Is this estate plan reasonable?

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Chip
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Is this estate plan reasonable?

Post by Chip »

We are in the process of preparing an updated estate plan and have engaged the Trust & Estate group in a decent-sized firm (offices in 7 cities). We could use some advice on their proposal.

Our situation: Married, retired, no children, 7 figure estate, not in a community property state. No ex-spouses. No family close by. ~85% will go to charity on second death; remainder to 2 nieces (both are married). We have assets in a residence, joint taxable brokerage account, tIRAs and Roth IRAs. We also have a Fidelity DAF. All securities are publicly traded. Our plan is to give the nieces pieces of the Roths, which hopefully they will be smart enough to stretch out for 10 years.

The primary concern for us is setting up things as best we can to where a trusted friend can step in to manage our affairs if we become incapable of doing so; with a minimum of hassle for the friend. While we could set this up using durable powers of attorney (DPOAs), we are concerned about the many stories of financial institutions refusing to honor attorney-prepared DPOAs. While we can (and will) fill out Fidelity’s own DPOA, it doesn’t allow for successor agents. Note that we are less concerned about disposition of our assets after our deaths than we are about making it easier to manage our affairs while we are alive.

The attorney has suggested a revocable living trust for each of us, splitting our joint taxable assets between the trusts. Each trust would become irrevocable upon death. The law firm first suggested making the irrevocable trusts the contingent beneficiary of the retirement accounts, which would then be distributed by the trustee to the nieces (over 10 years) and charities.

This seemed like a lot of complexity to me, especially the disposition of the retirement accounts. The way I'm currently handling it is that the nieces are each TOD beneficiaries of a percentage of one of the Roths that works out to about 7% of total assets each. Every so often I update those percentages (very easy at Fidelity) to reflect changes in market value. I'm not particularly concerned that they get exactly 7%, so it's okay if that value floats around between "adjustments". I'm also not concerned about protecting that inheritance from creditors, divorce, or keeping it out of their estates.

Our DAF is named to receive the remainder of the retirement accounts via TOD. Multiple charities are named as beneficiaries (successors?) of that account.

I think the attorney suggested this because they thought the 7% shares were rigid and that it would be necessary to value everything at the date of second death and then figure out the 7% shares. We've since had some discussions and now that they understand the loose nature of the 7% targets I think they're more comfortable with continuing the current practice of us assigning TOD beneficiaries. They are concerned, however, with the potential for one or both of the nieces to die before us.

This post is already too long, but hopefully some of you can help with my questions. I will of course ask the attorney these same questions but I respect the ability of the Boglehead hive mind.

1. Is it necessary to have individual RLTs vs. a joint RLT? It seems to me that the individual trusts will complicate investment management, bill paying, etc. The attorney has suggested addressing this by either putting all assets in one trust or the other (with each of us as co-trustees), or leaving the joint account out of the trusts and using DPOAs. There is a ton of boilerplate in the trust documents related to avoiding estate taxes, which almost certainly won’t be an issue (neither Federal nor state).

2. Are there any “gotchas” in the way I’m handling the IRAs and their beneficiaries? I realize they are going to possibly be subject to the DPOA issues I said I’d like to avoid. But I think I’d rather risk that than have trusts existing for 10 years after the second death.

3. Anything else I’m missing?
bsteiner
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Re: Is this estate plan reasonable?

Post by bsteiner »

You invited the lawyer to suggest revocable trusts by expressing your concern over powers of attorney. While we've all heard stories of people who've had problems with powers of attorney, they generally work smoothly. To avoid any problems with your powers of attorney, you could give the financial institutions copies of them now. If one of them prefers their own form it would be simpler to give them one on their form than to explain why they should accept yours.

If you're providing for your nieces outright, it doesn't make sense to leave their shares of the Roth IRA to a trust that pays out to them outright. Nor does it make sense to pool the different assets when you want them to get Roth assets. Just name them as the beneficiaries of the desired portion of your Roth IRAs. As you pointed out, their percentage need not be exact. If you want it to be exact, you could round down slightly on the beneficiary designation form, and then bequeath to each of them the amount, if any, by which 7% exceeds the value of what she receives from the Roth IRA.

You'll also want to earmark the traditional IRAs for the charities (name them on the beneficiary designation form) since they'll receive them free of income tax. If you run their shares through a trust the drafting to make sure they receive the traditional IRAs free of income tax will be more complicated.
HomeStretch
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Re: Is this estate plan reasonable?

Post by HomeStretch »

Chip wrote: Sat Aug 13, 2022 1:29 pm … 1. Is it necessary to have individual RLTs vs. a joint RLT? It seems to me that the individual trusts will complicate investment management, bill paying, etc. The attorney has suggested addressing this by either putting all assets in one trust or the other (with each of us as co-trustees), or leaving the joint account out of the trusts and using DPOAs. …
[IANAL]
In a non-community property state, I don’t believe you and your spouse can have a joint RLT.

If you decide to fund each individual RLT, how will you handle any real estate you own if held jointly? Will you continue to hold it jointly with right of survivorship outside of the trusts or will you change the title, if possible, to allow each of you to hold your 1/2 into your respective RLT? Or put the whole house into just one of the trusts with you both as co-trustees?

How will you handle owned vehicles, if any?

Having gone through a similar thought process for spouse and I (also in a non-community property state), I do believe while we are both competent that having our Taxable assets (currently held jointly) split evenly between two individual trusts would be more work administratively for us.

I think (still deciding) we will continue to jointly hold all Taxable assets (except some I-Bonds), real estate and cars outside of our RLTs while both are alive. But, based on our not-always-smooth experience of supporting our parents’ financial/tax/investing matters using DPOAs, the surviving spouse will immediately move all non-retirement assets into the RLT for ease of one child, as trustee, supporting the survivor.

Btw attorney-drafted DPOAs are not accepted by SS, Medicare, IRS and likely your state taxing authority, if applicable. Each agency has its own process to name an authorized rep (and it’s not necessarily quick or easy). So consider this as part of your estate planning.
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Lee_WSP
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

Do you want to leave the nieces a percentage of the account or a flat dollar amount?
marcopolo
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Re: Is this estate plan reasonable?

Post by marcopolo »

HomeStretch wrote: Sat Aug 13, 2022 5:12 pm
Chip wrote: Sat Aug 13, 2022 1:29 pm … 1. Is it necessary to have individual RLTs vs. a joint RLT? It seems to me that the individual trusts will complicate investment management, bill paying, etc. The attorney has suggested addressing this by either putting all assets in one trust or the other (with each of us as co-trustees), or leaving the joint account out of the trusts and using DPOAs. …
[IANAL]
In a non-community property state, I don’t believe you and your spouse can have a joint RLT.

If you decide to fund each individual RLT, how will you handle any real estate you own if held jointly? Will you continue to hold it jointly with right of survivorship outside of the trusts or will you change the title, if possible, to allow each of you to hold your 1/2 into your respective RLT? Or put the whole house into just one of the trusts with you both as co-trustees?

How will you handle owned vehicles, if any?

Having gone through a similar thought process for spouse and I (also in a non-community property state), I do believe while we are both competent that having our Taxable assets (currently held jointly) split evenly between two individual trusts would be more work administratively for us.

I think (still deciding) we will continue to jointly hold all Taxable assets (except some I-Bonds), real estate and cars outside of our RLTs while both are alive. But, based on our not-always-smooth experience of supporting our parents’ financial/tax/investing matters using DPOAs, the surviving spouse will immediately move all non-retirement assets into the RLT for ease of one child, as trustee, supporting the survivor.

