Revocable living trust questions

[Rough Edge racing]

 Simple true answer; I never did any financial planning, we simply spend less than our income. We have had a will for a number of years. Bottom line, we have have as much money and less problems than friends who have done all sorts of planning. Everyone here has a computer and the ability to think for yourself unless you have a huge income from unusual sources.. A whole industry of financial planners has been created by those who over think this stuff...

[LowRyter]

It looks like anyone an heir and owns a house or some savings might benefit from some type of trust.  

I am attentive.

[jetmechmarty]

I'm relatively new to this forum and not really trying to upset anyone.  I'm feeling a bit under the weather today and looking at the posts.  I'm wondering if folks are really using the estate planning or legal advice gathered here.  I'm also wondering how many here might go to a lawyer for help with their Moto Guzzi.  How's that for stirring the pot?

[Dilliw]

I'm relatively new to this forum and not really trying to upset anyone.  I'm feeling a bit under the weather today and looking at the posts.  I'm wondering if folks are really using the estate planning or legal advice gathered here.  I'm also wondering how many here might go to a lawyer for help with their Moto Guzzi.  How's that for stirring the pot?

I think there are some good answers above so I'd say he got what he paid for :)  There are a lot of peers here (over 50 cheap farts) so it's a good place to ask a general question or two.  I know I've been thinking a lot about retirement and estate planning lately.

The obvious answer to "do I need a trust" = "it depends."  The size of your estate, the state you live in, and do you value privacy are the big ones.  Suzie (thanks for the link) says you need it to solidify your long term care but I've got some trust in the kids.  The OP has already invested in a trust so he needs to decide if he wants to change it, delete it, or just add a pour-over will (if he doesn't have one).    Any of those paths will send him to a lawyer so there will be an added check on solution. 
 

[PeteS]

I would suggest if your net worth is 500K or above and you want to leave it to someone or some entity it would be worth it to talk to an attorney that specializes in trusts and estate planning. Without a trust the amount that will be taken by probate and estate taxes will pale to what will be taken by a nursing home should you end up there and last another 5 years or so.

Pete

[Dilliw]

I would suggest if your net worth is 500K or above and you want to leave it to someone or some entity it would be worth it to talk to an attorney that specializes in trusts and estate planning. Without a trust the amount that will be taken by probate and estate taxes will pale to what will be taken by a nursing home should you end up there and last another 5 years or so.

Pete

I'm actually dealing with this situation now (that's why I've learned up on it) and I was surprised by the process in South Carolina.  In this case the deceased was an only child with both parents also deceased.  There was no will.   Had we done nothing it all would have just sat there except for the real property.  For the house they would have put up a delinquent tax notice and eventually auctioned it off but nothing else would happen until a claim was made.  The lawyer said he sees estates sit there all the time.  I thought the State would take everything too but unless someone petitions to probate they do nothing.  There's plenty of money out there waiting to be claimed.


Thanks to the Executor's work a few cousins who never met the deceased are going to split an over $1m estate.

[LowRyter]

I'm relatively new to this forum and not really trying to upset anyone.  I'm feeling a bit under the weather today and looking at the posts.  I'm wondering if folks are really using the estate planning or legal advice gathered here.  I'm also wondering how many here might go to a lawyer for help with their Moto Guzzi.  How's that for stirring the pot?

well, it's sorta like a camp fire here.  Old guys talking about nothing.  Some of them will be sober tomorrow but I am afraid many will be crazy for the rest of their lives. 

But here we are.

 :BEER:

[Orange Guzzi]

My wife and I have a revocable trust and we have a minor daughter. It will be updated as time goes by and she becomes older. It includes directives regarding her education, which family member will be responsible for her care until she is 18, the care giver access to funds,  how assets are to be disposed of and if she is to marry her husband cannot touch the assets or have access to them.  We also have a will that is part of the trust.

My Father created a irrevocable trust (I'm a trust fund baby) that guaranteed that all assets can only be dispersed to my Mother and my 8 siblings.  No, ex spouses or nieces or nephews.  

