About the only reason I can see for a revocable living trust is that when an estate is in a will, a fee based on the value of the estate is charged when it is filed for probate. It doesn't help with taxes, as anything overwhich you can exercise control or change is still subject to taxation. Actually, I believe that if your spouse is your heir, estate taxes can be deferred until her/his death on $1,300,000. I bought one of those livng trustss programs a few years ago, but decided it wasn't worth it. Lew
I have been through a couple of estates and have not found probate to be a serious or expensive problem. Both cases had good wills that spelled out the wishes and desires of the person, and specified an executor and a contengent executor. Both wills were filed in Texas and in about 30 days I had the Letters Testamentory (?) and the whole thing was over. It was actually about 3 months from the time of death. Both cases I was living in another state but this posed only travel problems - I made about four or five extra trips each time. The people I have known that have Living Trusts are generally without a lot of financial savvy, who have gone to some sort of seminar by an insurance agent or financial planner.There must be easy money to be made by setting these up???
bigboy7169 said:About the only reason I can see for a revocable living trust is that when an estate is in a will, a fee based on the value of the estate is charged when it is filed for probate. It doesn't help with taxes, as anything overwhich you can exercise control or change is still subject to taxation. Actually, I believe that if your spouse is your heir, estate taxes can be deferred until her/his death on $1,300,000. I bought one of those livng trustss programs a few years ago, but decided it wasn't worth it. Lew=========================Please understand that I am NOT a lawyer. I believe that one advantage to the revocable living trust is the ability to shelter a total of $1,300,000 from taxes. A spouse can inherit any size estate. However, the initial $650,000 tax exemption is not passed with the estate. That means that the surviving spouse can only exempt $650,000 from their estate (not $1,3000,000). The revocable living trust is used to take the initial $650,000 tax exemption (money goes into the trust) on the death of the first spouse and the rest of the estate passes to the surviving spouse who can then use an additional exemption on their estate thus sheltering a total of $1,300,000. If a person is single, I think a revocable living trust is not as useful.I hope that is clear (and correct). Pixy can probably explain it better.
bigboy and JDWinNOLA -Wrong!!!Probate is'nt the only reason for a trust. Probate, in some states, is inexpensive and straightforward. And if you have a will, and you have assets less than $675,000, a trust may be an unnecessary complication. I'll list some really GOOD reasons for a trust.1. Say you're a married couple with $1,350,000, including your home, insurance, and all assets. You die, and everything goes to your wife. No estate taxes, because you can leave a spouse ANY amount without estate taxes. Then your wife dies. Do the kids get $1,350,000? Nope. An individual can only avoid paying estate taxes on $675,000, and anything she has over that amount is taxed at up to 55%. Your wife will owe about $300,000, and that's $300,000 that your kids won't get. With a trust, estate taxes would be $0.00. That's because with a trust, when you died, 1/2 the assets would have been set aside in what's called a bypass trust (or a B trust), and your wife's estate would only include the other 1/2. During her lifetime, she has access to the income from your trust, and if needed, can even tap the principal.2. Say you have a special needs child who will never be able to live independently. You know that after you and your wife die, that child will have to be institutionalized. Say you have a house and assets totalling only $150,000. If you leave that money to the child, it'll be eaten up by nursing home costs in 3 or 4 years, and your child will then be on medicaid for the rest of his life. The medicaid is unavoidable, but with a trust, you can make his quality of life a great deal. If you leave your assets to a carefully worded trust set up for his benefit, it becomes unavailable for the nursing home. Medicaid takes over, but the income from the trust can provide a lot of the things medicaid won't pay for. A book, a trip to the movies, some better clothes, whatever the trustee can provide. My friend, for instance, has MS. she also has a PhD, and an active mind. One day her parents will die, and at some point she will be institutionalized. The trust they set up will ensure that she has a working computer, a trip to the beauty parlor, or whatever will make her life easier and more pleasant.3. You plan to leave your money to your 2 kids, but they're both doing well, and by the time they die, they may be facing estate taxes of their own. With a trust, you can leave the INCOME from you assets to your kids, but upon their death, the principal can go to your grandchildren.4. You have young children when you and your wife die. Your trust directs not only who will be their guardians until they grow up, but it designates a trustee to invest the assets for their benefit, dole out money that the guardian can use for their food, clothes, housing, and education, etc. You specify in your trust at what ages your kids should receive the principal (what 18 year old can manage a big sum of money.) for instance, you can specify that they get 1/4 of their inheritance when they are 18, 1/4 when they are 25, and the remainder at age 30.