Btw attorney-drafted DPOAs are not accepted by SS, Medicare, IRS and likely your state taxing authority, if applicable. Each agency has its own process to name an authorized rep (and it’s not necessarily quick or easy). So consider this as part of your estate planning.
Perhaps I am misunderstanding what you mean by this.

We live in a non-comminity property state. My spouse and i have a single RLT that holds the enritey of what used to be our jointly owned taxable brokerage account. We are both trustees of the trust currently. Is that not a Joint RLT?
Once in a while you get shown the light, in the strangest of places if you look at it right.
fourwheelcycle
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Re: Is this estate plan reasonable?

Post by fourwheelcycle »

HomeStretch wrote: Sat Aug 13, 2022 5:12 pm [IANAL]
In a non-community property state, I don’t believe you and your spouse can have a joint RLT.

How will you handle owned vehicles, if any?
My wife and I live in a non-community property state and we have a joint revocable trust. Our trust owns our joint brokerage, checking, and savings accounts, and our house. It cannot own our cars, but we have a Deed of Gift that gives our cars and our house contents to our trust.

However, our trust is not the primary beneficiary for any of our IRAs or Roths.
HomeStretch
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Re: Is this estate plan reasonable?

Post by HomeStretch »

marcopolo wrote: Sat Aug 13, 2022 5:49 pm Perhaps I am misunderstanding what you mean by this.

We live in a non-comminity property state. My spouse and i have a single RLT that holds the enritey of what used to be our jointly owned taxable brokerage account. We are both trustees of the trust currently. Is that not a Joint RLT?
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
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Lee_WSP
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

HomeStretch wrote: Sat Aug 13, 2022 9:51 pm
marcopolo wrote: Sat Aug 13, 2022 5:49 pm Perhaps I am misunderstanding what you mean by this.

We live in a non-comminity property state. My spouse and i have a single RLT that holds the enritey of what used to be our jointly owned taxable brokerage account. We are both trustees of the trust currently. Is that not a Joint RLT?
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
It's an option. It's just almost universally a bad choice.
HomeStretch
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Re: Is this estate plan reasonable?

Post by HomeStretch »

Lee_WSP wrote: Sat Aug 13, 2022 9:58 pm
HomeStretch wrote: Sat Aug 13, 2022 9:51 pm
marcopolo wrote: Sat Aug 13, 2022 5:49 pm Perhaps I am misunderstanding what you mean by this.

We live in a non-comminity property state. My spouse and i have a single RLT that holds the enritey of what used to be our jointly owned taxable brokerage account. We are both trustees of the trust currently. Is that not a Joint RLT?
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
It's an option. It's just almost universally a bad choice.
Would you mind explaining why that is so?
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Lee_WSP
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

HomeStretch wrote: Sat Aug 13, 2022 10:09 pm
Lee_WSP wrote: Sat Aug 13, 2022 9:58 pm
HomeStretch wrote: Sat Aug 13, 2022 9:51 pm
marcopolo wrote: Sat Aug 13, 2022 5:49 pm Perhaps I am misunderstanding what you mean by this.

We live in a non-comminity property state. My spouse and i have a single RLT that holds the enritey of what used to be our jointly owned taxable brokerage account. We are both trustees of the trust currently. Is that not a Joint RLT?
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
It's an option. It's just almost universally a bad choice.
Would you mind explaining why that is so?
There's no benefit, unless you subscribe to the unproven theory that you can achieve a stepped up basis, and a lot of pitfalls. It also needlessly complicates the plan.
marcopolo
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Re: Is this estate plan reasonable?

Post by marcopolo »

Lee_WSP wrote: Sat Aug 13, 2022 11:08 pm
HomeStretch wrote: Sat Aug 13, 2022 10:09 pm
Lee_WSP wrote: Sat Aug 13, 2022 9:58 pm
HomeStretch wrote: Sat Aug 13, 2022 9:51 pm
marcopolo wrote: Sat Aug 13, 2022 5:49 pm Perhaps I am misunderstanding what you mean by this.

We live in a non-comminity property state. My spouse and i have a single RLT that holds the enritey of what used to be our jointly owned taxable brokerage account. We are both trustees of the trust currently. Is that not a Joint RLT?
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
It's an option. It's just almost universally a bad choice.
Would you mind explaining why that is so?
There's no benefit, unless you subscribe to the unproven theory that you can achieve a stepped up basis, and a lot of pitfalls. It also needlessly complicates the plan.
My understanding is that a joint RLT gets the same step-up treatment as a jointly owned account, since it is essentially a see through instrument (not sure if that is the right terminology). So, in a non-community property state, 50% step-up at death of first spouse, then 100% at death of second spouse. Is that not the case?

I have seen some older articles concerned about maximizing estate exemption. But, I think with portability, that concern can also be removed, although, as you say, it does add some complexity in having to file for portability in a limited time.

Any light you could shed on other needless complexity?

Thanks again for your willingness to share your expertise.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

bsteiner wrote: Sat Aug 13, 2022 2:25 pm You invited the lawyer to suggest revocable trusts by expressing your concern over powers of attorney. While we've all heard stories of people who've had problems with powers of attorney, they generally work smoothly. To avoid any problems with your powers of attorney, you could give the financial institutions copies of them now. If one of them prefers their own form it would be simpler to give them one on their form than to explain why they should accept yours.
Thanks much for the observations.

Yes, I can see how I opened the door to revocable trusts. If we end up using POAs without trusts I'll certainly use Fidelity's POA form, with my wife as agent. One of my concerns is that the Fidelity form doesn't have a provision for a successor agent. So if my wife and I were to simultaneously become incapacitated our DPOA successor would have to use the attorney-prepared POA to act on our behalf.

Our attorney contacted Fidelity about this specific issue. Fidelity responded that successors can be added by using an attorney-prepared POA if they are submitted with an Affidavit and Indemnification by the attorney-in-fact. The attorney has pointed out some language in that form that allows Fidelity to restrict or suspend the agent's ability to remove money from the accounts. When questioned, Fidelity says that language is there in case of conflict between the account owner and the agent. The attorney wasn't concerned about it, but did want to point it out.
bsteiner wrote: Sat Aug 13, 2022 2:25 pm If you're providing for your nieces outright, it doesn't make sense to leave their shares of the Roth IRA to a trust that pays out to them outright. Nor does it make sense to pool the different assets when you want them to get Roth assets. Just name them as the beneficiaries of the desired portion of your Roth IRAs. As you pointed out, their percentage need not be exact. If you want it to be exact, you could round down slightly on the beneficiary designation form, and then bequeath to each of them the amount, if any, by which 7% exceeds the value of what she receives from the Roth IRA.

You'll also want to earmark the traditional IRAs for the charities (name them on the beneficiary designation form) since they'll receive them free of income tax. If you run their shares through a trust the drafting to make sure they receive the traditional IRAs free of income tax will be more complicated.
Yes, that was my thought as well and I think the attorney is now okay with that plan. As I mentioned, the Fidelity DAF will receive the balance of all retirement accounts, with charities named as successors to percentages of that account. Does anyone have any comments on this arrangement vs. directly naming specific charities as contingent beneficiaries on the accounts?
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

HomeStretch wrote: Sat Aug 13, 2022 5:12 pm If you decide to fund each individual RLT, how will you handle any real estate you own if held jointly? Will you continue to hold it jointly with right of survivorship outside of the trusts or will you change the title, if possible, to allow each of you to hold your 1/2 into your respective RLT? Or put the whole house into just one of the trusts with you both as co-trustees?