[redrider90]

A trust or a will can function the same. Probate becomes a problem when there is no will or no trust. A trust is not really necessary unless you have a whole lotta money. By putting it in a trust you can avoid taxes. The value of the estate is on the day of death. So whether it is a house or stocks or a 401K the value is begins on the day the will or trust takes effect which is the day the person dies.  One only pays capital gains on the increase in value of property, stocks and bonds or whatever else is of value.  
With a trust you have to set up a tax ID and everything is put in the name of the trust and then the trust is distributed according to how it is written.
My brother took his good old sweet time distributing my parents trust. It drove me crazy because he was so nostalgic about loosing my parents. So for him selling the house and distributing the trust was like loosing our parents all over again. I had to force him to make decisions. Even though my father had given my brother medical power of attorney my brother let me handle everything medical because my father was living with us and my wife and I both have extensive professional medical back rounds.
Actually there was not enough total money in the 2 trusts my parents had to hit the ceiling where there was a tax savings. They could have done it in a will just as easily as a trust.

IRAs and 401Ks should NOT be put in the trust name. It totally screws up everything. The IRA/401K should be left directly in the name of the beneficiaries. That money remains tax free and the beneficiary needs to keep it in a tax free account.   When transferring/dissolving a IRA one has have the check put directly into the new IRA without the beneficiary ever touching the money. Say you have a $40K IRA and it is left to 4 people. Each person receives $10K and if you cash the check in your name you pay full taxes on it. Otherwise you should keep it in the IRA/tax fee retirement account of your choice.  At that point you are required to make an RMD/required minimum distribution every year based on your life expectancy. It is called and inherited IRA. If you die and have an inherited IRA your heirs cannot continue it as an inherited IRA. They have to pay taxes on it.

[bigbikerrick]

I think there are some good answers above so I'd say he got what he paid for :)  There are a lot of peers here (over 50 cheap farts) so it's a good place to ask a general question or two.  I know I've been thinking a lot about retirement and estate planning lately.

The obvious answer to "do I need a trust" = "it depends."  The size of your estate, the state you live in, and do you value privacy are the big ones.  Suzie (thanks for the link) says you need it to solidify your long term care but I've got some trust in the kids.  The OP has already invested in a trust so he needs to decide if he wants to change it, delete it, or just add a pour-over will (if he doesn't have one).    Any of those paths will send him to a lawyer so there will be an added check on solution. 
 

Dilliw, Can you please tell me what a "pour over will" is? I remember our trust guy mentioning that, but I dont think we have one, possibly he stated its something we can add later....Is it like an extension of your original will?
Thanks , Rick.

[bigbikerrick]

Wow, Im so glad I asked these questions here, you guys have given me quite a bit of information that I can use, and a few things I wrote down, to look into further. I just spent over an hour with my wife going over the posts here,( my wife says you all sound like a great bunch of friends!  ;-T !) Some info provided has been a real eye opener, and  the links provided were very interesting, and helpful, Thanks alot gentlemen!

I think one of the most important points made here, is that its of paramount importance to get organized, and keep our affairs in order , making sure our family knows where important documents are, and having one central location where everything can be found, including specialized instructions, etc. for my Son.

I like the big 4" binder idea, I think I am going to do that,

I am very appreciative of you Guy's input, and advice, 
Rick.



 

[Dilliw]

Dilliw, Can you please tell me what a "pour over will" is? I remember our trust guy mentioning that, but I dont think we have one, possibly he stated its something we can add later....Is it like an extension of your original will?
Thanks , Rick.

Sure I'll give to you as "free advice"   ;D  http://law.freeadvice.com/estate_planning/wills/pour_over_will.htm

Redrider90 in the case I'm dealing with somehow a federal employee had no beneficiary named on her TSP or life insurance.  Usually there is someone listed but the name is out of date (ex husband, dead parents, etc) but somehow the deceased managed to go through annual enrollment without ever naming a beneficiary.  My company won't let me do that but the I guess the feds don't mind.  That issue alone took over a year to solve.