JDWinNOLA:You've nailed it. Well Done! It matters a great deal on the state of residence and the state any real property is located. Texas is an easy and inexpensive state in which to go through the probate process. Further, the Legislature makes a concerted effort to improve efficiency and reduce cost of the system. As a result, Texas will keep getting better with its probate process.In addition, I must point out that this is at least partly due to some efforts by Judges, Attorneys, CPAs, CFPs and other caring professionals.--WauseonFox--
Another advantage of the RLT is the ability to avoid "living probate." People normally think of probate as the court procedure that occurs after a death, but what of the situation where an individual sustains a severe disability such that he/she can't manage his/her own affairs. An RLT names a successor trustee, allowing the financial management of a person's affairs to continue without having to suffer the oversight of the courts. Try selling a property that is held jointly after one of the spouses has suffered a stroke and is no longer mentally/legally capable. Can't do it! Have to apply to the court for permission and periodic financial oversight to sell your own home. Or to access you disabled spouse's separate accounts to pay his/her nursing home bills.The RLT avoids this "living probate." While a durable financial power of attorney would also address this issue, it's a separate legal document that must be accomplished before a person becomes incapacitated (and indeed, doesn't become effective until a person becomes incapacitated) and is usually drafted as part of the document package that comes with the RLT. Regular powers of attorney are nondurable and terminate on disability, just when they're most needed.WTR
Trini209 says:Probate is'nt the only reason for a trust. Probate, in some states, is inexpensive and straightforward. And if you have a will, and you have assets less than $675,000, a trust may be an unnecessary complication. I'll list some really GOOD reasons for a trust.All the really GOOD reasons that followed in Trini209's post can be provided through properly drafted wills with testamentary trust provisions (A-B Trusts, Pour over provisions, credit shelters, generation skipping, etc).RLT's do nothing while you are alive except change ownerships of assets. No tax benefits, no protection from creditors, etc. Everything can be changed up to the day you die. The provisions for after death where the trust becomes your order for how assets are to be divided and becomes irrevocable is the key and can all be done by the will.The key points as I see it:1. Probate expenses-Depends on the state, but in most modest estates, RLT is no advantage, considering expense to draft it and implement it.2. Multiple heirs-RLT can be an advantage here as it can curb lots of problems with dissidents and unintended heirs who would be prone to sue to break a will.3. Privacy-Wills are public and trusts are not.The bottom line is if you have a RLT, you still need a will.
Yes, bwhitdu - if you have a RLT, you need a will. The fellow who drew up our RLT included a Pour-over will (a one page document that states that anything we inadvertantly left out of our trust will "pour over" into the trust at our death.) He also included a durable power of attorney, a health care proxy, and a living will.The properly drafted will you describe with testamentary trust provisions (A-B Trusts, Pour over provisions, credit shelters, generation skipping, etc) would probably cost as much in lawyer fees as the RLT. The disadvantage of th RLT that I see is that it's a pain in the butt to transfer all you assets into it. One advantage of the RLT over a testamentary trust is that an estate with a RLT can be settled much more quickly, and can be settled by the trustee. When my father died i was trustee of his trust. It was my name, as trustee, on his brokerage account, etc. I sold his stocks and wrote checks to the beneficiaries. Didn't even need a death certificate. The assets were distributed in a matter of days. I was aware, since I handled his financial affairs, that no estate taxes were due and that I he would not owe any income taxes, and that he had no debts, otherwise I would have retained enough money in his account to pay these. He had even prepaid and prearranged his cremation. No probate (here in New York, probate can be expensive and takes a surprisingly long time.)It's nice that in Texas probate is easy. Texas residents also have the GREAT advantage of it's being a community property state (I think). I wish that NY would follow Texas' example (at least about the rules of probate). <g>Trini
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |