At what amount would you bequeath IN TRUST instead of OUTRIGHT?

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nyc212
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At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by nyc212 »

For those of you who have set up trusts or are planning trusts, what is the AMOUNT of a bequest that you would provide be gifted IN TRUST instead of outright?

At what point do the protective benefits (from spendthrifts, spouses, creditors, etc) of a Trust outweigh the CONS of more administrative overhead and annual tax returns?

Would this decision be influenced by the STATE in which one resides?
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by FreddieFIRE »

There likely isn't any "right" answer, as it may be heavily dependent upon the situation. If an heir is a destitute spendthrift, than the number would likely be very low. Let's say $100K. If an heir is a responsible person of means, in a strong marriage with strong credit and a high paying career, then maybe $1M? Those are just numbers I pulled out of the air. :happy
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by TomatoTomahto »

As FreddieFIRE says, it’s more a matter of the individual receiving the bequest. We have one of ours in a trust. 3 others direct. I look forward to the day when we can remove the trust from the one.
I get the FI part but not the RE part of FIRE.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by bsteiner »

FreddieFIRE wrote: Sun Jun 26, 2022 2:13 pm There likely isn't any "right" answer, as it may be heavily dependent upon the situation. If an heir is a destitute spendthrift, than the number would likely be very low. Let's say $100K. If an heir is a responsible person of means, in a strong marriage with strong credit and a high paying career, then maybe $1M? Those are just numbers I pulled out of the air.
For a special needs beneficiary, any amount.

For a responsible beneficiary of means, in a strong marriage, and a high paying career, far less than $1 million, since he/she is likely to have a taxable estate. He/she could also outlive his/her spouse and remarry.
TomatoTomahto wrote: Sun Jun 26, 2022 2:19 pm As FreddieFIRE says, it’s more a matter of the individual receiving the bequest. We have one of ours in a trust. 3 others direct. I look forward to the day when we can remove the trust from the one.
You may want to look forward to the day when you update your planning and give the other three the benefits of having their inheritances in trust as well. If it turns out that their trusts aren't needed, their co-trustee can always terminate the trusts and give them the money, or direct the executors not to set up the trusts and to distribute their shares to the outright. But if you didn't provide for them in trust under your Will and it turns out that providing for them in trust would be been preferable, it's too late.

As a nationally prominent trusts and estates lawer, now retired, says, you can take the toothpaste (money) out of the tube (trust), but you can't put it back in.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by TomatoTomahto »

bsteiner wrote: Sun Jun 26, 2022 2:42 pm
TomatoTomahto wrote: Sun Jun 26, 2022 2:19 pm As FreddieFIRE says, it’s more a matter of the individual receiving the bequest. We have one of ours in a trust. 3 others direct. I look forward to the day when we can remove the trust from the one.
You may want to look forward to the day when you update your planning and give the other three the benefits of having their inheritances in trust as well. If it turns out that their trusts aren't needed, their co-trustee can always terminate the trusts and give them the money, or direct the executors not to set up the trusts and to distribute their shares to the outright. But if you didn't provide for them in trust under your Will and it turns out that providing for them in trust would be been preferable, it's too late.

As a nationally prominent trusts and estates lawer, now retired, says, you can take the toothpaste (money) out of the tube (trust), but you can't put it back in.
Funny you mention that, my wife and I just had a conversation about that.

We do have a trust set up for the other child of our union (the other two are much older and from my first marriage) but have not funded it. It could be done relatively easily, and we considered raising the question at our next meeting with the estate lawyer. My wife feels that DS wouldn’t want any encumbrances, but I feel that we could make it beneficial without being onerous.
I get the FI part but not the RE part of FIRE.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by bsteiner »

TomatoTomahto wrote: Sun Jun 26, 2022 2:53 pm
bsteiner wrote: Sun Jun 26, 2022 2:42 pm
TomatoTomahto wrote: Sun Jun 26, 2022 2:19 pm As FreddieFIRE says, it’s more a matter of the individual receiving the bequest. We have one of ours in a trust. 3 others direct. I look forward to the day when we can remove the trust from the one.
You may want to look forward to the day when you update your planning and give the other three the benefits of having their inheritances in trust as well. If it turns out that their trusts aren't needed, their co-trustee can always terminate the trusts and give them the money, or direct the executors not to set up the trusts and to distribute their shares to the outright. But if you didn't provide for them in trust under your Will and it turns out that providing for them in trust would be been preferable, it's too late.

