bsteiner wrote: ↑Thu May 14, 2020 9:28 am
kevdude wrote: ↑Wed May 13, 2020 10:19 pm
bsteiner wrote: ↑Wed May 13, 2020 9:50 pm
kevdude wrote: ↑Wed May 13, 2020 8:53 pm
...
We have a testamentary trust and that is my understanding, and one of the main reasons we set it up. In the event of my death, the assets go to the trust at a stepped up basis, with my wife is the trustee (the way we have it set up). Same in the event of her death, but with me as the trustee. Since the assets are transferred into the trust, there is no estate tax. At least that is how it was explained to us 10 years ago when it was set up. The majority of the assets are rental properties.
Assuming I die first, then my wife, it seems (based on previous comments in this thread) the remaining assets are again stepped up in basis, and then go to our children. If at the time the last one of us dies and they are over 25, they receive their equal shares in full. Or it goes to the new trustee/personal representative as Custodian until they turn 25, which isn't really that far away as our oldest is 17 and youngest is 15.
We live in Washington state, where the exemption is $2.2MM. We are below the Federal exemption at this time, but well over Washington's. If the testamentary trust does not shield us from the estate tax, we will have to revisit our documents, and obviously, our attorney/new attorney.
If the first spouse to die leaves the Washington State exempt amount (presently $2,193,000) in a credit shelter trust for the surviving spouse, a couple gets to shelter that amount in each spouse's estate (for a total of twice that amount) from state estate tax. That's especially valuable in Washington State where the state estate tax rates go up to 20%.
You might also provide that, instead of mandating distribution to your children at 25 (or at the surviving spouse's death, if later), that each child gain control of his/her trust at that point. That will keep your children's inheritances out of their estates for estate tax purposes. That will be particularly important if your children remain in Washington and the Washington estate tax remains the way it is now.
The tradeoff is that the amount that's kept out of the surviving spouse's estate, or your children's estates, won't get another basis step-up at their deaths. However, if the trustees determine that the basis step-up is more valuable than keeping the assets out of their estates, they can always distribute the highly appreciated assets, or give them testamentary general powers of appointment so as to throw the assets into their estates. There are, of course, other tradeoffs to doing that, but it's nevertheless an option.
Thank you for your response. Our wills only state that the assets go into a trust upon the death of either of us, but not a specific type of trust. Is that something we need to address? A meeting with our attorney maybe in order.
The Federal estate tax law was in a state of flux 10 years ago. Under the 2001 Act, there was no estate tax in 2010, but the estate tax was scheduled to return in 2011 with a $1 million exclusion amount. In late 2010, Congress retroactively restored the estate tax with a $5 million exclusion amount, indexed for 2011 and 2012, only to revert to $1 million in 2013, and allowed estates of persons dying in 2010 to elect carryover basis in lieu of estate tax.
So from the information provided we don't know whether your Wills create trusts for the Federal estate tax exclusion amount (presently $11,580,000) or the Washington exempt amount (presently $2,193,000).
If you have the cover letter that you received with the drafts, that would probably contain a summary of your Wills. Or you may be able to tell what you have from the formula in your Wills what you have. Or you could post the text of the formula clause in your Will and many of use would be able to tell what you have.
But since it's been 10 years since your signed your Wills, and since you mandated distribution to your children at 25 (or the death of the surviving spouse, if later), it probably makes sense to review and update your planning, preferably with a lawyer who would recommend that your children gain control over their trusts at 25 (or the death of the surviving spouse, if later) rather than mandating distribution at that point. As part of that process, you could make sure that the formula for the trust for the surviving spouse is appropriate for your assets and your objectives.
Again, thank you very much for your response, along with everyone else that has contributed to this thread. It has been very informative, indeed.
I'll quote from the Will, which was created March, 2009:
DISPOSITION OF RESIDUE (this is after Disposition of Personal Property, which doesn't seem to apply to this discussion)
FOURTH (A) The residue of the property owned by me at my death, real and personal and wherever situate, I devise and bequeath to my wife, if she survives me; provided, that, if my wife survives me but disclaims the right to take any portion of or interest in my residuary estate, I give such disclaimed portion of or interest in my property in trust to my trustee hereinafter named to be disposed of as directed in Article FIFTH hereof.
(B) If my wife does not survive me, the residue of the property owned by me at my death, real and personal and wherever situate, shall be disposed of as directed in Article SIXTH hereof.