How will you handle owned vehicles, if any?
You've nailed some of the issues I've been thinking about. While it's relatively easy to split a brokerage account, a house isn't so simple. The answer right now is "I don't know".
HomeStretch wrote: Sat Aug 13, 2022 5:12 pm Btw attorney-drafted DPOAs are not accepted by SS, Medicare, IRS and likely your state taxing authority, if applicable. Each agency has its own process to name an authorized rep (and it’s not necessarily quick or easy). So consider this as part of your estate planning.
Thanks for mentioning this. I have a little knowledge of the SS "representative payee" process. I considered it during the last few years of my mother's life but it seemed like a huge hassle so I decided to wait until I was forced to use it. That never happened.

I'll disagree about the IRS and state tax authorities. Our Tax-Aide sites have filed plenty of returns, both Federal and state, using attorney-prepared POAs. I realize that the IRS has its own Form 2848, but that is an alternative to an attorney-prepared POA.
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

Lee_WSP wrote: Sat Aug 13, 2022 5:42 pm Do you want to leave the nieces a percentage of the account or a flat dollar amount?
It's actually a rough percentage of our net worth. But I'm translating that into a percentage of our largest Roth account, adjusting the percentage every so often to reflect changes in both net worth and the value of that particular Roth. It sounds a little cumbersome but it's very easy to do at Fidelity.
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Re: Is this estate plan reasonable?

Post by bsteiner »

marcopolo wrote: Sat Aug 13, 2022 11:24 pm
Lee_WSP wrote: Sat Aug 13, 2022 11:08 pm
HomeStretch wrote: Sat Aug 13, 2022 10:09 pm
Lee_WSP wrote: Sat Aug 13, 2022 9:58 pm
HomeStretch wrote: Sat Aug 13, 2022 9:51 pm
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
It's an option. It's just almost universally a bad choice.
Would you mind explaining why that is so?
There's no benefit, unless you subscribe to the unproven theory that you can achieve a stepped up basis, and a lot of pitfalls. It also needlessly complicates the plan.
My understanding is that a joint RLT gets the same step-up treatment as a jointly owned account, since it is essentially a see through instrument (not sure if that is the right terminology). So, in a non-community property state, 50% step-up at death of first spouse, then 100% at death of second spouse. Is that not the case?

I have seen some older articles concerned about maximizing estate exemption. But, I think with portability, that concern can also be removed, although, as you say, it does add some complexity in having to file for portability in a limited time.

Any light you could shed on other needless complexity?

Thanks again for your willingness to share your expertise.
You can, but it would be unusual. Since it's unusual, there's a greater chance that it won't work as intended.

There was some discussion of them in the 1990s as a way to use the same assets to fund the credit shelter trust regardless of which spouse died. That was a concern when the exclusion amount was much lower, and often there weren’t enough nonretirement assets available to give each spouse nonretirement assets equal to the exclusion amount.

There were a few favorable private letter rulings on this (as to being able to use the same assets to fund the credit shelter trust regardless of which spouse died first, not as to the basis): PLRs 200210051 and 200101021, and TAM 9308002. However, after the Tax Court decision in Estate of Kwang Lee, https://scholar.google.com/scholar_case ... s_sdt=3,31, the IRS is no longer issuing rulings on this.

The articles in favor were:

Paul M. Fletcher, “Drafting Revocable Trusts to Facilitate a Stepped-Up Basis,” 22 Estate Planning 100 (1995).
Paul M. Fletcher, “A Practitioner’s View of Tax Basis Revocable Trusts,” Trusts & Estates, Jan. 1995 at 31.
Richard A. Williams, “The Benefits and Pitfalls of Joint Revocable Trusts,” Trusts & Estates, Nov. 1992 at 41.

And the articles taking the opposite position were:

Michael Mulligan, “Income, Estate and Gift Tax Effects of Spousal Joint Trusts,” 22 Estate Planning 195 (1995).
Nancy E. Shurtz, “An Academic’s View of Tax Basis Revocable Trusts,” Trusts & Estates, Jan. 1995 at 43.
Roy M. Adams and Thomas W. Abendroth, “The Joint Trust: Are You Saving Anything Other Than Paper,” Trusts & Estates, Aug. 1992 at 39.

With the current level of the estate tax exclusion amount and portability, this is rarely an issue now.

Paul Fletcher also thought that that a joint revocable trust in a common law state might provide for a full basis step-up at the first spouse’s death. However, in the rulings, the IRS disagreed as to that point.
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Lee_WSP
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

marcopolo wrote: Sat Aug 13, 2022 11:24 pm
Lee_WSP wrote: Sat Aug 13, 2022 11:08 pm
HomeStretch wrote: Sat Aug 13, 2022 10:09 pm
Lee_WSP wrote: Sat Aug 13, 2022 9:58 pm
HomeStretch wrote: Sat Aug 13, 2022 9:51 pm
Very interesting - I had always believed (which sounds like erroneously) that a joint RLT was not an option in a non-community property state.
It's an option. It's just almost universally a bad choice.
Would you mind explaining why that is so?
There's no benefit, unless you subscribe to the unproven theory that you can achieve a stepped up basis, and a lot of pitfalls. It also needlessly complicates the plan.
My understanding is that a joint RLT gets the same step-up treatment as a jointly owned account, since it is essentially a see through instrument (not sure if that is the right terminology). So, in a non-community property state, 50% step-up at death of first spouse, then 100% at death of second spouse. Is that not the case?

I have seen some older articles concerned about maximizing estate exemption. But, I think with portability, that concern can also be removed, although, as you say, it does add some complexity in having to file for portability in a limited time.

Any light you could shed on other needless complexity?

Thanks again for your willingness to share your expertise.
There's a small subset of theorists and possibly practitioners who believe you can create a general power of attorney in the first decedent over the separate property of the survivor which then confers a step up in basis. I'll believe it when I see it blessed, until then, I don't believe it.

As for the rest, if it doesn't have a benefit, why add the cost and complexity? That's my opinion anyway.
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
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Re: Is this estate plan reasonable?

Post by HomeStretch »

I personally have an instinctual aversion to transferring joint assets into one spouse’s RLT. But I’m not sure whether my concern is valid or not.

If you put all assets into one spouse’s RLT with both spouses as co-trustees (edit - and with a name successor trustee), it seems like managing the trust assets while both are healthy or if one/both is/are incapacitated may be okay. But what if:
1) there is a divorce?
2) there is a legal judgment or claim against the spouse whose RLT contains all the assets?

What happens if the spouse whose RLT contains all the joint assets dies first? If an the RLT at the grantor’s death converts into an irrevocable trust, is the surviving spouse okay with not having free access to their assets if left in trust or for a period of time (if the irrevocable trust is structured to immediately disburse all assets to the spouse)?

If the other spouse (i.e., the spouse with the unfunded RLT) does first, does the surviving spouse lose out on any step-up in basis for tax purposes or portability for estate tax purposes?
Last edited by HomeStretch on Tue Aug 16, 2022 2:37 pm, edited 1 time in total.
Iorek
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Re: Is this estate plan reasonable?

Post by Iorek »

A number of states have statutory power of attorney, meaning if you use the statutory POA private companies (though not the feds, eg TSP) have to accept it (or risk civil penalties etc).
marcopolo
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Re: Is this estate plan reasonable?

Post by marcopolo »

HomeStretch wrote: Tue Aug 16, 2022 6:09 am I personally have an instinctual aversion to transferring joint assets into one spouse’s RLT. But I’m not sure whether my concern is valid or not.

