that money go to her and me and just become ours, and it doesn't matter that the assets were transferred via the MFT?  Or does it somehow stay under the umbrella of the MFT and if so, how does that work if I decide I want to put my half on black at my favorite Vegas casino, while I'm still alive?  (Or she wants to buy a house with hers, or I want to donate $100k to the zoo, or...?) 

Look at it this way: The assets belong to the trust. As trustees you're empowered to do with the assets whatever you like, within the terms and limitations specified by the trust document. If it's anything like the trust documents I've seen (exactly two), one of those limitations is that there are specific beneficiaries, and upon the trustor's death the assets must be distributed to them in a certain way (50% for one, 50% for the other, or asset X, Y, Z for one and A, B, C for the other, etc). Once you've distributed the assets, the trust no longer exists.

I'm obviously not a lawyer, but unless there is language to the contrary, I believe the trustees get to decide how exactly to split the assets -e.g., if there's a house, whether to sell it and distribute the proceeds to the beneficiaries vs keep it and own it jointly vs one beneficiary buys the other(s) out to own it outright, etc.

I don't fully understand all the functions of a trust and why one would want one, but I believe one reason why people put their assets in a trust is that a will has to go through probate in order for the assets to be distributed to the heirs IF assets valued above a certain amount do not have legal beneficiaries. You can name beneficiaries to all your bank and brokerage accounts, but not your house, boat, car, etc. Put those in your trust and now they have a beneficiary. So after you die, the trustees can distribute the property without a court's approval (probate). Someone correct me if I'm wrong!

[GilesMM]

First of all, you should read the trust) and any related documents and attempt to understand it.  You should pose any questions to the attorney who wrote it.  There are infinite types of trusts and schemes for using them and yours may be unique and thus any speculation from uninformed strangers on the internet (see below) could be useless.


Generally speaking, the purpose of a simple typical trust is to take ownership of certain "title-able" assets (property, investment accounts) such that the trust controls them and they can be managed without court intervention (probate) after death.  In many (but not all) states, the probate process is longer and more expensive than the process to set up a trust.   How they are managed during the life of the grantor(s) and spouse and after death is specified in the trust.  Division of assets and any applicable timeline may also be specified.  If you inherit a $1,00,000 bank account with your sister, the trust will probably allow you each to claim your half and move on with your lives.  Other things, like a house, may require some consultation of the trust language to understand the allowed ways to divide it (e.g. sale, rental, one person buys out the other).   A large income-producing business, on the other hand, could survive the death of grantor and continue on under partial (or total) control of the trustees and one to their successors.


Trusts may also specify how non-titleable assets ("tangible personal property") are to be distributed after death either generally (half each0 or via specific lists (e.g. Villanelle gets the Picasso, his/her/their sister gets the cookie jar).  Again, read your trust.


Other assets may have their own, independent transfer-on-death set of beneficiaries (IRAs, property, perhaps vehicles).  This is easier than a trust, but requires beneficiary designations always be kept up to date.

[Sandi_k]

The other reason for leaving assets in a trust to the heirs is that it protects the assets from lawsuits, including divorce. In most jurisdictions, inheritances are not co-mingled.

So yes - you and your sister re-title the assets (or sell them) and then distribute it 50/50 to your own (now individual) trusts.

[FlytilFIRE]

I'm surprised that no one has suggested talking to a trust attorney. Spending a few bucks talking to an expert now might help your folks write the trust to better reflect your wishes. Also not a bad idea to get a second opinion if something just doesn't sound right. We contacted an attorney, who gave us an opinion that could have ultimately cost us tens of thousands.

I was the trustee of one trust. NOT AN EXPERT. The two big advantages were: 1)No probate  2) until I sistributed the assets of the estate, I had control. I made sure the taxes, of all types, as well as bills, were paid, and the other family members had time to grieve and just figure out what to do.

Be advised, if one beneficiary starts tapping into the assets, it counts as a distribution, and the paperwork goes up, as well as the accounting. Also, if possible, try to figure out beforehand what you want to do with hard assets like real estate, cars, etc. before you have to face that problem for real. Your folks can help you figure that out, and you really want to avoid drama and trauma while grieving. I refer you to the thread on Inheritance Drama.

Try getting a book about trust, such as https://www.amazon.com/Family-Trusts-Beneficiaries-Protectors-Bloomberg/dp/1119118263. I read one, but don't know if it was this one or not. Your sister, as the primary trustee DEFINITELY needs to get smart on this beforehand.

Good luck!