Make it a habit to check your beneficiaries annually!

[charlie b]

FWIW, top 1%, even in the US, probably includes many people in here.  Think of it this way.  Take 100 people in your area.  The top earner is the top 1%.  Even considering everyone in the US that means a LOT of people.  Don't have to be a billionaire.

Wills and/or trusts are important for a lot of reasons.  If you have kids or others you are responsible for I consider it mandatory, eg, what happens to your 13yr old kid if you and your wife are killed in an accident.  Think of it like this.  Your kid comes home from school and no one is home.  Cops come to the door and notify them their parents are dead.  Then what.  Your will should specify in detail things like guardianship.

For us older folks with grown kids and no one else it is simply a courtesy to those who will handle the details of your estate.  If you don't care, then don't do one.  Let them figure it out.

Trust vs will?  Go ask a lawyer or at least search around on the various legal web sites. 

[oldbike54]

That 1% figure you guys are so proud of is only one small part of the report and is being quoted out of context . Read the whole report , it tells a different story , like the fact that the wealthiest 85 people in the world control as much wealth as the poorest 3.5 billion , and if you think that making the top 1% based on assets of less than a million bucks makes you a part of the club , well, do a bit more reading .

  Dusty

[Lannis]

That 1% figure you guys are so proud of is only one small part of the report and is being quoted out of context . Read the whole report , it tells a different story , like the fact that the wealthiest 85 people in the world control as much wealth as the poorest 3.5 billion , and if you think that making the top 1% based on assets of less than a million bucks makes you a part of the club , well, do a bit more reading .

  Dusty

I know that we don't like it because we can't be "victims" of a "poor economy" in which the "CEOs" are holding down the American worker, but if you've got an average house, a shed full of vehicles, and a retirement package, you are IN, pal.   You're right at the top ... The average person in the world can't discern any difference between you and Bill Gates.   And there really isn't much difference.   A dry, heated house, vehicles to drive, hot running water, a job, electricity, money to buy fuel, get on a plane and fly if you like .... Bill hasn't got anything you and I haven't got, not to an average Indian or Angolan.

Admitting it is hard, though.   Claiming gross and widespread "inequity" within the United States is the surest sign to the average world citizen that we're ALL provincial fat cats without a clue; and we probably deserve that lick.   Me, I don't cling to a tired Party line.

Lannis

[oldbike54]

Lannis , my objection was to the use of the 1% figure out of context , as if it tells the whole story . When citing reports , cite the whole thing , not just the part that pleases you , that's all I am saying .

  Dusty

[Lannis]

From Forbes (hardly a left wing organization)http://www.forbes.com/sites/moneywisewomen/2012/03/21/average-america-vs-the-one-percent/

They correctly break down the top 1% into 2 categories 1. average annual income 2. net worth
They add on a caveat which adds something more to think about. They add the top 1% to the next top 4%. The total wealth controlled by the top 5% = 72% of the total of the nation's wealth. So the remaining 95% of the population share 28% of the rest of the pie.
     From the article:   "Before you can talk about the 1 percent, it’s important to put the figures into perspective by understanding exactly what that figure means. The average annual income of the top 1 percent of the population is $717,000, compared to the average income of the rest of the population, which is around $51,000. The real disparity between the classes isn’t in income, however, but in net value: The 1 percent are worth about $8.4 million, or 70 times the worth of the lower classes.

The 1 percent are executives, doctors, lawyers and politicians, among other things. Within this group of people is an even smaller and wealthier subset of people, 1 percent of the top, or .01 percent of the entire nation. Those people have incomes of over $27 million, or roughly 540 times the national average income. Altogether, the top 1 percent control 43 percent of the wealth in the nation; the next 4 percent control an additional 29 percent".

Sounds like there's a real market out there for people who set up and administer "trusts"!

After reading all the examples above, and wondering whether a "trust" might be a good idea, I've come to the conclusion that a good "will" is all that Fay and I need.   Matter of fact, now that the kids are off on their own, I need to update the one I have to take out the "Take care of the Kids" parts.

I'm still going to ask my financial guy when I see him on Tuesday .....

Lannis

[Dilliw]

I've got a good women, a good bottle, a roof that doesn't leak, and a vehicle(s) that can take me where I want to go.  Oh and enough money to maintain all of the above even though that first one is rather costly.  I figure I'm in the 1% for sure  :BEER:

[rocker59]

well, it's sorta like a camp fire here.  Old guys talking about nothing.  Some of them will be sober tomorrow but I am afraid many will be crazy for the rest of their lives. 

But here we are.

 :BEER:

That pretty much sums it up!   :BEER:

[inditx]

Ok, meanwhile in other news…..

[redrider90]

Although they're generally a very good thing to set up, there are a couple cases in which a revocable trust isn't good.  For example, if I inherit a house, its basis becomes the current market value.  Then if I sell it for that amount, I don't pay capital gains tax.  But if it's in a revocable trust and I become trustee when the original trustee dies, I now have the house, but its basis is the original purchase price.  Then if I sell it, I pay capital gains tax on the difference between the selling price and the original purchase price.

Jim,
Are you sure about this statement?  After my father died we were required to have the house assessed on its value on the day he died. We sold the house in a revocable trust a couple of years later. We paid taxes ONLY the the gain from the day of death of my father and not what my parents originally  paid for the house in 1945.
It does not matter who the trustee is, only  that there is a trustee. A trustee can be someone who is part of the estate or a separate person who is paid to administer. My older brother was 1st trustee, I was 2nd trustee if he died and my younger brother was the 3rd trustee if I died before the trust was dissolved. If my brother had died the house is still valued at the time of my father's death. Virtually nothing changes if a trustee dies.

[PeteS]

Jim,
Are you sure about this statement?  After my father died we were required to have the house assessed on its value on the day he died. We sold the house in a revocable trust a couple of years later. We paid taxes ONLY the the gain from the day of death of my father and not what my parents originally  paid for the house in 1945.
It does not matter who the trustee is, only  that there is a trustee. A trustee can be someone who is part of the estate or a separate person who is paid to administer. My older brother was 1st trustee, I was 2nd trustee if he died and my younger brother was the 3rd trustee if I died before the trust was dissolved. If my brother had died the house is still valued at the time of my father's death. Virtually nothing changes if a trustee dies.

Red, was your Father's house in the trust? I can vouch for what Jim said. My folks had a home and a commercial property bought around 1960. The were both in a trust and we had to pay capitol gains based on the 1960 cost, not on the value 5 years ago when they passed.

Pete

[redrider90]

Red, was your Father's house in the trust? I can vouch for what Jim said. My folks had a home and a commercial property bought around 1960. The were both in a trust and we had to pay capitol gains based on the 1960 cost, not on the value 5 years ago when they passed.

Pete

Yep it was a double trust. Each one of my parents had a trust with different assets in it. When my mother died her trust went to my father and then when my father died the trust went into 4 even sections: the three sons and one section that the grandchildren split among themselves. I was fully involved in the whole thing as it transpired. I do not understand how you ended up paying capital gains on the original purchase price. I have never heard of such a thing unless the trust punched through the ceiling of what was allowed to transfer by the IRS. When my wife's mother died it was in a will and they did not pay capital gains on that house. The house sold so soon after her death that it had not appreciated.
I do remember that the trust had to be worded correctly. My parents picked a trust lawyer. That is all she did and even then she screwed up some of it like the inherited IRA.
Here is a great link with multiple links in the article. http://www.investopedia.com/articles/pf/06/revocablelivingtrust.asp