If you put all assets into one spouse’s RLT with both spouses as co-trustees, it seems like managing the trust assets while both are healthy or if one/both is/are incapacitated may be okay. But what if:
1) there is a divorce?
2) there is a legal judgment or claim against the spouse whose RLT contains all the assets?

What happens if the spouse whose RLT contains all the joint assets dies first? If an the RLT at the grantor’s death converts into an irrevocable trust, is the surviving spouse okay with not having free access to their assets if left in trust or for a period of time (if the irrevocable trust is structured to immediately disburse all assets to the spouse)?

If the other spouse (i.e., the spouse with the unfunded RLT) does first, does the surviving spouse lose out on any step-up in basis for tax purposes or portability for estate tax purposes?
I agree with your concerns.
This seems like it would create more problem than it solves.
Once in a while you get shown the light, in the strangest of places if you look at it right.
skeptical
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Re: Is this estate plan reasonable?

Post by skeptical »

Chip wrote: Tue Aug 16, 2022 4:44 am I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.

One other point: this issue is the primary reason I am leaving Vanguard (or trying to, it is not as easy as you would think) as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

Chip wrote: Tue Aug 16, 2022 4:44 am I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
It's an interesting set of facts. I'm not entirely sure how I'd approach it myself. It's really easy to solve in a community property state.

So, you have one or two major pieces of not easily divisible property you want to put in trust that you own together? I'm not sure I'll be able to offer any suggestions, but I can probably help point you in the right direction with regards to questions you should ask.

As far as a joint bank account goes, I think keeping that out of trust for ease of use is usually the best solution, just stay under a certain threshold. You can take care of that via TOD designations and/or accept that a simultaneous death is so unlikely that it should not be the primary concern.
fourwheelcycle
Posts: 1968
Joined: Sun May 25, 2014 5:55 pm

Re: Is this estate plan reasonable?

Post by fourwheelcycle »

skeptical wrote: Tue Aug 16, 2022 5:26 pm One other point: this issue is the primary reason I am leaving Vanguard ... as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
What problems at Vanguard are you referencing? Can you give some examples? My wife and I now have a joint revocable trust at Vanguard. Before that, for ten years, we had individual revocable trusts at Vanguard, with no problems.

When I retired I wanted to simplify our finances, for myself now, for my wife if I die or get Alzheimer's, and for our successor trustee son when we die, or if he has to help manage our finances before we die. We had no problems with Vanguard when we asked them to combine the assets in our IRTs to our JRT.
Luckywon
Posts: 2406
Joined: Tue Mar 28, 2017 10:33 am

Re: Is this estate plan reasonable?

Post by Luckywon »

Chip wrote: Sat Aug 13, 2022 1:29 pm The primary concern for us is setting up things as best we can to where a trusted friend can step in to manage our affairs if we become incapable of doing so; with a minimum of hassle for the friend. While we could set this up using durable powers of attorney (DPOAs), we are concerned about the many stories of financial institutions refusing to honor attorney-prepared DPOAs. While we can (and will) fill out Fidelity’s own DPOA, it doesn’t allow for successor agents. Note that we are less concerned about disposition of our assets after our deaths than we are about making it easier to manage our affairs while we are alive.

The attorney has suggested a revocable living trust for each of us, splitting our joint taxable assets between the trusts. Each trust would become irrevocable upon death. The law firm first suggested making the irrevocable trusts the contingent beneficiary of the retirement accounts, which would then be distributed by the trustee to the nieces (over 10 years) and charities.
Since the RLT(s) will only hold your taxable assets, it seems if you are both incapacitated (or a survivor is incapacitated) that there will be two buckets of money controlled by at least two agents who may or may not be the same person, i.e. the trustees of your RLT(s) and the attorneys-in-fact for your retirement accounts. I am curious how you envision managing this. Do you have a preference for how your taxable/retirement assets would be used? How will you bring those preferences to bear? Do you hope to have the trustees and AIF be the same person? How will you assure that, or facilitate co-ordination if they end up being different people? Asking because I have considered the same issues in our planning.
skeptical
Posts: 526
Joined: Fri Jul 18, 2014 12:24 pm

Re: Is this estate plan reasonable?

Post by skeptical »

fourwheelcycle wrote: Tue Aug 16, 2022 5:59 pm
skeptical wrote: Tue Aug 16, 2022 5:26 pm One other point: this issue is the primary reason I am leaving Vanguard ... as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
What problems at Vanguard are you referencing? Can you give some examples? My wife and I now have a joint revocable trust at Vanguard. Before that, for ten years, we had individual revocable trusts at Vanguard, with no problems.

When I retired I wanted to simplify our finances, for myself now, for my wife if I die or get Alzheimer's, and for our successor trustee son when we die, or if he has to help manage our finances before we die. We had no problems with Vanguard when we asked them to combine the assets in our IRTs to our JRT.
I am used to managing all of our assets as one, in a joint account. Buy/sell, TLH, rebalancing, etc is easy in one account. Does not seem to be easy across two accounts (specifically trust accounts, with each of us as co trustees of each others trusts) with Vanguard.

Vanguard acknowledges that their platform has a problem with the moving of assets between these two trusts (you cannot do this online), even though there are no legal reasons why this cannot happen. They say that asset transfers can be accomplished by calling them up and doing it over the phone, but there have been reports on this forum that this may not be as easy as Vanguard says it is. Also, when I asked Vanguard how do I do complex transactions that involve selecting specific lots to be moved and/or exchanged with other funds across trusts, they said I can "do it over the phone", but my experience is that I fiddle around with the lot selection tools to get exactly what I want done, for example, in rebalancing. Doing this "over the phone" seems problematic, though they did say I can use the lot selection tools to get a list of the lots, and then read them off over the phone. Does not give me the warm and fuzzies. Additionally, I do not know what will happen when doing a bunch of ETF buy/sell across the trusts. For example, can I sell in one trust account and get the "credit" to buy in the other, or do I have to wait for it to clear ? They were not able to directly answer that question.

Can I work around all of this ? Probably, however and supposedly, Schwab and Fidelity support all of this directly online, at least that is what they have said. I have moved some assets to each of them, and will test to see if this works.

Once I started going down this path (moving brokerages), it then made all the other irritations I have with Vanguard more visible:
- Vanguard has no online support. I was able to get immediate chat support with both Fidelity and Schwab, even over a weekend. And it was better and more knowledgeable support than my "premier" support I get normally from Vanguard, even over the weekend.
- I can call my contact at Fidelity/Schwab directly and/or send email and get real or almost real time support, not so with Vanguard, which prefers you make an appointment to speak with your advisor who will then invariably need to find someone else to actually help me with my issue. Yes, you can call, but I have never been able to get to my contact, just someone else in the office. I have found that my contact at Fidelity and Schwab are far more knowledgeable than any of the 6-7 "premier contacts" I have had with Vanguard over the past several years.
- Fidelity/Schwab have local offices, which will become more important as we get older and our kids get more involved. I like having a person I can speak to face to face, or more importantly, have my wife or kids speak to someone face to face when my time comes. This may not be important to you.
- I am able to borrow against my assets with Fidelity/Schwab, not possible with Vanguard. This could become very important for me if/when we buy a new house. I can bypass a mortgage or having to sell a lot of assets, instead I can get a bridge loan at a reasonable rate until the old house is sold. Once you are retired, getting a mortgage is more difficult.
- Vanguard's trust department seems to be very rigid, while Fidelity/Schwab is far more flexible in mixing and matching services when it comes to asset management, trustees, etc. I probably will not use the brokerage as a trustee or asset manager, but I would like to have that option.
- I was pretty spooked about the security surrounding ACATS. Most people do not seem to think it is a big deal, but the ability for someone to create an account at another brokerage and pull all your assets out through this backdoor without even being asked/warned is troublesome to me. Fidelity has the ability to lock your account, neither Schwab or Vanguard offer this. I do not know how well this works, but I will be testing it at some point before I make a decision which brokerage to use.

