Are you planning on leaving money from your stash in a trust?

[Shane]

Is anyone planning on creating a trust so that your stash can continue after your death?

If so, please tell us about your plans. Have you already created the trust? If so, what are the terms of the trust? Who are the beneficiaries? Relatives? Friends? Charities?

If you've already created a trust, how much did it cost you to create the trust and do you think it was worth it? Are there things a trust can do that a will cannot? If so, what?

Is there a certain $ value of a stash you think is necessary to make a trust cost effective? Are trusts better than a will? In what ways?

[Jesstache]

Posting to follow. 

Estate planning is on our immediate to do list and a trust will likely be strongly in the mix for us as we have a 7 figure NW of approximately $1.3 Million and about half of that is in our main home and two investment properties.  This will likely only grow to be considerably larger in the coming years and we have two small children (2 and 4 years old).  Our children are also the only grandchildren on my husband's side and my MIL (widowed) and SIL (with no kids) have both indicated that they will be "set" just from them, but that's not my problem to worry about. 

I plan on doing a lot of reading of books about estate planning in the coming weeks.

[Frugalman19]

It really depends where you live. In California, we recommend all of our clients to have a living trust prepared if they have a gross estate of more than $100,000. For a few reasons, 1. Directive to physicians 2. Durable POA 3. Assets held in the trust avoid probate. 4. If you have children, you can establish who will have guardianship after you pass, which is huge. A will does not avoid probate. If you are not familiar with the probate process, it is a public court process that can be very costly and time consuming. A will can be contested, a trust can have no contest previsions in it, so people cannot dispute what is stated in the trust.

A plain vanilla trust that simply leaves the assets to kids or a charity can run you about $1,200-1,500 here in Socal.

I work with alot of people who are dealing with their parents estates or other relatives. The ones that have had a trust prepared are very straight forward and it is a private process that can be completed within a few months. Those that simply have a will and have to got through the probate process can take 9 months+ just to figure out who is actually going to get what. That is the fastest ive seen.

There are so many benefits here in California, its a must for most people with any assets to speak of. Im not familiar with other state laws.

[Mmm_Donuts]

Posting to follow as well. We have a significant 7 figure NW and no will as of yet. No direct heirs, either. So I'd like to figure out how to set up a charitable foundation of some kind.

[RFAAOATB]

If $100,000 Net worth is the benchmark than I should get on this sooner rather than later.  I have no children yet and neither does my brother so I would like to plan it to give a perpetual income stream to my wife and brother equally and then to my brother's possible descendants if any.

[Frugalman19]

If $100,000 Net worth is the benchmark than I should get on this sooner rather than later.  I have no children yet and neither does my brother so I would like to plan it to give a perpetual income stream to my wife and brother equally and then to my brother's possible descendants if any.

I think it is based on GROSS estate, not net worth, so if your home value is worth more than $100,000k regardless of a loan on the property.

So almost anyone who owns a home, even if they are under water. I could be off on this, but im not a lawyer.

[Another Reader]

Here in California, you want to avoid probate at all costs.  Probate is very expensive, takes a long time, and is open to all sorts of challenges.  All kinds of outstretched hands can mysteriously appear.

For most folks, a well-written pour-over will in conjunction with a revocable living trust are sufficient to protect your assets and your intentions.  IRA's should not devise to the estate or to a trust.  To benefit from the stretch provision, an individual or multiple individuals should be named beneficiaries.  While sources such as NOLO books are educational, anyone with real assets needs an estate plan, preferably written and then executed by an attorney that specializes in estate planning when the time comes.  Get good help, it is worth the up front investment. 

All kinds of groups will be delighted to take your money and try to spread it as you intended.  Here, the most well-known is Silicon Valley Community Foundation.  Private foundations require at least $10MM, because of the high cost of administering a private foundation, at least in California.

Screw this up, and your Uncle Sam and his friends could end up with far more of what you worked for than necessary.  Your intended beneficiaries may get less or none of what you intended.  Get good help if you have substantial assets.

[Sailor Sam]

Is anyone planning on creating a trust so that your stash can continue after your death?

