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July 07, 2010


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My wife and I created a will after the birth of our first son. Three years later and 2 more kids, we continue to update our will. The will is more a tool to help protect our underage kids and make sure they are cared for by the appropriate family members if we were to both encounter an unfortunate situation that led to our untimely demise.

After reading the two posts (Wills & Trusts), I definitely see great benefit for setting up a trust later in life as our assets accumulate. I am tempted to purchase this book and encourage some other family members and friends to check it out. I think many of us have a big misconception about trusts and wills and can probably benefit from this information.

This article is somewhat disengenious.

While trusts are very beneficial, they are not universally necessary as depicted.

Anything with a beneficiary designation (real estate, retirement accounts, bank accounts, etc) will avoid probate regardless of a trust.

And even if you have a trust, it is unwise to place real estate in the trust while alive. The proper thing is to prepare a beneficiary deed and name the trust as the beneficiary.

So if you have some real estate, some retirement accounts and bank accoutss, even if they are worth millions of dollars, probate is avoided due to beneficiary designations.

The main purpose of a trust is to set up detaild instructions for the disposition of assets over a specified timeframe to varying entities, like children. And avoid probate on non-financial assets.

You CAN put a PoD (beneficiary) on almost ALL assets in a simple (but, it could be a large) estate. So if you are in a state that doesn't charge much and probate is simple - along with the lines of passing the property in an estate, a PoD, Will, - with that beneficary info on ALL assets, AND: with non-PoD/beneficiary property NAMED in the will, you can accomplish passing a non complicated estate. But, I'd agree, "mixed" families (remarried kids, stepchildren, etc.,) high cost probate (like CA) states, etc., should consider a trust...

MasterPo agrees about the usefulness of a trust.

However, MasterPo disagrees about the authors position on testamentary trusts. There can be very good reasons for establishing a trust at the time of your death and not right now.

For example, if you have a large estate (defined anyway you'd like) and small children (or even teens) as the heirs it's very logical NOT to want your estate to go directly to the children directly but rather be held in trust until they mature to be able to handle that kind of asset.

At the same time if your children are much older (and hopefully you have done a good job teaching them how to handle assets) you may want your final assets to go directly to them. A will can be written to specify that upon your death if your children are under a certain age your assets are to be put in trust, over a certain age it goes direct to them.

ps- As MasterPo mentioned in the prior article there are definate tax and record keeping issues with a trust to be considered too. Plus the fact that you can't (normally) be both the grantor and the trustee.

I really appreciate this series on wills vs trusts. Still learning, but a good fundamental series to now perform a bit more research.

@MasterPo - I'm not sure why you think the age of your children has anything to do with deciding whether you should have a testamentary trust or a revocable living trust. Both can handle either situation you mentioned, but the revocable living trust avoids probate.

And you CAN be the grantor and trustee in a revocable living trust - that's the whole point. There are no tax issues in that case - it's a "grantor trust" so trust assets are taxed as if you still own them personally. And there are very few record keeping issues for a revocable living trust while you are alive (aside from the document itself and records showing the assets within the trust).

Out of curiosity, what training do you have in the issue of estate planning? Your protests to the ideas in this article show that you must have very limited experience with trusts. Based on this comment and your comment in the last post it sounds like you've only dealt with irrevocable trusts. But that's not what the author is recommending, so your arguments don't hold much water.

Paul - Age has a lot to do with it. Would you leave a $1 million dollar estate to a 15 y/o?? MasterPo hopes not. MasterPo agrees that a trust (revocable or irreveocable) avoids probate but the reality is setting up a trust just isn't realistic for all persons at all stages of their lives. 20 years ago MasterPo would not have even considered a trust. Today MasterPo and Mrs. MasterPo are actively involved in trusts.

You are mistaken about the tax issue. Assets registered to a trust (revocable or irrevocable) receive 1099's in the name and tax ID of the trust. It is the trust (via the trustee), not the grantor, that has to file a tax return for the income (or cap gains/loss)of the trust. And trusts are taxed at the corporate rate, not the individual rate.

ps- Not that it should matter, truth is truth, but MasterPo holds both ChFC and CLU designations. (though NOTHING MasterPo posts is to be taken as financial or investment advise - gotta put in that disclaimer. ;-) )

MasterPo - Age has nothing to do with it at all. If you leave a $1M estate to a 15 y/o, you can have provisions in the (revocable or irrevocable) trust to delay distribution. You can do the same thing with a will by using a testamentary trust.

And I'm not mistaken about the tax issue. If a trust is considered a grantor trust (as in the case of a revocable living trust), then any taxable income flows through to the grantor's tax return. See As long as the grantor retains control of the trust assets (as in the case of a revocable living trust) the trust is ignored for income tax purposes and the grantor is taxed as normal. No separate trust tax rates. Obviously, this changes once the trust becomes irrevocable after the grantor's death but that's not the point here.

Regarding your designations, it seems to me that there's quite a bit of overlap between the two, so why not just go with the ChFC since that covers most all of it? One last thing - can you stop referring to yourself in the third person? Just makes it difficult to respect your opinions (in my opinion...).

Paul: Thanks so much for your comments. I have a revocable living trust myself. MasterPo statements were shaking me up. Grantor cannot be trustee? I thought I was the grantor and trustee while I was alive. Trust tax issues? I had been handling taxes on my mutual funds in the trust on my own personal tax return.

I am single with no kids and no relatives in state. I wanted the trust to make things easier for my brother who would be my executor and trustee. I also used the trust to set up minor trusts for my niece and nephew.

I am curious about Troy's comment. "And even if you have a trust, it is unwise to place real estate in the trust while alive. The proper thing is to prepare a beneficiary deed and name the trust as the beneficiary." Why is it unwise to place real estate in the trust while alive? I also have never heard of a beneficiary deed before and would like to know about it.

I think I might purchase this book on trusts. I am interested in the last chapter for letting my surviving trustee know how to distribute trust assests.

You're welcome, Kathy. I think MasterPo was speaking specifically to one type of trust that he's had experience with, but his statements don't apply to grantor trusts (revocable living trusts).

I'm not sure why Troy things it is unwise to put real estate in a trust while you're alive. I know some people have difficulty with getting a mortgage/refinance/HELOC when the property is in trust and there are some recording fees for signing the deed over to the trust. You can solve the loan problem by taking your property back out of the trust and putting it back in after the process is over. Of course, this only applies to revocable trusts.

Ah, stupid typos. *things should be *thinks in that second paragraph...

Paul - At the time in MasterPo's life the CLU stood him in better standing. At that point getting the ChFC was just a couple more courses.

I am all for anything that puts as much as possible of the estate in the hands of the intended beneficiaries. At first blush, these vehicles might appear complicated, but there is no substitute for consultting a properly qualied professional.

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