So, I do not see any reason to stay with Vanguard, as other brokerages seem to have advantages, except one: I cannot find a good replacement for VWIUX (Vanguard Intermediate Muni), whihc is a major holding of mine, and I cannot move this to Fidelity.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Is this estate plan reasonable?

Post by marcopolo »

skeptical wrote: Tue Aug 16, 2022 5:26 pm
Chip wrote: Tue Aug 16, 2022 4:44 am I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.

One other point: this issue is the primary reason I am leaving Vanguard (or trying to, it is not as easy as you would think) as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
I have to admit the discussion in this thread has me a little concerned that i am missing something fundamental here.

We have had estate plans put together in two different states, one about 10 years ago, the latest one about 2 years ago.
In both cases we used law firms that specialized in estate planning and were well respected in the area.

In both cases, they explained option of doing testamentary trusts, separate individual RLT, and joint RLT.
Given our situation of only owning joint assets and IRAs, and our desire to avoid probate for various reasons, both firms recommended joint RLTs to make management simpler while we are alive.

Neither raised any concerns about this being a non-standard approach requiring drafting from scratch.
Neither raised any concerns about certain aspects being unknown or unproven, and maybe even not working.

Several posters in this thread, including some that seem to be experts in this area, have alluded to some unproven aspects. To be honest, it is not clear to me what specific aspects raise this concern. So far the conversation seem to have raised just vague notions of things possibly not working.

Can you or, anyone else knowledgeable in this area, state what the specific concerns are regarding Joint RLT that might not work, particularly in cases of all jointly owned assets?

My understanding is that while we are alive the trust is transparent vehicle, and assets are simply treated as if they were in a joint account, with the both of us as co-trustees. At the death of the first spouse, the survivor gets 50% step-up, and become the sole trustee of the RLT. At their death, the beneficiaries of the trust get 100% step-up, and the appointed trustees take over the role of trustees without any of the assets having to go through probate. Full estate exemption can be achieved using portability. Are any of those things at risk of not working by using a Joint RLT?
Once in a while you get shown the light, in the strangest of places if you look at it right.
skeptical
Posts: 526
Joined: Fri Jul 18, 2014 12:24 pm

Re: Is this estate plan reasonable?

Post by skeptical »

fourwheelcycle wrote: Tue Aug 16, 2022 5:59 pm
skeptical wrote: Tue Aug 16, 2022 5:26 pm One other point: this issue is the primary reason I am leaving Vanguard ... as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
What problems at Vanguard are you referencing? Can you give some examples? My wife and I now have a joint revocable trust at Vanguard. Before that, for ten years, we had individual revocable trusts at Vanguard, with no problems.

When I retired I wanted to simplify our finances, for myself now, for my wife if I die or get Alzheimer's, and for our successor trustee son when we die, or if he has to help manage our finances before we die. We had no problems with Vanguard when we asked them to combine the assets in our IRTs to our JRT.
Specifically, they do not allow the transfer of assets between two trusts online,you need to call them to make that happen. I found this out through one of the discussions here, and I called Vanguard, and they verified that their platform does not support this, due to "naming conventions".

When you had your individual trusts, were you able to move assets between them ? Were you able to re-balance between them ? My Vanguard advisor said that this could be done, but would have to be done through a phone call, not online. For combining two trusts, I assume you called in to ask for that.

It may not sound like a huge issue, but I have also seen discussions here that it was not that easy even with a phone call. And for me, this was the final straw after becoming more and more frustrated with the level of service Vanguard has been providing - access to support, extra services like borrowing against assets, and getting a new advisor 1-2 a year. In fact, for my second to last advisor, when I called in to ask some questions, she said that she "assigned to me in error", but did not know who should be assigned to me. So, I was without an advisor for about a month.

All of this was workable when all I did was re-balance every year or two and did not need anything from Vanguard. But I am at the stage of my life where financial management is more than simply selecting an AA and rebalancing once a year. I am needing more strategic services and support, and want to make sure that if I am not able, there is appropriate support and services from the brokerage, and I am concerned that Vanguard will continue to slip from a service perspective as time goes on.

In any case, why not go to a place like Fidelity or Schwab which are as good as Vanguard as a basic brokerage but also have clearly better support ?
skeptical
Posts: 526
Joined: Fri Jul 18, 2014 12:24 pm

Re: Is this estate plan reasonable?

Post by skeptical »

marcopolo wrote: Tue Aug 16, 2022 7:50 pm
skeptical wrote: Tue Aug 16, 2022 5:26 pm
Chip wrote: Tue Aug 16, 2022 4:44 am I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.

One other point: this issue is the primary reason I am leaving Vanguard (or trying to, it is not as easy as you would think) as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
I have to admit the discussion in this thread has me a little concerned that i am missing something fundamental here.

We have had estate plans put together in two different states, one about 10 years ago, the latest one about 2 years ago.
In both cases we used law firms that specialized in estate planning and were well respected in the area.

In both cases, they explained option of doing testamentary trusts, separate individual RLT, and joint RLT.
Given our situation of only owning joint assets and IRAs, and our desire to avoid probate for various reasons, both firms recommended joint RLTs to make management simpler while we are alive.

Neither raised any concerns about this being a non-standard approach requiring drafting from scratch.
Neither raised any concerns about certain aspects being unknown or unproven, and maybe even not working.

Several posters in this thread, including some that seem to be experts in this area, have alluded to some unproven aspects. To be honest, it is not clear to me what specific aspects raise this concern. So far the conversation seem to have raised just vague notions of things possibly not working.

Can you or, anyone else knowledgeable in this area, state what the specific concerns are regarding Joint RLT that might not work, particularly in cases of all jointly owned assets?

My understanding is that while we are alive the trust is transparent vehicle, and assets are simply treated as if they were in a joint account, with the both of us as co-trustees. At the death of the first spouse, the survivor gets 50% step-up, and become the sole trustee of the RLT. At their death, the beneficiaries of the trust get 100% step-up, and the appointed trustees take over the role of trustees without any of the assets having to go through probate. Full estate exemption can be achieved using portability. Are any of those things at risk of not working by using a Joint RLT?
One specific piece of feedback I got from two lawyers was that if I wanted to utilize the state estate tax exemption properly, I would need to have two trusts. I was told that you need to have those assets you want for the exemption to be in your name (and only your name) when you pass away, unlike creating the marital and survivor trust, which can be done after passing. The third lawyer just said that it is not recommended and they will not do this. Feedback from a number of respected people on this forum also concur - that this is just not the way to do it in a common law state.

Other feedback was that with the joint trust there could be complications on how it was funded (the source of the funding) if you want to take full advantage of step ups. I did not really understand this, and may have mis interpreted, but what was clear was that using one joint trust is not recommended.

I have been really amazed that using a joint trust is not viable in a common law state (especially one with non-portable estate tax exemptions), but the practical reality is that the standard practice is two trusts, that the law firms have tried and true paperwork for this, and that the case law is established, at least in MA. I did find one, but it was too far away. And you are not going to get a law firm to write a new estate plan from scratch, nor would I want to.