As a nationally prominent trusts and estates lawer, now retired, says, you can take the toothpaste (money) out of the tube (trust), but you can't put it back in.
Funny you mention that, my wife and I just had a conversation about that.

We do have a trust set up for the other child of our union (the other two are much older and from my first marriage) but have not funded it. It could be done relatively easily, and we considered raising the question at our next meeting with the estate lawyer. My wife feels that DS wouldn’t want any encumbrances, but I feel that we could make it beneficial without being onerous.
If the child is otherwise responsible, you could give the child control over his/her trust. For example, the child could be a trustee, could have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee), and could have the broadest power special of appointment over his/her trust so that he/she could appoint (give or leave) any or all of the trust assets to anyone he/she wants (other than the chlld or his/her estate or creditors).

Depending on the child's situation, he/she child might have a lesser degree of control, or not gain control at a later age, or have no control at all over his/her trust.

The lawyer should have recommended this initially.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by FreddieFIRE »

bsteiner wrote: Sun Jun 26, 2022 2:42 pm
FreddieFIRE wrote: Sun Jun 26, 2022 2:13 pm There likely isn't any "right" answer, as it may be heavily dependent upon the situation. If an heir is a destitute spendthrift, than the number would likely be very low. Let's say $100K. If an heir is a responsible person of means, in a strong marriage with strong credit and a high paying career, then maybe $1M? Those are just numbers I pulled out of the air.
For a special needs beneficiary, any amount.

For a responsible beneficiary of means, in a strong marriage, and a high paying career, far less than $1 million, since he/she is likely to have a taxable estate. He/she could also outlive his/her spouse and remarry.
Thanks Bruce. That makes perfect sense. (It looks like I didn't really think that one through..... :wink: )
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by bluebolt »

For a minor, any amount.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by afan »

People greatly exaggerate the administrative and tax filing burden. It is quite easy. If they are responsible adults, the beneficiaries can serve as trustees of their own trust, not paying anyone for this service. They can do the tax returns themselves with standard consumer software. Or pay a small amount to have it done for them.
If they need a paid trustee, then the cost will be higher, but the services should be worth the cost.h
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Luckywon »

bsteiner wrote: Sun Jun 26, 2022 3:16 pm If the child is otherwise responsible, you could give the child control over his/her trust. For example, the child could be a trustee, could have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee), and could have the broadest power special of appointment over his/her trust so that he/she could appoint (give or leave) any or all of the trust assets to anyone he/she wants (other than the chlld or his/her estate or creditors).

Depending on the child's situation, he/she child might have a lesser degree of control, or not gain control at a later age, or have no control at all over his/her trust.

The lawyer should have recommended this initially.
bsteiner may I ask for some clarification on the setup you suggest above, which I have seen you describe before?

Considering the case where assets are left in trust for, let's use the name Luckytwo, with power of appointment to Luckytwo (other than to himself or his estate or creditors). Could you address the following questions:

-If Luckytwo wants to withdraw funds from the estate for his own benefit, Luckytwo must have appointed a co-Trustee who agrees to authorize said withdrawal. Do Luckytwo and the co-trustee memorialize this in some way? Who actually has withdrawal power for the account-Luckytwo or the co-trustee?

-Where do your clients commonly look to recruit a co-trustee? I would think friends and other than close relatives may be leery of agreeing to be a co-trustee for a Trust with the understanding their principal role is to authorize withdrawals for Luckytwo upon request. Likewise, I am wondering how easy it is to find corporate trustees who agree to this role.