And from this link contradicts what you and Jim are saying.  http://homeguides.sfgate.com/pay-taxes-house-sell-given-through-living-trust-72213.html    So either you got screwed or I broke the law.
To quote the article " The Internal Revenue Service does not tax inherited real estate as income, even if it comes from a trust. If you had inherited cash, this would be representative of the living trust's income, so you would receive a Schedule K-1 from the trustee and you'd have to report it on your tax return. Real estate represents the trust's principal or corpus, however, so you can typically take possession of the property without paying taxes on it. An exception exists if you decide to rent the property. The rent you receive is income to you, although you can generally deduct any costs you incur in finding a tenant and maintaining the property".
Under capital gains;
"If you decide to sell the house, you might be hit with capital gains tax. If you sell right away, however, you're likely to come out of the transaction without owing much – or even anything at all. This is because the tax basis of inherited property is either the date of the trust grantor's death, or a date six months later if the trustee had to file an estate tax return and elected this option. Although irrevocable trusts don't pay estate taxes, revocable trusts do, so depending on the value of the estate and if taxes were due, the trustee might have elected this alternate date. In either case, you would only pay capital gains on the portion of sales proceeds that exceeds the value stated in the estate tax return. If the trust does not file an estate tax return, you might want to have the property appraised as of the date of the grantor's death to establish your tax basis in the house".

But then maybe you and Jim are talking about state law and not federal law. From the same article it says:
California doesn't have an inheritance tax, but seven other states do: Kentucky, Nebraska, Pennsylvania, New Jersey, Maryland, Iowa and Indiana. This is not the same as an estate tax – it's a tax on individual bequests made to certain beneficiaries. If the decedent held property in one of these states and if his living trust was revocable, you may owe this tax. Such trust bequests usually are not exempt. The more closely you were related to the grantor of the trust, the less likely it is that you would owe an inheritance tax because most states have a graduated rate scale. You pay less of a percentage the more closely you were related".
So I noticed Maryland is one of those states that it can cause you to pay inheritance tax on bequests. I believe Jim has some Maryland history and is that what he is talking about??

[Vagrant]

Im not really concerned about the privacy issue, John, but if a trust will make things easier for my son when my wife and I are gone, then its worthwhile, if not, who knows....
Thanks Rick.

Rick, I highly recommend JoAnn Regan 623-561-2323 here in Az. Financial security group. she will come to you and she did my dads, uncles, aunts and cousins trust. they are an absolute necessity in Az. when dad passed this past spring everything went perfectly for mom and I. offices in Glendale and Sun city but we are in Green valley and she came here to set them up. Steve Nicholas

[rocker59]

Geez.  What a mess.  I just cleaned this thread up. 

Interesting topic, lets not pollute it anymore.

[Triple Jim]

Harvey (Redrider90), I'm going to be looking into this soon, because of this question of paying tax on the original price or current price.  Maybe the difference is that in one case there was a will that gave the house to someone unrelated to the trust, so that person inherited that house, where in the other case, when the original trustee dies and the next one in line takes over, he didn't inherit the house, but simply now controls the trust.

[bigbikerrick]

Rick, I highly recommend JoAnn Regan 623-561-2323 here in Az. Financial security group. she will come to you and she did my dads, uncles, aunts and cousins trust. they are an absolute necessity in Az. when dad passed this past spring everything went perfectly for mom and I. offices in Glendale and Sun city but we are in Green valley and she came here to set them up. Steve Nicholas

Thank you Steve ,for the contact info on Jo Ann, I thought my wife and I could re do our trust ourselves, but we may just have Jo Ann do it if its not too expensive.
Thanks again for the info , Rick.

PS, are you currently living in Green Valley? We have a retirement home in Rancho  Sahuarita.

[bedevil]

I don't think the value of an inherited home is any different in a trust, or will, or in the absence of either. For tax purposes if you inherit property it's value is the value on the day you inherited it, not the value on the day it was acquired by the original purchaser. In fact, that's a "loophole" Obama proposed closing in his state of the union address. Check this link for a better explanation

http://www.nolo.com/legal-encyclopedia/if-you-inherit-home-do-you-qualify-the-home-sale-tax-exclusion.html