Yup. I have a revocable living trust in place. Revocable means I can dissolve the trust whensoever I may chooseth. Living just means I'm still alive.

If so, please tell us about your plans. Have you already created the trust? If so, what are the terms of the trust? Who are the beneficiaries? Relatives? Friends? Charities?

Terms are 80% to various family members, 10% to a friend, 10% to charity. The convenient thing about the trust is that it acts as a bucket. All monies (life insurance, TSP, IRA, after tax, checking, savings) are poured into it, then I write one unified disbursement. If I want to change the allocation, or the people named, I change one document instead of modify each account's 'pay this person if I die' tracking method. 

If you've already created a trust, how much did it cost you to create the trust and do you think it was worth it? Are there things a trust can do that a will cannot? If so, what?

Free through the JAG office. But I did quite a bit of research to make sure I could follow along.

Is there a certain $ value of a stash you think is necessary to make a trust cost effective? Are trusts better than a will? In what ways?

Any time you want to modify the stated inheritance hierarchy, I'd assume you'd want some kind of will or trust. Though some people could probably get away with having a Joint Ownership with Rights of Survivorship. Depends on the type of account, and how many you have. At some point a will or trust becomes more convenient. I chose a trust in order to avoid probate.

[Another Reader]

Sailor Sam:

You may want to discuss the IRA's with the attorney.  If they do not transfer by beneficiary, they will not be eligible for RMD distributions over the life of the inheritor.  Distribution will be accelerated and a lot will be lost to income taxes.  Life insurance has caveats as well, but I am not familiar with those.

[mxt0133]

From IRS.gov : https://www.irs.gov/publications/p590b/ch01.html#en_US_2014_publink1000230753

"Beneficiary not an individual.   The 5-year rule applies in all cases where there is no individual designated beneficiary by September 30 of the year following the year of the owner’s death or where any beneficiary is not an individual (for example, the owner named his or her estate as the beneficiary)."

If you assign the beneficiary that is not an individual, an estate or trust, then all funds must be withdrawn within 5 years as there is no lifetime expectancy to calculate RMDs.  Like AR said depending on the size of the IRA this can incur huge taxable income liabilities.

However if you have minor children then you need to appoint a conservator to manage the funds as and when the child turns 21 the funds are theirs, I don't know too many 21 year olds that manage a lump sum of money to well.

For now I have designated a revocable living trust as the beneficiaries for our IRAs and 401k, we are willing to take the tax hit to be able to structure the trust to disburse the funds for specific purposes like college and after each beneficiary reaches a certain age like 30.

I don't know of any other strategy to control how funds get disbursed after the beneficiaries turn 21.  If someone know how to do that take advantage of the stretch provisions for IRAs and 401k's please tell me.

Further reading:

http://shermlaw.com/designation-of-a-minor-as-an-ira-beneficiary/

[dachs]

ptf

[Indexer]

As others have noted a trust is a great way to make sure assets pass where you want them to and to avoid probate.

Probate is a bad thing in Cali. It is a bad thing in basically EVERY state. It is especially bad when you own real estate in one state and live in another. Most property passes based on the rules of the state you are in. Real estate passes based on the state the property is located in.

Probate in just about any state is a great way to tie up assets instead of them going to beneficiaries and to add a bunch of extra costs. In the worst case I've seen someone had real estate in multiple states. Their beneficiary lived 500 miles away. Some states required that they show up to that state's court in person. They had to take a month off from work to get it all taken care of, they spent a lot on airfare and hotels, and then they found out one of the courts made a mistake. Great way to burn through a lot of paid time off. This is not what you want your beneficiaries to go through.

So trusts are normally a great idea! 

The exception is retirement accounts. As noted above 401ks, IRAs, Roths, etc. have special rules that are very beneficial if the beneficiary is a living person.

If you want your spouse to have immediate access to funds(basic living expenses) you normally want that to be in a joint account or even a trust account where the trust is in both names. This way they can withdraw funds immediately, and the bank isn't waiting on a death certificate.

For the will question. Wills are good for tangible non-real estate property(your record collection...). For monetary accounts listed beneficiaries or trusts are better. Beneficiaries listed on accounts trump wills. The bank/investment firm is going to distribute funds to the listed beneficiaries they have on record regardless of what a will says. Beneficiaries could get into a legal battle afterwards, but that isn't the bank's problem. Wills are good for tangible non-real estate property.