-If the grantor decides to give Luckytwo power of appointment to himself the principal issue is that the Trust is less shielded?

Perhaps I am misunderstanding exactly what is happening once the grantor passes and the beneficiary wants to withdraw funds for their own benefit. If so, would greatly appreciate your clarification.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Lee_WSP »

Any amount. The only variables being ability to terminate an uneconomic trust and what dollar amount that might be. The major variable being who the trustee is. So, for a special needs trust, the power is still there, but no reasonable trustee will terminate it for uneconomic reasons.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by island »

Spouse and I need to get our after death affairs in order too. Assumed we’d need a trust, but lately seeing posts like this and also wonder if necessary.

I thought a trust was recommended to avoid probate, which supposedly can be very expensive in some states, like CA which is where we’re located.
And include home in the trust.

Is that all true?
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Lee_WSP »

island wrote: Sun Jun 26, 2022 6:41 pm Spouse and I need to get our after death affairs in order too. Assumed we’d need a trust, but lately seeing posts like this and also wonder if necessary.

I thought a trust was recommended to avoid probate, which supposedly can be very expensive in some states, like CA which is where we’re located.
And include home in the trust.

Is that all true?
This thread contemplates an irrevocable trust for your beneficiaries.

You are talking about a revocable trust for probate avoidance. Both a testamentary and revocable living trust can leave inheritances in trust instead of outright and vice versa.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by bsteiner »

Luckywon wrote: Sun Jun 26, 2022 6:17 pm
bsteiner wrote: Sun Jun 26, 2022 3:16 pm If the child is otherwise responsible, you could give the child control over his/her trust. For example, the child could be a trustee, could have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee), and could have the broadest power special of appointment over his/her trust so that he/she could appoint (give or leave) any or all of the trust assets to anyone he/she wants (other than the chlld or his/her estate or creditors).

Depending on the child's situation, he/she child might have a lesser degree of control, or not gain control at a later age, or have no control at all over his/her trust.

The lawyer should have recommended this initially.
bsteiner may I ask for some clarification on the setup you suggest above, which I have seen you describe before?

Considering the case where assets are left in trust for, let's use the name Luckytwo, with power of appointment to Luckytwo (other than to himself or his estate or creditors). Could you address the following questions:

-If Luckytwo wants to withdraw funds from the estate for his own benefit, Luckytwo must have appointed a co-Trustee who agrees to authorize said withdrawal. Do Luckytwo and the co-trustee memorialize this in some way? Who actually has withdrawal power for the account-Luckytwo or the co-trustee?

-Where do your clients commonly look to recruit a co-trustee? I would think friends and other than close relatives may be leery of agreeing to be a co-trustee for a Trust with the understanding their principal role is to authorize withdrawals for Luckytwo upon request. Likewise, I am wondering how easy it is to find corporate trustees who agree to this role.

-If the grantor decides to give Luckytwo power of appointment to himself the principal issue is that the Trust is less shielded?

Perhaps I am misunderstanding exactly what is happening once the grantor passes and the beneficiary wants to withdraw funds for their own benefit. If so, would greatly appreciate your clarification.
You could pick the child's co-trustee(s), or you could let the child pick his/her own co-trustee(s). Typically it's the child's spouse and/or a sibling of the child. You could ask your child whom he/she prefers as his/her co-trustee(s). If you so provide, the child may remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). In that way, the child will effectively control the trust.

The chilld can't participate in decisions to make discretionary distributions to himself/herself, or else the trust will be included in the child's estate, and will be subject to the child's creditors.

There's an exception whereby a beneficiary's power to make distributions to himself/herself won't cause estate tax exclusion if it's limited to health, maintenance, support and education. For several reasons, I prefer to prohibit the child from participating in decisions to distribute to himself/herself even for these items, though many others allow it for these items.

