Tag Archives: trusts
Dear Liza: My husband and I have one adult daughter – 20 years old. We are in our 60’s and want to set up a will or a trust to ensure that 100% of our property and investments goes to our daughter, and that she inherits the assets with the least amount of taxes/probate as possible. What’s better a Will or a Trust? I don’t know what state you live in, and that makes this a hard question to answer completely. Here’s why: the value of doing a living trust depends on the cost and inconvenience of probate in your state.
Both a Will and a trust can ensure that your property passes to your daughter. Both a Will and a trust can incorporate tax planning to minimize any estate taxes that might be due at the death of the second of you (though these days, you’d have to have more than $10 million before worrying about the estate tax, so let’s assume that this is not an issue for you). Really, the difference between which kind of an estate plan to create isn’t so much a “what” question; it’s really a “how” question, as in “how much” and “how long” will it take to settle your estates.
This is because a Will requires a probate proceeding before a distribution to your daughter, while a trust will allow you to bypass probate. This means that if you do a Will, and your estate exceeds the small estates threshold in your state, your daughter won’t inherit anything until the court issues an order for distribution, which is how a probate ends. If you do a trust, and the trust is properly funded at your death, holding title to your major assets, your daughter will be able to inherit those assets as soon as they’ve been identified, taxes and creditors have been paid, and all of the beneficiaries and heirs have been notified.
In states that have adopted the Uniform Probate Code, currently that is 18 states, click here for a list of these, probate has been streamlined and is relatively inexpensive. In states that have not adopted this code, like the one that I practice in, probate takes longer and costs far more than it costs to administer most living trusts. So, in order to sort out what’s the best estate plan for you, you need to find out the cost and delay in going through probate where you live. If you live in a state where probate is relatively easy and fast, you should be fine with just a Will. If you live in a state where probate is expensive and slow, a trust will be the better choice.
Dear Liza, My father passed away recently, and all of his and my mom’s assets are held in a living trust (except an individual checking account), of which I am now the Trustee. A few collection agencies are now contacting me about collecting on some credit card balances, which are fairly significant. From what I’ve read online, it sounds like debt collectors might not be able to lay any claims against the trust, but they can collect from the personal estate of the deceased (i.e. checking account or other assets held in the individual’s name).Is that understanding correct? In case the debtors try to collect against the trust, I want to know our rights in that situation. As Trustee, you are, actually, obligated to pay the debts of the Grantors (the people who created that trust) that you know about before you can distribute assets to the trust’s beneficiaries. That includes taxes and, in this case, credit card debt. If there are sufficient assets in the trust to pay those debts, you have to pay them. If there are insufficient assets in the trust to pay those debts, often you can, as Trustee, negotiate a lower payment with the companies — because that debt is not secured by anything (in contrast, say, to a house that secures a mortgage), the companies will often settle for less than the full amount rather than writing off the entire balance. If you don’t pay these debts and distribute the trust’s assets to the beneficiaries, these companies could, theoretically, go after the beneficiaries for payment from their inherited assets. Here’s an article that you might find helpful, too.
Dear Liza My father wants to leave some of his assets to my brother and sister, however neither of them is particularly adept at handling money and he doesn’t want to hand them a large, lump sum. Can a Will stipulate that they receive payments on a predetermined basis, almost like an allowance? If not, can this be accomplished through another vehicle?
Your father isn’t the only parent worried about leaving money outright to kids. He has a few options. Your father can leave money in his Will to a trust for the benefit of your brother and sister, and specify how the money is to be distributed to them. The trust itself is a part of the Will. Leaving money in a trust by way of a Will is called a “testamentary trust,” because the trust is established after your father dies. This will require a probate proceeding in most states.
Alternatively, your father can create a trust now, and in that trust he can distribute assets to trusts for your siblings as well. This will accomplish the same result, but avoid a probate proceeding at your father’s death. Lastly, your father could, in a Will or a trust, instruct the executor or Trustee to purchase an annuity for your siblings upon his death, that pays out a certain amount of money over a certain period of time, or, he could purchase an annuity like that during his lifetime, to be paid upon his death.
Dear Liza: We live in Nebraska. I own a ranch with my brother. Part of it we inherited and a small part we purchased from family members. The total value of the ranch is $2.7 million. We have a buy sell agreement between us. We have estate questions and aren’t sure where to go. We each have other assets of approximately $2 million and $4 million respectively. We have considered a trust; however I have two children and my brother has a second wife and four children. We do not want our offspring to have to deal with each other.
So, that’s a REALLY interesting question, and one that involves trusts, but only tangentially, really. The thing is, regardless of whether your estate plan consists of a Will or a trust, your families are most certainly going to have to deal with each other upon the death of you and your brother. You wrote that you own the ranch together….usually, siblings would own a ranch like that as tenants in common, which means that you each own one-half of it and are free to leave it to whomever you’d like to leave it to upon your death. (The less usual alternative, for siblings, would be as joint tenants, which would mean that the survivor would own the entire property at the death of one of you.)
Assuming you each own your half and can leave it at death to others, how on earth are you going to avoid each family having to work something out? Even a buy-sell agreement will require, at a minimum, that one family buys and the others sells, right? Placing your property into a trust will avoid having to go through probate, and gives you the opportunity to try and plan for reducing conflict down the road. You can each place your interests in different trusts, and specify how each half should be managed upon your deaths.
If you don’t do a trust, then your estate will go through probate, and that in no way reduces the possibility of inter-family conflicts–in fact, it almost invites it, because probate is public, and all interested parties are required to get proper notice and have an opportunity to object to the proposed distribution. With a multi-million property on the table, I would advise you and your brother to hire a good estate planning attorney now to do what you can to anticipate problems and structure the management of the property down the road.
Dear Liza: What distinguishes an Estate from a Trust? A person’s estate is all of their property owned at death. If they have a Will, that document states who inherits the estate. If they die without a Will, state law determine who will inherit their estate. In both cases, if they have enough assets, a probate court has to supervise the settling of the estate. A trust is a legal agreement in which a person (called a Grantor) states that one or more people (called Trustees) hold the Grantor’s assets for certain people (called the beneficiaries) subject to certain duties and the terms of the agreement. The most common type of trust is called a revocable living trust, but there are others. A person may set up a living trust to hold certain of their assets (like their house) during their lifetime, and then give those assets to others at their death. Assets held in the living trust do not go through probate, which is why most people set them up.
But, that person almost certainly owns other assets in their own name (like their everyday checking account, their car, and their tangible personal property). Those things are part of that person’s estate, not their trust. They would ordinarily have a special kind of Will (called a pour-over Will) that says that all of these things should be added to their trust upon their death. That way, there’s just one set of instructions about who gets what.
Dear Liza: My 91 year old mother had a stroke in April. Her living trust designates my brother as Medical Power of Attorney and myself as Financial POA. Her lawyer is asking for letters from two doctors stating our mother is mentally incapacitated before he can talk to both of us about her trust. Why would a lawyer ask for them? Wasn’t the point of the trust to make everything hassle free? Your mother’s lawyer is asking for letters from two doctors stating that your mother is incapable of managing her own affairs because, most likely, the trust states that you and your brother can act as successor Trustees only upon your mother’s incapacity. The trust probably also states that incapacity is to be determined by two letters from physicians stating, under penalty of perjury, that your mother is incapacitated. Many trusts are drafted this way. The idea is to protect your mother from having her powers as Trustee taken away unless she really can’t manage her own affairs. Ask the attorney to provide you with letters for the doctors to sign — that shouldn’t be a big deal if, in fact, she isn’t able to manage.
Dear Liza: My Mother passed in Feb of this year. She opened a joint account with my Sister, so, should she become incapacitated, my sister could write checks on her behalf and it was opened with the understanding, that should something happen to my mother, the joint checking account should be split with her six other brother’s and sisters. My sister is claiming the money is now hers to do with what she wants, who is right? This is one of those estate planning situations that come up a lot, and it’s also one where the law is clear, the moral obligations murky. Aged parents often put one child on an account like that, to make it easier to let them take care of their finances. But in making your sister the joint owner of the account, your mother also made her the legal owner of the money now because she is the surviving joint owner. If your mother had wanted to make absolutely bullet-proof sure that any money in that account was to be split equally among all seven of you, she should have put that account into the trust (assuming that the trust splits everything seven equal ways) or named all seven of you as pay-on-death beneficiaries. But, of course, that’s no solace now. If your sister wants to honor your mother’s wishes, she could do that, but she’s not legally obligated to do so.
Dear Liza: My father died several years ago, after my mother passes the children inherit equally per both their wills and the Family Trust. Can my mother change the terms of the trust now? The documents state that the estate will be equally shared by the surviving children when our mother passes. She has decided this means that she can give everything in the homes to one sibling and that when she passes the homes will be sold and divided between all of the surviving children. It seems to me this is not what Dad wanted. Hmm. So, here’s a not very satisfying answer: MAYBE. It all depends on what your parents set up before your father died. Some family trusts do indeed leave everything in a revocable trust for the benefit of the surviving spouse. If that’s what your parents did, then, yes, your mother is free to change the terms of that trust and she is free to give things away during her lifetime as well because the trust assets are all hers. If, however, your parents set up what’s called an “A/B” trust, your mother’s assets would be in a revocable trust that she would be free to change, but your father’s assets (up to the limit of whatever the estate tax exemption was in the year that he died) would be held in an irrevocable trust, which your mother would not be able to change during her lifetime. In California, where I practice, state law requires that you and your siblings would have to be notified after your father died if such an irrevocable trust was established upon his death. Notice requirements differ from state to state, however. Best to find out what your state requires. Your father’s Will probably leaves his tangible personal property (such as clothes, books, etc) to your mother, and then pours whatever else he owned at death into the family trust. So that’s the document that matters in determining what your mother can, and can’t, do now.
I am about to create my Will and Living Trust. My son has two sons and his wife is pregnant with twin girls. I would like to know if I can name the twins in my Will/Trust now although they are not due to be born until December? I’ve written Wills that name children soon-to-be born. You could say that you want to benefit all of your son’s children, including the twins girls due in December. Or you could just say all of the children of your son that are alive at your death (which, unless you die before December would certainly include the new twins). Good luck!