TRUST FOR WIFE
FIFTH: If my wife survives me and disclaims the right to take any portion of interest in my residuary estate under Article FOURTH, I give such disclaimed property to my trustee hereinafter named to hold in trust pursuant to the following terms and conditions:
(A) During the life of my wife, my trustee shall pay her all of the net income of this trust at least quarterly and also so much of the principal thereof as is needed for my wife's health, support, and maintenance at the level she was enjoying at my death, taking into consideration all other resources (including income) available to her.
(B) Upon the death of my wife, my trustee shall dispose of the then remaining trust (if any) as directed in Article SIXTH hereof.
PROVISIONS FOR CHILDREN AFTER DEATH OF HUSBAND AND WIFE
SIXTH: (A) All property directed to be disposed of under the provisions of the Article, at the times set forth in this Will for such disposition shall be divided into equal shares so that one such share shall be set apart for, and distributed to, each child of mine who is then living and so that one such share shall be set apart for, and distributed to, the living issue, per stripes, of each child of mine who is then deceased. Notwithstanding the forgoing, the share of any beneficiary what has not attained the age of twenty-five (25) shall not be distributed outright to her or him, rather the same shall be distributed to my personal representative hereinafter named to hold as Custodian for said beneficiary under the Washington Uniform Transfer to Minors Act.
PROVISIONS IN CASE OF DEATH OF HUSBAND, WIFE AND ALL ISSUE
(B) If at my death, or at any time thereafter, either before, during the existence of, or at the termination of the trust created hereunder, neither my wife nor any of my issue is then living, all property which would have otherwise been then distributable under my Will to or in trust for any of my issue had any of my issue been then living and then remaining undistributed shall be distributed as follow:
(1) FIFTY PERCENT (50%) to my heirs at law determined as though I had died at that time; and
(2) FIFTY PERCENT (50%) to my wife's heirs at law determined as though she had died at that time.
(I'M SKIPPING THE SPENDTHRIFT CLAUSE, SEVENTH)
PERSONAL REPRESENTATIVE AND TRUSTEE PROVISIONS AND POWERS
EIGHTH: (A) I name my wife personal representative of this will. If my personal representative resigns or otherwise fails or ceases to serve as such, I name _________ as alternate personal representative. I name my wife trustee of any trust created herein. If my trustee resigns or otherwise fails or ceases to serve as such, I name __________ alternate trustee. My fiduciaries (meaning both personal representative and trustee) above named need not give bond, in any jurisdiction. My estate shall by managed, settled, and administered by my above-named personal representative, or any personal representative of my estate, without the intervention of any court and with all powers granted herein and by law to a personal representative acting under nonintervention power, and I direct that such nonintervention powers be completely unrestricted. Such powers may be exercised without regard to whether or not the transaction being undertaken is necessary for the management, settlement, or administration of my estate.
(B) In addition to all distributions of property from my probate estate otherwise permitted by law, at any time during the probate administration of my estate at which, if a final distribution of my estate were made, property would be distributed to one or more trusts created under this instrument, I authorize (but do not require) my personal representative to make to or for the benefit of any beneficiary of any such trust any distribution or distributions of the income and principal of my probate estate which my trustee hereunder would have authority to make if such trust had already been funded.
(C) My fiduciaries shall have all the rights, powers and duties given by law on the date hereof, including, as to my personal representative, those set forth in R.C.W. 11.68.090, or any successor section thereto, and, as to all my fiduciaries, those set forth in R.C.W. 11.98.070, or successor sections thereto, except as modified and increased hereinafter provided:
(1) To make any distribution in cash or in specific property, real or personal, or an undivided interest therein or partly in cash and partly in property , in shares which may be composed differently; all assets distributed in kind shall be valued for purposes of distribution at their distribution date values; and
(2) No loan shall be made to my wife at any time at which she is serving as personal representative and/or trustee hereunder.
Whew! Im sorry for including so much information, but I didn't know when to stop, and then where to begin again. I also apologize to the OP for hijacking this thread.
As an FYI, the persons left blank in the personal representative and trustee section above is a cousin of my wife. Also, the properties that would be transferred into the trust are owned by separate LLC's that we are both 50% owners of and I'm pretty sure we are both managing members.
So, after going through all of this, and the cover letter, I'm still unsure as to whether this actually accomplished one of the priorities we had - to avoid
estate taxes. I'm sure we knew at the time, but it has been awhile. I think I'll schedule a meeting with our attorney to address this, along with many other issues that have arisen from this thread. In the meantime, your feedback is very much appreciated.
Kevin