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Author: Scapelands Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5748  
Subject: Living Trusts/Executorship of Estate Date: 3/17/2006 3:31 PM
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First time poster to this board. Please advise.

Background:
My step-father is going to have over 1.5 mil in assets at the time of his death (hopefylly not any time soon). He has a will that names my mother as the executor and beneficiary of all assets currently. She doesn't want problems with his children after his death and doesn't know much about tax implications and legal issues.

I recommended they change his will to a living trust with my mom as the primary trustee. After his death, she can name a secondary trustee in the event of her death, but the plan is to at that time, liquidate all assets and split it 4 ways (my mom and each of his 3 children) equally. I am under the impression with such a large amount of assets, the taxes would be a lot less if it was in trust and also that you cannot put it into trust after his death. Are these assumptions correct?

Also, if she executed his will as it currently stands, just divying up all assets 4 ways equally w/o the money in trust, what is the tax liability to the state and federal government? She resides in NJ.

Lastly, can she as the executor (if the will remains the same), name a co-executor of a trusted lawyer or accountant after my step-father's death? She would really not want to go this alone. Any suggestions?

Any comments or guidance would be greatly appreciated. TIA.

Scapelands
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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4552 of 5748
Subject: Re: Living Trusts/Executorship of Estate Date: 3/17/2006 4:30 PM
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Scapelands: "Background:
My step-father is going to have over 1.5 mil in assets at the time of his death (hopefylly not any time soon). He has a will that names my mother as the executor and beneficiary of all assets currently. She doesn't want problems with his children after his death and doesn't know much about tax implications and legal issues.

I recommended they change his will to a living trust with my mom as the primary trustee. After his death, she can name a secondary trustee in the event of her death, but the plan is to at that time, liquidate all assets and split it 4 ways (my mom and each of his 3 children) equally. I am under the impression with such a large amount of assets, the taxes would be a lot less if it was in trust and also that you cannot put it into trust after his death. Are these assumptions correct?"


A living trust that is revocable has virtually zero effect on any estate tax calculation.

His will could place assets in trust after his death.

"Also, if she executed his will as it currently stands, just divying up all assets 4 ways equally w/o the money in trust, what is the tax liability to the state and federal government? She resides in NJ."

Does your step-father also residein NJ? Assets going to your mother probably qualify for the unlimited marital exception (I assume your motehr is a US citizen). Fudns going to his children would potentially be subject to estate tax.

Seems to me that more likely that your step-father needs a by-pass trust (A/B trusts) to take advantage of his lifetime exemption amount, but depending upon the value of his estate, that might mean that his children do not get 3/4 of the estate.

I am well outside my normal purview, so I hope that synchronicty or one of the other resident pros will step forward.

From my personal notes (no vouching):
** http://boards.fool.com/Message.asp?mid=23542592&sort=whole (synchroncity)
http://www.trustsandestates.net/ArticlesHome.htm (related link
http://www.trustsandestates.net/List_Of_Articles.htm )
http://www.estateplanninglinks.com/
http://www.burger.com/wilindex.htm [Texas]
http://home.earthlink.net/~laanderson/wills.htm [Texas]

A quick google serach generated:
http://www.forbes.com/estate_planning/
** http://www.law.cornell.edu/wex/index.php/Estate_Planning [this site - www.law.cornell.edu - is usually accurate and generally good, in my experience]
http://www.smartmoney.com/estate/
** http://www.abanet.org/rppt/public/

I suggest starting with the three links I marked with **

Regards, JAFO


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4553 of 5748
Subject: Re: Living Trusts/Executorship of Estate Date: 3/17/2006 4:37 PM
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Your SF has an unlimited exemption to give to your mom. But he also has his regular lifetime exemption to give to the other folks.

If he wants money to go to them, why not give it now and not waste his exemption?

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Author: Trini209 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4554 of 5748
Subject: Re: Living Trusts/Executorship of Estate Date: 3/17/2006 8:35 PM
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As to your mother not wanting to be the only executor because she doesn't feel up to the task, she should under no circumstances make a lawyer a co-executor! He would then be entitled to a percentage of the entire estate that would far excede the fees he would be able to charge if she just hired him by the hour to settle the estate. 5% comes to mind, but I may be remembering wrong. If she hired him by the hour at, say, $350 or even $500 per hour and the estate took, say, 5 hours or even 10 hours of his time, that would cost a lot less.

Trini

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Author: Scapelands Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4560 of 5748
Subject: Re: Living Trusts/Executorship of Estate Date: 3/20/2006 12:45 PM
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jrr7 wrote:
Your SF has an unlimited exemption to give to your mom. But he also has his regular lifetime exemption to give to the other folks.

Am I correct in assuming an unlimited exemption means my mom won't pay any taxes on her portion? Nor his kids from his lifetime exemption? Can that be dolled out to 3 people?

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Author: Scapelands Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4561 of 5748
Subject: Re: Living Trusts/Executorship of Estate Date: 3/20/2006 12:47 PM
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jrr7 wrote:
If he wants money to go to them, why not give it now and not waste his exemption?

My SF isn't retired yet at 73. He'll probably work for another 3 years and hopefully live for 20 or more after retiring. He lives to work though....

Scapelands

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4562 of 5748
Subject: Re: Living Trusts/Executorship of Estate Date: 3/20/2006 12:53 PM
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Am I correct in assuming an unlimited exemption means my mom won't pay any taxes on her portion? Nor his kids from his lifetime exemption? Can that be dolled out to 3 people?


No. You're mixing it up. Only a spouse can inherit any amount of property with no taxes due. The lifetime exemption kicks in when anyone other than a spouse inherits, and that includes children. This is one reason that spouses who may be subject to estate tax generally make sure they don't leave their property directly to their spouse, or they lose one exemption when the 2nd spouse dies.

To illustrate, Spouse A and B have an estate valued at $5 million. Spouse A dies and leaves everything to Spouse B which B inherits without any estate tax being due. When B dies and leaves everything to the kids, B's lifetime exemption [I think it's 2 million right now, but am not sure, but let's use that for my example], the first $2 million passes to the kids tax free because they use B's lifetime exemption, but the remaining $3 million is subject to estate taxes.

If A and B had done some estate planning, then when A died, $2million would have been placed in a trust for the benefit of B, and the remaining $3 million would got to B, still tax free. B can access any of the $5million in assets, so still has control of that and can benefit from that. When B dies, the $2million in the trust from A can then be used for the benefit of the kids, but note that it didn't belong to B, so there's no estate tax. And there's another $2million that is passed to the kids free of estate taxes to use up B's lifetime exemption leaving the kids with $1million subject to estate taxes instead of the $3million in the above example.

Making proper use of the lifetime exemption is a key component to good estate planning, and can save the heirs quite a lot of money.

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