If you want a corporate trustee or co-trustee, it's not hard to find one. Some will take trusts as small as $250,000, while others require at least $10 million.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by VanguardInvestor1972 »

I think the operative factor is time, not dollar amount. By that I mean that one might consider more deeply the age at which the children would receive the money. We use revocable trusts for all our assets. Our two underage children would not get access to all the funds right away if we were to pass. A trustee would ensure their needs were met and college paid for. Then they would receive additional amounts at age 25 and 30. Our estate would be in the mid-single-digit millions but I think that we would use the same set up if the amounts were, say, in the hundreds of thousands as well.

Of course, the right answer is to consult a good trusts and estates lawyer in your state of residence.

Hope this helps and good luck!
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Luckywon »

Many thanks for the reply.
bsteiner wrote: Sun Jun 26, 2022 9:17 pm The chilld can't participate in decisions to make discretionary distributions to himself/herself, or else the trust will be included in the child's estate, and will be subject to the child's creditors.

There's an exception whereby a beneficiary's power to make distributions to himself/herself won't cause estate tax exclusion if it's limited to health, maintenance, support and education. For several reasons, I prefer to prohibit the child from participating in decisions to distribute to himself/herself even for these items, though many others allow it for these items.
What does the prohibition to "participate in decisions" entail? Let's say the child would like $100k in a given year for his HEMS. How does the trustee know to distribute $100k to the child?

I would love further detail on why you prefer to prohibit the child from participating in decisions to distribute to himself/herself even for HEMS. If I predecease my spouse, my spouse could be sole trustee with power to make distributions for HEMS, but perhaps I should revisit this with my attorney.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by island »

Lee_WSP wrote: Sun Jun 26, 2022 6:51 pm
island wrote: Sun Jun 26, 2022 6:41 pm Spouse and I need to get our after death affairs in order too. Assumed we’d need a trust, but lately seeing posts like this and also wonder if necessary.

I thought a trust was recommended to avoid probate, which supposedly can be very expensive in some states, like CA which is where we’re located.
And include home in the trust.

Is that all true?
This thread contemplates an irrevocable trust for your beneficiaries.

You are talking about a revocable trust for probate avoidance. Both a testamentary and revocable living trust can leave inheritances in trust instead of outright and vice versa.
Oh got it, thank you!
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by bsteiner »

Luckywon wrote: Sun Jun 26, 2022 9:49 pm Many thanks for the reply.
bsteiner wrote: Sun Jun 26, 2022 9:17 pm The chilld can't participate in decisions to make discretionary distributions to himself/herself, or else the trust will be included in the child's estate, and will be subject to the child's creditors.

There's an exception whereby a beneficiary's power to make distributions to himself/herself won't cause estate tax exclusion if it's limited to health, maintenance, support and education. For several reasons, I prefer to prohibit the child from participating in decisions to distribute to himself/herself even for these items, though many others allow it for these items.
What does the prohibition to "participate in decisions" entail? Let's say the child would like $100k in a given year for his HEMS. How does the trustee know to distribute $100k to the child?

I would love further detail on why you prefer to prohibit the child from participating in decisions to distribute to himself/herself even for HEMS. If I predecease my spouse, my spouse could be sole trustee with power to make distributions for HEMS, but perhaps I should revisit this with my attorney.
The beneficiary would ask the trustees.

Even though it won’t cause estate tax inclusion I prefer not to allow beneficiaries to participate in distributions to themselves for health, maintenance, support and education because (i) that will likely expose the trust to Medicaid, (ii) depending on the state it may expose the trust to creditors, (iii) it may increase the chance that money will be distributed inadvertently if the beneficiary has other money, and (iv) out of habit from when some states didn’t allow it. However many others allow it.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Luckywon »

bsteiner wrote: Sun Jun 26, 2022 10:20 pm The beneficiary would ask the trustees.

Even though it won’t cause estate tax inclusion I prefer not to allow beneficiaries to participate in distributions to themselves for health, maintenance, support and education because (i) that will likely expose the trust to Medicaid, (ii) depending on the state it may expose the trust to creditors, (iii) it may increase the chance that money will be distributed inadvertently if the beneficiary has other money, and (iv) out of habit from when some states didn’t allow it. However many others allow it.
Appreciate these generous insights greatly!
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Dottie57 »

bsteiner wrote: Sun Jun 26, 2022 3:16 pm
TomatoTomahto wrote: Sun Jun 26, 2022 2:53 pm
bsteiner wrote: Sun Jun 26, 2022 2:42 pm
TomatoTomahto wrote: Sun Jun 26, 2022 2:19 pm As FreddieFIRE says, it’s more a matter of the individual receiving the bequest. We have one of ours in a trust. 3 others direct. I look forward to the day when we can remove the trust from the one.
You may want to look forward to the day when you update your planning and give the other three the benefits of having their inheritances in trust as well. If it turns out that their trusts aren't needed, their co-trustee can always terminate the trusts and give them the money, or direct the executors not to set up the trusts and to distribute their shares to the outright. But if you didn't provide for them in trust under your Will and it turns out that providing for them in trust would be been preferable, it's too late.

As a nationally prominent trusts and estates lawer, now retired, says, you can take the toothpaste (money) out of the tube (trust), but you can't put it back in.
Funny you mention that, my wife and I just had a conversation about that.

We do have a trust set up for the other child of our union (the other two are much older and from my first marriage) but have not funded it. It could be done relatively easily, and we considered raising the question at our next meeting with the estate lawyer. My wife feels that DS wouldn’t want any encumbrances, but I feel that we could make it beneficial without being onerous.
If the child is otherwise responsible, you could give the child control over his/her trust. For example, the child could be a trustee, could have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee), and could have the broadest power special of appointment over his/her trust so that he/she could appoint (give or leave) any or all of the trust assets to anyone he/she wants (other than the chlld or his/her estate or creditors).

Depending on the child's situation, he/she child might have a lesser degree of control, or not gain control at a later age, or have no control at all over his/her trust.

The lawyer should have recommended this initially.
FYI,

My last parent died in 2020. My parents left a tidy sum to my brother and I. I used my portion in 2021 to purchase a new home suitable for my aging body. I gave it a lot of thought before doing so - would parents approve or not. I decided that they would. My brother used a portion of his inheritance to make maintenance on their house easier.

My bet is that your son has absorbed a great deal of your values. Making sure any grands have college money ( or some post secondary training) might be nice.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by humblecoder »

nyc212 wrote: Sun Jun 26, 2022 1:20 pm For those of you who have set up trusts or are planning trusts, what is the AMOUNT of a bequest that you would provide be gifted IN TRUST instead of outright?

At what point do the protective benefits (from spendthrifts, spouses, creditors, etc) of a Trust outweigh the CONS of more administrative overhead and annual tax returns?

Would this decision be influenced by the STATE in which one resides?
To be honest, I don't quite understand the premise of the question. To me, you either need the protection and control that a trust provides, or you don't. If you need it, then there is no threshold below which you would say "I don't need a trust". If you don't need it then there is no threshold above which you would say "I need a trust".

Now I suppose if you wanted to be a wise guy, you could say that if your estate were trivial, you'd be okay to leave it outright to your spendthrift heir. After all, if the deadbeat blows $100 on lottery tickets or whatever, then it's not life changing. But even then, I'd still leave it in a trust. Why? Maybe when I pass I won't have a $100 estate. Maybe by then I'll have a $1M estate. So rather than estate planning based upon this one snapshot in time, it would be better for me to plan for what might be left to the heir in the future.

Now if you really want to be an even wiser guy, you could construct a scenario where I know I am dying tomorrow with an estate of $100. So maybe in that scenario, I'd be okay with leaving it outright. But that's a corner case of a corner case.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by Lee_WSP »

humblecoder wrote: Mon Jun 27, 2022 5:04 pm
nyc212 wrote: Sun Jun 26, 2022 1:20 pm For those of you who have set up trusts or are planning trusts, what is the AMOUNT of a bequest that you would provide be gifted IN TRUST instead of outright?