[Erica]

I never did understand why anyone would go through all that hassle if the beneficiary is normal.

Meaning the beneficiary is not disabled in some way. Seems a great waste of money and time

Since I am a Trustee right now, I see what a joke these Trusts are for some people. My Uncle (The deceased) was considered upper middle class

For others, maybe it is necessary.

They sell Trusts as some simple, easy way to get the estate in order. NO NO NO. Far from the truth, there is SO MUCH work involved still

Heck I left the 15 min free consultation shocked at how little the Attorney was willing to do for me.

Even when I was willing to pay him whatever. They just cannot do much of the work. If I have to do 90% of the work, I'll just do 99% of it and forget an Attorney who thinks his generalized letters sent out within some time frame will help. I can send out letters to, notifications and such

I just learned it myself. What something done right, you got to do it yourself.

Enormous amount of time & $$ spent on this Estate (LA area of Calif)

This trust was done by a reputable attorney, it was done right. So this is typical, apparently.

No way would I put that headache on our son via a Trust

They aren't anything like they are sold to the consumer.


We have a safe in the house. When we pass away, he can come and get his cash inheritance

The land we own is below a certain $limit$ so it can be passed down very easily to him. And when we build houses on our land sometime within the next few years, they will be unpermitted so property taxes wont skyrocket (our property tax is the most expensive in California). Homes built amongst the trees so the google airplanes cannot see them. Land is in a rural area of CA so it is doable


.

[Erica]

As others have noted a trust is a great way to make sure assets pass where you want them to and to avoid probate.

Probate is a bad thing in Cali. It is a bad thing in basically EVERY state. It is especially bad when you own real estate in one state and live in another. Most property passes based on the rules of the state you are in. Real estate passes based on the state the property is located in.

Probate in just about any state is a great way to tie up assets instead of them going to beneficiaries and to add a bunch of extra costs. In the worst case I've seen someone had real estate in multiple states. Their beneficiary lived 500 miles away. Some states required that they show up to that state's court in person. They had to take a month off from work to get it all taken care of, they spent a lot on airfare and hotels, and then they found out one of the courts made a mistake. Great way to burn through a lot of paid time off. This is not what you want your beneficiaries to go through.

So trusts are normally a great idea! 

The exception is retirement accounts. As noted above 401ks, IRAs, Roths, etc. have special rules that are very beneficial if the beneficiary is a living person.

If you want your spouse to have immediate access to funds(basic living expenses) you normally want that to be in a joint account or even a trust account where the trust is in both names. This way they can withdraw funds immediately, and the bank isn't waiting on a death certificate.

For the will question. Wills are good for tangible non-real estate property(your record collection...). For monetary accounts listed beneficiaries or trusts are better. Beneficiaries listed on accounts trump wills. The bank/investment firm is going to distribute funds to the listed beneficiaries they have on record regardless of what a will says. Beneficiaries could get into a legal battle afterwards, but that isn't the bank's problem. Wills are good for tangible non-real estate property.

This is great advice. Thank God one of the joint accounts I am dealing with had this set up. So I had funds to work with from the beginning. Otherwise I am not sure how that would work. It really was very simple getting access, just the expected paperwork (verification) to prove my identity

[Shane]

Right now, I'm the executor of my dad's estate and am working to distribute his modest assets to my brothers, stepmother and myself. My dad only had a will, no trust, but it all seems pretty simple and straight forward anyway.

My dad didn't own any real estate when he died, just a checking account, savings account, taxable brokerage account and a couple of retirement accounts. Luckily, the retirement accounts and the taxable brokerage account all had beneficiaries specified already, so as soon as my co-beneficiaries and I get our paperwork turned in to those institutions, they should be able to transfer the assets into our names.

We hired an attorney to assist us, and it's nice to have him on our side, but it seems like I'm doing most of the leg work of contacting the banks, negotiating with the holders of my dad's retirement accounts to make sure the 2015 RMDs get taken, etc. People often say that probate is really onerous, expensive and should be avoided at all costs. In our case, that doesn't really seem to be true. My dad's estate is relatively small and very simple, because there is no real estate and none of the beneficiaries, or anyone else, are contesting anything in the will, so that may be why it seems so easy.