I spent quite a bit of time/energy pushing on this, but have come to accept the fact that I will have a more complex asset structure in order to accommodate the two trust solution.
marcopolo
Posts: 8445
Joined: Sat Dec 03, 2016 9:22 am

Re: Is this estate plan reasonable?

Post by marcopolo »

skeptical wrote: Tue Aug 16, 2022 10:27 pm
marcopolo wrote: Tue Aug 16, 2022 7:50 pm
skeptical wrote: Tue Aug 16, 2022 5:26 pm
Chip wrote: Tue Aug 16, 2022 4:44 am I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.

One other point: this issue is the primary reason I am leaving Vanguard (or trying to, it is not as easy as you would think) as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
I have to admit the discussion in this thread has me a little concerned that i am missing something fundamental here.

We have had estate plans put together in two different states, one about 10 years ago, the latest one about 2 years ago.
In both cases we used law firms that specialized in estate planning and were well respected in the area.

In both cases, they explained option of doing testamentary trusts, separate individual RLT, and joint RLT.
Given our situation of only owning joint assets and IRAs, and our desire to avoid probate for various reasons, both firms recommended joint RLTs to make management simpler while we are alive.

Neither raised any concerns about this being a non-standard approach requiring drafting from scratch.
Neither raised any concerns about certain aspects being unknown or unproven, and maybe even not working.

Several posters in this thread, including some that seem to be experts in this area, have alluded to some unproven aspects. To be honest, it is not clear to me what specific aspects raise this concern. So far the conversation seem to have raised just vague notions of things possibly not working.

Can you or, anyone else knowledgeable in this area, state what the specific concerns are regarding Joint RLT that might not work, particularly in cases of all jointly owned assets?

My understanding is that while we are alive the trust is transparent vehicle, and assets are simply treated as if they were in a joint account, with the both of us as co-trustees. At the death of the first spouse, the survivor gets 50% step-up, and become the sole trustee of the RLT. At their death, the beneficiaries of the trust get 100% step-up, and the appointed trustees take over the role of trustees without any of the assets having to go through probate. Full estate exemption can be achieved using portability. Are any of those things at risk of not working by using a Joint RLT?
One specific piece of feedback I got from two lawyers was that if I wanted to utilize the state estate tax exemption properly, I would need to have two trusts. I was told that you need to have those assets you want for the exemption to be in your name (and only your name) when you pass away, unlike creating the marital and survivor trust, which can be done after passing. The third lawyer just said that it is not recommended and they will not do this. Feedback from a number of respected people on this forum also concur - that this is just not the way to do it in a common law state.

Other feedback was that with the joint trust there could be complications on how it was funded (the source of the funding) if you want to take full advantage of step ups. I did not really understand this, and may have mis interpreted, but what was clear was that using one joint trust is not recommended.

I have been really amazed that using a joint trust is not viable in a common law state (especially one with non-portable estate tax exemptions), but the practical reality is that the standard practice is two trusts, that the law firms have tried and true paperwork for this, and that the case law is established, at least in MA. I did find one, but it was too far away. And you are not going to get a law firm to write a new estate plan from scratch, nor would I want to.

I spent quite a bit of time/energy pushing on this, but have come to accept the fact that I will have a more complex asset structure in order to accommodate the two trust solution.
I wonder if this is state specific.
Our state has portability very similar to federal.
I think that addresses your first paragraph.

I can see if there are separate assets, how funding and step-up could be an issue. But for a long-term married couple with only joint assets, my understanding is that we would be funding it jointly and would get step-up just like a joint account.

The rest are the same vague concerns i have heard from several knowledgeable sources. But, like i said, our attorney never raised any concern.
I am trying to figure out if there is some specific issues i need to be concerned about, even to the point of possibly re-doing the estate plan, possibly with another law firm, if that would be prudent. But, to be honest, with these vague "its just not recommended" warnings, i am not even sure what question to ask here, or more importantly, with our attorney or another firm i might consider. If these warnings came from less credible sources, I might have just written them off as the typical fear, uncertainty, and doubt that is very common here on many topics. But, given the source of some of these concerns, i am taking them very seriously.

I am hoping someone will state in a more clear way what the specific concerns are that should be addressed.
Once in a while you get shown the light, in the strangest of places if you look at it right.
skeptical
Posts: 526
Joined: Fri Jul 18, 2014 12:24 pm

Re: Is this estate plan reasonable?

Post by skeptical »

marcopolo wrote: Tue Aug 16, 2022 10:46 pm
skeptical wrote: Tue Aug 16, 2022 10:27 pm
marcopolo wrote: Tue Aug 16, 2022 7:50 pm
skeptical wrote: Tue Aug 16, 2022 5:26 pm
Chip wrote: Tue Aug 16, 2022 4:44 am I raised some of my concerns about the proposed plan with the attorney. Specifically the complexity created by splitting assets into the two individual trusts. I asked about a joint revocable trust as well and noted that I believed there was very little chance that we'd be subject to estate taxes.

The response was that a joint RLT can also create some administrative & tax complexities (not just estate taxes). The tax complexities weren't described, but one example of an admin complication was difficulty in amending or revoking the trust after one spouse dies.

The suggested solution is to make us both co-trustees of each trust (with the trusted friend as successor) and put all the joint financial assets in one trust or the other. I believe that the idea is that for day to day financial management it will function as a joint trust. I guess the other trust will be an empty shell.

Any comments on this proposal?
I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.

One other point: this issue is the primary reason I am leaving Vanguard (or trying to, it is not as easy as you would think) as their support for multiple trusts is inferior to other brokerages, and I have a number of concerns that staying with Vanguard will make managing the two trusts more difficult than it should be.
I have to admit the discussion in this thread has me a little concerned that i am missing something fundamental here.

We have had estate plans put together in two different states, one about 10 years ago, the latest one about 2 years ago.
In both cases we used law firms that specialized in estate planning and were well respected in the area.

In both cases, they explained option of doing testamentary trusts, separate individual RLT, and joint RLT.
Given our situation of only owning joint assets and IRAs, and our desire to avoid probate for various reasons, both firms recommended joint RLTs to make management simpler while we are alive.

Neither raised any concerns about this being a non-standard approach requiring drafting from scratch.
Neither raised any concerns about certain aspects being unknown or unproven, and maybe even not working.

Several posters in this thread, including some that seem to be experts in this area, have alluded to some unproven aspects. To be honest, it is not clear to me what specific aspects raise this concern. So far the conversation seem to have raised just vague notions of things possibly not working.

Can you or, anyone else knowledgeable in this area, state what the specific concerns are regarding Joint RLT that might not work, particularly in cases of all jointly owned assets?

My understanding is that while we are alive the trust is transparent vehicle, and assets are simply treated as if they were in a joint account, with the both of us as co-trustees. At the death of the first spouse, the survivor gets 50% step-up, and become the sole trustee of the RLT. At their death, the beneficiaries of the trust get 100% step-up, and the appointed trustees take over the role of trustees without any of the assets having to go through probate. Full estate exemption can be achieved using portability. Are any of those things at risk of not working by using a Joint RLT?
One specific piece of feedback I got from two lawyers was that if I wanted to utilize the state estate tax exemption properly, I would need to have two trusts. I was told that you need to have those assets you want for the exemption to be in your name (and only your name) when you pass away, unlike creating the marital and survivor trust, which can be done after passing. The third lawyer just said that it is not recommended and they will not do this. Feedback from a number of respected people on this forum also concur - that this is just not the way to do it in a common law state.