At what point do the protective benefits (from spendthrifts, spouses, creditors, etc) of a Trust outweigh the CONS of more administrative overhead and annual tax returns?

Would this decision be influenced by the STATE in which one resides?
To be honest, I don't quite understand the premise of the question. To me, you either need the protection and control that a trust provides, or you don't. If you need it, then there is no threshold below which you would say "I don't need a trust". If you don't need it then there is no threshold above which you would say "I need a trust".
If you don't mind future generations paying estate tax, sure, you'll never want a trust. Otherwise, you definitely do above certain estate thresholds.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by FreddieFIRE »

humblecoder wrote: Mon Jun 27, 2022 5:04 pm To be honest, I don't quite understand the premise of the question. To me, you either need the protection and control that a trust provides, or you don't. If you need it, then there is no threshold below which you would say "I don't need a trust". If you don't need it then there is no threshold above which you would say "I need a trust".
What if you don't need it today, but might tomorrow? Do you know what tomorrow is going to look like? I don't.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by lws »

I think in Cali there's a “Beneficiary Controlled Trust” (“BCT”)
It's an irrevocable trust controlled by the beneficiary.
They must follow the probate law though.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by nyc212 »

humblecoder wrote: Mon Jun 27, 2022 5:04 pm To be honest, I don't quite understand the premise of the question. To me, you either need the protection and control that a trust provides, or you don't. If you need it, then there is no threshold below which you would say "I don't need a trust". If you don't need it then there is no threshold above which you would say "I need a trust"...
In our particular case, we don't have kids, we have provided for our nephew, so the question really pertained to how to gift assets to friends who are responsible, but one never knows what may happen with spouses, etc.

No matter what anyone says, trusts require separate bank/brokerage accounts, separate taxpayer ID, thus another level of admin hassle with tax filings, expenses, etc.

After more reading and discussion with my attorney, I'm likely to opt for $200K threshold to trigger a trust, provide that it may be combinable with other trusts and may be terminated by the beneficiary...
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by senex »

OP, you're right about additional paperwork/bureaucracy with a trust. Also, at some estate values, taxation is worse with a trust due to loss of subsequent step-up basis.

I've found experienced estate attorneys put the cost/benefit largely in favor of trusts. Which is worth strong consideration.

On the other hand, the few estates I've seen settled outright, including into the 7-figures, were probably psychologically and financially better for the beneficiaries than had the money been left in trust. Beneficiaries had actual full control, without jumping through procedural hoops, without consulting attorneys, and without layers of bureaucracy and paperwork. Beneficiaries had little risk of loss to divorce, liability, or estate tax. In these cases, the theoretical upsides of a trust were irrelevant, and the actual downsides would have been burdensome.

The tricky part is that laws change. Trusts probably give a lot more flexibility here, due to the "loophole" that allows you to effectively dissolve the trust if that becomes advantageous.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by NotWhoYouThink »

For me, after having read and generally understood about 500 posts on this topic on this forum, the answer is - now that our heirs are over 30 and independent, we do not plan to leave any money in trust, all will be either in retirement accounts or brokerage accounts outside of trusts.

We do have some trust accounts that will go to each other, but then will pass to our kids free of trust after we are both gone.

You might make different choices, but that's ours. The amounts will be 7 figures. Maybe more if we get a lot of inflation.
FoolMeOnce
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by FoolMeOnce »

bsteiner wrote: Sun Jun 26, 2022 9:17 pm
Luckywon wrote: Sun Jun 26, 2022 6:17 pm
bsteiner wrote: Sun Jun 26, 2022 3:16 pm If the child is otherwise responsible, you could give the child control over his/her trust. For example, the child could be a trustee, could have the power to remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee), and could have the broadest power special of appointment over his/her trust so that he/she could appoint (give or leave) any or all of the trust assets to anyone he/she wants (other than the chlld or his/her estate or creditors).

Depending on the child's situation, he/she child might have a lesser degree of control, or not gain control at a later age, or have no control at all over his/her trust.