It took me about a month to get an official death certificate from the state after my dad died. As soon as I got the DC, I gave a couple of copies to the attorney, and then a month after that his office called me up to let me know that they had gotten my "Letters Testamentary" aka "Letter of Appointment" from the court which my attorney tells me, along with the death certificate, will allow me to open and close my father's accounts, move money around, sell his vehicle, and any other things I may need to do to settle the estate.

In our own case, the only reason we're considering possibly getting a trust made is because we have a daughter who is only 7 years old now. My wife and I are both completely healthy and are planning on a 40 year retirement starting in 2015, but if somehow both my wife and I were to die at the same time, say in some kind of accident, then we would want our FIRE stash to be used to pay to support our daughter and to eventually pay for her schooling and to give her a good start in life. My wife's brother has volunteered to take care of our daughter should anything happen to both my wife and me.

This afternoon I met with our attorney to discuss my dad's estate, and while I was there I briefly asked him about possibly getting him to draw up either a will or a trust for my wife and me. He said that one option would be to just leave all of our money to our daughter in a will. If she's still underage when both my wife and I die, then my wife's brother will act as custodian of our daughter's account until she turns 18 years old. The attorney said that the downside of this plan would be that we would have to completely trust my wife's brother, because until our daughter turned 18, he would have total control over her assets, and if he wanted to, he could just spend all the money on hookers and blow or whatever. We trust my wife's brother and don't think he'd do anything untoward with our daughter's money, but the other downside of just making a will, the attorney said, would be that when our daughter turned 18 she would automatically get full control of all of the money in the account and could do whatever she wanted with it.

Right now, we've got about $900K saved. It's hard to imagine that it would be a good idea to give $900K+ to an 18 year old child all at once, so maybe we need to think about going with a trust. The lawyer said he would charge us $2K to draw up a basic trust for us. We're going to continue thinking about it, and we look forward to hearing more responses from fellow Mustachians in this thread.

Thanks for everyone's input so far.

[Erica]

Yes I can see where you'd be concerned about giving such a large amount to an 18 year old.

We had an unusual 18 year old who was very focused at a young age. He's 24 now and is set enough in his job that he will be ok either way. Attending high school and College at the same time, and even working weekends. I never considered not giving it all to him but my fear was him getting with the wrong girl and she getting access to it $$ just stealing it or whatever. Back then we had life insurance too. He moved out for a year then came back home. H'es still here.
With that amount of money involved, and your daughters age, yes I'd probably get a Trust.If you & wife passed away -AND- your BIL passed away, then your Trust would cover your daughter. The Kennedys come to mind. But I'd also probably hide half of that money (cash) in a safe just in case the junk hits the fan. Like the Tribulation. But being a Christian, there is a different perspective there. In all fairness, there are many survivalists out there now who feel the world may end any day. So it's pretty widespread.

We had some issues with DMV but I've forgotten since my husband did all that work. If your Dad paid more and got a Trust, you'd be pilphering through something the size of a phone book instead of a simple will. And the fact no real estate was involved, you are lucky. This House has fell through twice now. I accepted the offers, no counter offering each time. It might fall through a third time, we'll see. Most of a trust is just fluff so to mark important pages with arrows, using paper clips really took time. Eventually I ended up just photocopying what was important and leaving the rest. It's nice that sometimes a Will is all you need. Sorry to hear about your fathers passing. Hope it all goes really smooth for you

[Shane]

Sorry to hear about your fathers passing. Hope it all goes really smooth for you

Thanks

[Frugalman19]

I never did understand why anyone would go through all that hassle if the beneficiary is normal.

Meaning the beneficiary is not disabled in some way. Seems a great waste of money and time

Since I am a Trustee right now, I see what a joke these Trusts are for some people. My Uncle (The deceased) was considered upper middle class

For others, maybe it is necessary.