Other feedback was that with the joint trust there could be complications on how it was funded (the source of the funding) if you want to take full advantage of step ups. I did not really understand this, and may have mis interpreted, but what was clear was that using one joint trust is not recommended.

I have been really amazed that using a joint trust is not viable in a common law state (especially one with non-portable estate tax exemptions), but the practical reality is that the standard practice is two trusts, that the law firms have tried and true paperwork for this, and that the case law is established, at least in MA. I did find one, but it was too far away. And you are not going to get a law firm to write a new estate plan from scratch, nor would I want to.

I spent quite a bit of time/energy pushing on this, but have come to accept the fact that I will have a more complex asset structure in order to accommodate the two trust solution.
I wonder if this is state specific.
Our state has portability very similar to federal.
I think that addresses your first paragraph.

I can see if there are separate assets, how funding and step-up could be an issue. But for a long-term married couple with only joint assets, my understanding is that we would be funding it jointly and would get step-up just like a joint account.

The rest are the same vague concerns i have heard from several knowledgeable sources. But, like i said, our attorney never raised any concern.
I am trying to figure out if there is some specific issues i need to be concerned about, even to the point of possibly re-doing the estate plan, possibly with another law firm, if that would be prudent. But, to be honest, with these vague "its just not recommended" warnings, i am not even sure what question to ask here, or more importantly, with our attorney or another firm i might consider. If these warnings came from less credible sources, I might have just written them off as the typical fear, uncertainty, and doubt that is very common here on many topics. But, given the source of some of these concerns, i am taking them very seriously.

I am hoping someone will state in a more clear way what the specific concerns are that should be addressed.
If you search for "joint trusts in common law states" you get a lot of info. Most of it goes over my head, but the sense is that this is at best, controversial. Some lawyers feel that it is an appropriate way to go, but they seem to be in a small minority, at least in my neck of the woods. Unless you can find a lawyer that feels comfortable with and has experience (not just writing but also successfully executing) in doing joint trusts in a common law state, it seems risky. It seems that one danger is the IRS concluding that the funding of the joint trust results in "gifting".

For me, since I am not knowledgeable enough to make a decision based on purely legal principals, I decided to go with the "tried and true" path that "everyone" uses, even though it makes my life more complicated. Too many things can go wrong with estates when they are being resolved, I don't want to add this uncertainty.

https://www.flprobatelitigation.com/wp- ... States.pdf
In common law states it has generally been agreed that the uncertainty of the gift tax
consequences and the probability of adverse estate tax consequences militated against a joint trust
in all but the most modest of estates.

https://shaftellaw.com/article15.html
In PLR 200101021, the IRS reiterated its position that the use of such trusts in common law states will not provide for full an adjusted basis at the death of the first spouse. The Service reasoned that upon the death of the first spouse, the surviving spouse will make a completed gift of such spouse's entire interest in the trust. Section 1014(e) will apply to prevent the step-up basis for any trust property that is attributable to the surviving spouse's contribution to the trust and that is acquired by the surviving spouse, either directly or indirectly. Therefore, the Service concluded that this approach will not provide an adjusted basis of all the couple's property at the death of the first spouse. Interestingly, the Service also held that property passing to the credit shelter trust is treated as passing from the deceased spouse and not from the surviving spouse.

http://www.naepcjournal.org/journal/issue15j.pdf
The use of joint revocable trusts in a separate property state has been a controversial subject for
over two decades. What most commentators agree upon, even those critical of their use, is that
the joint trust can be an effective planning tool if used under appropriate circumstances and drafted properly.

https://info.wealthcounsel.com/blog/joi ... ed-couples
Deciding between joint and separate trusts for married couples has been a conundrum within the estate planning community for a long time. While many attorneys swear by one trust over the other, there are many factors—such as, the state in which the couple resides, the total of their marital estate, and the couple’s relationship itself—that contribute to the decision of which trust is more suitable.

https://www.harrisonheld.com/wp-content ... -Joint.pdf
fourwheelcycle
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Re: Is this estate plan reasonable?

Post by fourwheelcycle »

skeptical wrote: Wed Aug 17, 2022 5:37 am https://shaftellaw.com/article15.html
In PLR 200101021, the IRS reiterated its position that the use of such trusts in common law states will not provide for full an adjusted basis at the death of the first spouse.
This article says "The income tax goal of such trusts has been to try to obtain an adjusted basis of all of a couple's property at the death of the first spouse to die." My wife and I are not trying to get a step-up for 100% of the assets in our JRT when the first of us dies. We would be happy to get a step-up for 50% of the assets.

I have talked to Vanguard's "transition" team. They have told me when the first of us dies the survivor can submit a copy of the death certificate and Vanguard will step-up half the assets in our joint trust brokerage account. Vanguard has a copy of our trust, which states either trustee can withdraw all or part of the assets from the trust at any time, but my guess is that Vanguard's willingness to step-up half the assets when the first spouse dies is also (primarily?) based on the joint tenancy with right of survivorship status of Vanguard's joint accounts, i.e., that each owner has full, undivided ownership of all the holdings and can withdraw all or part of them at any time.
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Re: Is this estate plan reasonable?

Post by bsteiner »

skeptical wrote: Tue Aug 16, 2022 10:27 pm ...
One specific piece of feedback I got from two lawyers was that if I wanted to utilize the state estate tax exemption properly, I would need to have two trusts. I was told that you need to have those assets you want for the exemption to be in your name (and only your name) when you pass away, unlike creating the marital and survivor trust, which can be done after passing. The third lawyer just said that it is not recommended and they will not do this. Feedback from a number of respected people on this forum also concur - that this is just not the way to do it in a common law state.

Other feedback was that with the joint trust there could be complications on how it was funded (the source of the funding) if you want to take full advantage of step ups. I did not really understand this, and may have mis interpreted, but what was clear was that using one joint trust is not recommended.

I have been really amazed that using a joint trust is not viable in a common law state (especially one with non-portable estate tax exemptions), but the practical reality is that the standard practice is two trusts, that the law firms have tried and true paperwork for this, and that the case law is established, at least in MA. I did find one, but it was too far away. And you are not going to get a law firm to write a new estate plan from scratch, nor would I want to.

I spent quite a bit of time/energy pushing on this, but have come to accept the fact that I will have a more complex asset structure in order to accommodate the two trust solution.
You can accomplish the same thing without any revocable trusts. You can put the trust for the Massachusetts exempt amount, and any other trusts (such as a marital (QTIP) trust), in your Will.

Massachusetts adopted the Uniform Probate Code in 2012, which simplified the probate procedures. Perhaps more significant, Massachusetts also adopted the Uniform Trust Code in 2012, which eliminated the requirement for trustees of testamentary trusts (trusts under a Will) to file periodic court accountings.
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Re: Is this estate plan reasonable?

Post by skeptical »

bsteiner wrote: Wed Aug 17, 2022 8:39 am
skeptical wrote: Tue Aug 16, 2022 10:27 pm ...
One specific piece of feedback I got from two lawyers was that if I wanted to utilize the state estate tax exemption properly, I would need to have two trusts. I was told that you need to have those assets you want for the exemption to be in your name (and only your name) when you pass away, unlike creating the marital and survivor trust, which can be done after passing. The third lawyer just said that it is not recommended and they will not do this. Feedback from a number of respected people on this forum also concur - that this is just not the way to do it in a common law state.

Other feedback was that with the joint trust there could be complications on how it was funded (the source of the funding) if you want to take full advantage of step ups. I did not really understand this, and may have mis interpreted, but what was clear was that using one joint trust is not recommended.