The lawyer should have recommended this initially.
bsteiner may I ask for some clarification on the setup you suggest above, which I have seen you describe before?

Considering the case where assets are left in trust for, let's use the name Luckytwo, with power of appointment to Luckytwo (other than to himself or his estate or creditors). Could you address the following questions:

-If Luckytwo wants to withdraw funds from the estate for his own benefit, Luckytwo must have appointed a co-Trustee who agrees to authorize said withdrawal. Do Luckytwo and the co-trustee memorialize this in some way? Who actually has withdrawal power for the account-Luckytwo or the co-trustee?

-Where do your clients commonly look to recruit a co-trustee? I would think friends and other than close relatives may be leery of agreeing to be a co-trustee for a Trust with the understanding their principal role is to authorize withdrawals for Luckytwo upon request. Likewise, I am wondering how easy it is to find corporate trustees who agree to this role.

-If the grantor decides to give Luckytwo power of appointment to himself the principal issue is that the Trust is less shielded?

Perhaps I am misunderstanding exactly what is happening once the grantor passes and the beneficiary wants to withdraw funds for their own benefit. If so, would greatly appreciate your clarification.
You could pick the child's co-trustee(s), or you could let the child pick his/her own co-trustee(s). Typically it's the child's spouse and/or a sibling of the child. You could ask your child whom he/she prefers as his/her co-trustee(s). If you so provide, the child may remove and replace his/her co-trustee (provided the replacement trustee isn't a close relative or subordinate employee). In that way, the child will effectively control the trust.

The chilld can't participate in decisions to make discretionary distributions to himself/herself, or else the trust will be included in the child's estate, and will be subject to the child's creditors.

There's an exception whereby a beneficiary's power to make distributions to himself/herself won't cause estate tax exclusion if it's limited to health, maintenance, support and education. For several reasons, I prefer to prohibit the child from participating in decisions to distribute to himself/herself even for these items, though many others allow it for these items.

If you want a corporate trustee or co-trustee, it's not hard to find one. Some will take trusts as small as $250,000, while others require at least $10 million.
So the initial co-trustee can be a close relative or subordinate? The trust just needs to prevent the beneficiary from installing one as a replacement co-trustee?
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celia
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by celia »

nyc212 wrote: Sun Jun 26, 2022 1:20 pm For those of you who have set up trusts or are planning trusts, what is the AMOUNT of a bequest that you would provide be gifted IN TRUST instead of outright?
The amount is irrelavent. We first created our living trust when the kids were little and we had only about $50k to $100K and a house. But we figured our income would grow as we advanced in our careers, which it did,
At what point do the protective benefits (from spendthrifts, spouses, creditors, etc) of a Trust outweigh the CONS of more administrative overhead and annual tax returns?
We have no administrative or tax impacts.
Would this decision be influenced by the STATE in which one resides?
We live in California, a community property state, should that matter. Probate here is expensive and takes a long time. About half the homes in our neighborhood are owned by family trusts.
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by pasadena »

I don't fully understand trusts, so I'm probably missing something, pertaining to the protections they afford.

That said, sometimes I get the feeling it's a question of keeping control of your estate after your death and making sure your heir don't make decisions you wouldn't.

If that's what we're talking about, unless one of my heirs is a minor, or in a very specific situation where they are unable to manage their finances (think disabled) or in a position where they could be taken advantage of (think, old, married to a con artist, or running in really bad circles), I just... would let them make their own decisions as adults. It's not my responsibility, or my place, to manage that money once it's theirs. Not my money anymore, and if I'm dead, well, I'm dead.
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FreddieFIRE
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by FreddieFIRE »

pasadena wrote: Tue Jun 28, 2022 2:22 pm I don't fully understand trusts, so I'm probably missing something, pertaining to the protections they afford.

That said, sometimes I get the feeling it's a question of keeping control of your estate after your death and making sure your heir don't make decisions you wouldn't.
This is likely true in some cases, but as a generalization it is not accurate.
It's not my responsibility, or my place, to manage that money once it's theirs. Not my money anymore, and if I'm dead, well, I'm dead.
Technically, if held in trust it is not "their money." Some folks want their kids to benefit from the full value of their assets, and not have them go to divorcing spouses or creditors. This is a feature, not a glitch.
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
NotWhoYouThink
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by NotWhoYouThink »

pasadena wrote: Tue Jun 28, 2022 2:22 pm I don't fully understand trusts, so I'm probably missing something, pertaining to the protections they afford.

That said, sometimes I get the feeling it's a question of keeping control of your estate after your death and making sure your heir don't make decisions you wouldn't.

If that's what we're talking about, unless one of my heirs is a minor, or in a very specific situation where they are unable to manage their finances (think disabled) or in a position where they could be taken advantage of (think, old, married to a con artist, or running in really bad circles), I just... would let them make their own decisions as adults. It's not my responsibility, or my place, to manage that money once it's theirs. Not my money anymore, and if I'm dead, well, I'm dead.
That's pretty much where I am.

And if OP is giving to friends/relatives other than direct descendants, that goes double. Once I'm gone, it's their money for them to save or spend or invest of give away or squander as they choose. No longer my responsibility.


Yes, trusts help you put controls in place to assure that it goes to grandkids not sons/daughters-in law, but it will be my kids' jobs to make sure their money, which will no longer be my money once I'm dead, goes where they want it after they die.
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FreddieFIRE
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by FreddieFIRE »

NotWhoYouThink wrote: Tue Jun 28, 2022 5:16 pm Yes, trusts help you put controls in place to assure that it goes to grandkids not sons/daughters-in law, but it will be my kids' jobs to make sure their money, which will no longer be my money once I'm dead, goes where they want it after they die.
Do you want to make this job easy for them or hard?
A house and a job. Once the American dream. Two things I'll never again have. Life is simple (and good).
NotWhoYouThink
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by NotWhoYouThink »

FreddieFIRE wrote: Tue Jun 28, 2022 5:30 pm
NotWhoYouThink wrote: Tue Jun 28, 2022 5:16 pm Yes, trusts help you put controls in place to assure that it goes to grandkids not sons/daughters-in law, but it will be my kids' jobs to make sure their money, which will no longer be my money once I'm dead, goes where they want it after they die.
Do you want to make this job easy for them or hard?
See my earlier post. My mind is made up on this. I've read all the arguments to leave money in trust, and decided not to. The question asked "At what amount would you bequeath..."
That's my answer. You can come up with your own answer.
rationalactor
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by rationalactor »

The thing I could use help on is trusts, generation skipping, and estate taxes

Let’s say my wife and I have assets worth $10 million, and are likely to inherit another $5 million.

To avoid estate taxation, would we be better off having the $5 million left in trust to our children, with right for my wife and me to spend income from the trust during our lifetimes, and then after we die the beneficiaries, our kids, get to spend the trust and its proceeds as they see fit?

And how do we do that while avoiding paying trustees’ fees or dealing with other administrative complexity?
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Re: At what amount would you bequeath IN TRUST instead of OUTRIGHT?

Post by bsteiner »

rationalactor wrote: Tue Jun 28, 2022 5:46 pm The thing I could use help on is trusts, generation skipping, and estate taxes

Let’s say my wife and I have assets worth $10 million, and are likely to inherit another $5 million.

To avoid estate taxation, would we be better off having the $5 million left in trust to our children, with right for my wife and me to spend income from the trust during our lifetimes, and then after we die the beneficiaries, our kids, get to spend the trust and its proceeds as they see fit?

And how do we do that while avoiding paying trustees’ fees or dealing with other administrative complexity?
It's your children who might be better off if the person leaving you the $5 million were to leave it to you in trust that you control rather than outright, to keep it out of your estate for estate tax purposes.

If you were a trustee together with one or more of your wife and children, you could waive your trustees' commissions (fees).
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