They sell Trusts as some simple, easy way to get the estate in order. NO NO NO. Far from the truth, there is SO MUCH work involved still

Heck I left the 15 min free consultation shocked at how little the Attorney was willing to do for me.

Even when I was willing to pay him whatever. They just cannot do much of the work. If I have to do 90% of the work, I'll just do 99% of it and forget an Attorney who thinks his generalized letters sent out within some time frame will help. I can send out letters to, notifications and such

I just learned it myself. What something done right, you got to do it yourself.

Enormous amount of time & $$ spent on this Estate (LA area of Calif)

This trust was done by a reputable attorney, it was done right. So this is typical, apparently.

No way would I put that headache on our son via a Trust

They aren't anything like they are sold to the consumer.


We have a safe in the house. When we pass away, he can come and get his cash inheritance

The land we own is below a certain $limit$ so it can be passed down very easily to him. And when we build houses on our land sometime within the next few years, they will be unpermitted so property taxes wont skyrocket (our property tax is the most expensive in California). Homes built amongst the trees so the google airplanes cannot see them. Land is in a rural area of CA so it is doable


.

I will say that some old trusts are very cumbersome to handle. The reason for this is because the estate tax laws were very different just 15 years ago. In 2001 if you died and your estate was more than $625,000, you had to pay estate tax, so trusts were much different than they are now. Literally the federal govt was taxing estates at 55%. So your experience is a rare one I will admit. A trust prepared now has very little hoops to jump through.

If I were you I would get a second opinion from another attorney. although you might have had a bad experience, don't let that cloud your judgment. You have delt with one estate distribution, I'm in the process of dealing with 5-10 at any given time. Trust me, having a trust done in California is so essential. The only time I would recommend someone not get a trust done is
1. If they plan to move out of CA
2. If they want it to be a hassle for their children when they pass away (believe me I've seen this before). Where the family fights so much that the parents just want the courts to deal with it. It is almost a slap in the face to your heirs in CA not to get a trust prepared.

I'm not an attorney, but a very large portion of my job is helping people with the distribution of estate assets to beneficiaries, filing trust tax returns, as well as estate tax returns.

[Erica]

Thank you, it's nice to know some Trusts actually work out. I appreciate your experience and advice.

To my knowledge I dont need a Trust. Our life is set up to be very simplistic, meaning we really have nothing to place in a Trust.

The Trust needs to have assets, something we are now currently ensuring we don't have to avoid a Trust.

Yes we'll have a little real estate, but it will have a value so low, a Trust won't be necessary. Just add his name to the land.

The homes on it will be unpermitted, so it won't make the land go up nor will we be involved in paying more property taxes.

Neither of us had Pensions, never invested, so really, not much would be involved.

We leave very little in our bank accounts, one business account and two checking accounts.

He will inherit almost all of our wealth in the form of cash.

The only issue is a 2015 Tesla, worth almost 100 thousand. We'll probably own it within 2 years or anytime now since it's an inheirtance and he's 91 went thru surgery and statistics say he won't survive over 1 year. This is my FIL. So I am not sure about how to handle that. There will be a fe hundred thousand too but that can be converted into cash of course. Just thought of this while typing this post..

[Erica]

Thank you, it's nice to know some Trusts actually work out. I appreciate your experience and advice.
To my knowledge I dont need a Trust. Our life is set up to be very simplistic, meaning we really have nothing to place in a Trust.
The Trust needs to have assets, something we are now currently ensuring we don't have to avoid a Trust.
Yes we'll have a little real estate, but it will have a value so low, a Trust won't be necessary. Just add his name to the land.
The homes on it will be unpermitted, so it won't make the land go up nor will we be involved in paying more property taxes.
Neither of us had Pensions, never invested, so really, not much would be involved.
We leave very little in our bank accounts, one business account and two checking accounts.
He will inherit almost all of our wealth in the form of cash.

The only issue is a 2015 Tesla, worth almost 100 thousand. We'll probably own it within 2 years or anytime now since it's an inheirtance and he's 91 went thru surgery and statistics say he won't survive over 1 year. This is my FIL. So I am not sure about how to handle that. There will be a fe hundred thousand too but that can be converted into cash of course. Just thought of this while typing this post..

[Greenroller]

Subbing