I have been really amazed that using a joint trust is not viable in a common law state (especially one with non-portable estate tax exemptions), but the practical reality is that the standard practice is two trusts, that the law firms have tried and true paperwork for this, and that the case law is established, at least in MA. I did find one, but it was too far away. And you are not going to get a law firm to write a new estate plan from scratch, nor would I want to.

I spent quite a bit of time/energy pushing on this, but have come to accept the fact that I will have a more complex asset structure in order to accommodate the two trust solution.
You can accomplish the same thing without any revocable trusts. You can put the trust for the Massachusetts exempt amount, and any other trusts (such as a marital (QTIP) trust), in your Will.

Massachusetts adopted the Uniform Probate Code in 2012, which simplified the probate procedures. Perhaps more significant, Massachusetts also adopted the Uniform Trust Code in 2012, which eliminated the requirement for trustees of testamentary trusts (trusts under a Will) to file periodic court accountings.
I understand that there are other options besides the "standard" two trust setup. However, I am running into a very real world problem of finding someone who is willing to consider anything but the "standard" way of doing things. I have spoken to three different estate lawyers recently, and also two estate lawyers I worked with previously, all five of which propose essentially the same framework, and will not consider either a joint trust, or a will based estate plan, or anything else. One of these lawyers was actually someone I was referred to by someone you referred me to.

All of these lawyers were sourced through different channels (referral by internet, my own internet search, and three referrals from people I know who have relatively high wealth and referred me to their estate lawyer. I have actually gone through the process of retaining three of these lawyers at different times to see what plans they come up with. I have brought up joint trusts and will based plans with the last three (the first two I knew pretty much nothing about estate planning), and all three were absolutely against doing anything besides the standard two trust setup.

I believe a large part of what I am running into is that for a $5k to $10K estate plan, everyone wants to modify their tried and true boilerplate, which I understand. Having someone create something from scratch would be very expensive and far riskier.

I am very open to suggestions that I can realistically implement, especially one that does not require two separate trusts while we are both living, but at some point I need to engage with the lawyers I have access to.
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Re: Is this estate plan reasonable?

Post by skeptical »

fourwheelcycle wrote: Wed Aug 17, 2022 7:11 am
skeptical wrote: Wed Aug 17, 2022 5:37 am https://shaftellaw.com/article15.html
In PLR 200101021, the IRS reiterated its position that the use of such trusts in common law states will not provide for full an adjusted basis at the death of the first spouse.
This article says "The income tax goal of such trusts has been to try to obtain an adjusted basis of all of a couple's property at the death of the first spouse to die." My wife and I are not trying to get a step-up for 100% of the assets in our JRT when the first of us dies. We would be happy to get a step-up for 50% of the assets.

I have talked to Vanguard's "transition" team. They have told me when the first of us dies the survivor can submit a copy of the death certificate and Vanguard will step-up half the assets in our joint trust brokerage account. Vanguard has a copy of our trust, which states either trustee can withdraw all or part of the assets from the trust at any time, but my guess is that Vanguard's willingness to step-up half the assets when the first spouse dies is also (primarily?) based on the joint tenancy with right of survivorship status of Vanguard's joint accounts, i.e., that each owner has full, undivided ownership of all the holdings and can withdraw all or part of them at any time.
Not all these links are arguments against joint trusts, more of a sampling of what I have seen.

I have seen that putting into the trust the ability for either spouse to withdraw all assets without permission of the other mitigates the step up issue, however, there is also the issue being able to best leverage the state estate exemption, which I have been told by several lawyers is problematic with a joint trust as I was told the spouse of passes first needs to own the assets directly, not jointly.

I really do not know how much of this is true/false/convenient, and I personally believe it is possible to use a single joint trust, but I am not a lawyer, and I need to hire one, and as mentioned in another reply, I have gotten the same story from five different lawyers.

At some point, you go with the dog you can actually get.
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Re: Is this estate plan reasonable?

Post by bsteiner »

skeptical wrote: Wed Aug 17, 2022 9:18 am
bsteiner wrote: Wed Aug 17, 2022 8:39 am
skeptical wrote: Tue Aug 16, 2022 10:27 pm ...
One specific piece of feedback I got from two lawyers was that if I wanted to utilize the state estate tax exemption properly, I would need to have two trusts. I was told that you need to have those assets you want for the exemption to be in your name (and only your name) when you pass away, unlike creating the marital and survivor trust, which can be done after passing. The third lawyer just said that it is not recommended and they will not do this. Feedback from a number of respected people on this forum also concur - that this is just not the way to do it in a common law state.

Other feedback was that with the joint trust there could be complications on how it was funded (the source of the funding) if you want to take full advantage of step ups. I did not really understand this, and may have mis interpreted, but what was clear was that using one joint trust is not recommended.

I have been really amazed that using a joint trust is not viable in a common law state (especially one with non-portable estate tax exemptions), but the practical reality is that the standard practice is two trusts, that the law firms have tried and true paperwork for this, and that the case law is established, at least in MA. I did find one, but it was too far away. And you are not going to get a law firm to write a new estate plan from scratch, nor would I want to.

I spent quite a bit of time/energy pushing on this, but have come to accept the fact that I will have a more complex asset structure in order to accommodate the two trust solution.
You can accomplish the same thing without any revocable trusts. You can put the trust for the Massachusetts exempt amount, and any other trusts (such as a marital (QTIP) trust), in your Will.

Massachusetts adopted the Uniform Probate Code in 2012, which simplified the probate procedures. Perhaps more significant, Massachusetts also adopted the Uniform Trust Code in 2012, which eliminated the requirement for trustees of testamentary trusts (trusts under a Will) to file periodic court accountings.
I understand that there are other options besides the "standard" two trust setup. However, I am running into a very real world problem of finding someone who is willing to consider anything but the "standard" way of doing things. I have spoken to three different estate lawyers recently, and also two estate lawyers I worked with previously, all five of which propose essentially the same framework, and will not consider either a joint trust, or a will based estate plan, or anything else. One of these lawyers was actually someone I was referred to by someone you referred me to.

All of these lawyers were sourced through different channels (referral by internet, my own internet search, and three referrals from people I know who have relatively high wealth and referred me to their estate lawyer. I have actually gone through the process of retaining three of these lawyers at different times to see what plans they come up with. I have brought up joint trusts and will based plans with the last three (the first two I knew pretty much nothing about estate planning), and all three were absolutely against doing anything besides the standard two trust setup.

I believe a large part of what I am running into is that for a $5k to $10K estate plan, everyone wants to modify their tried and true boilerplate, which I understand. Having someone create something from scratch would be very expensive and far riskier.

I am very open to suggestions that I can realistically implement, especially one that does not require two separate trusts while we are both living, but at some point I need to engage with the lawyers I have access to.
That's understandable. If they had developed revocable trust forms before Massachusetts adopted the Uniform Probate Code and the Uniform Trust Code in 2012, it's easier for them to continue using them. An ancillary benefit for them is that it may push the cost toward the higher end of the range you mentioned instead of the lower end of the range you mentioned. I wouldn't worry about it. You may recoup some or all of the additional cost post-death. The focus should be on the dispositive provisions rather than on the procedural aspects.
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Re: Is this estate plan reasonable?

Post by fourwheelcycle »

bsteiner wrote: Wed Aug 17, 2022 8:39 am You can accomplish the same thing without any revocable trusts. You can put the trust for the Massachusetts exempt amount, and any other trusts (such as a marital (QTIP) trust), in your Will.
Right. I have read a lot about MA estate planning, although my wife and I live in a state with no estate taxes.

We started out with traditional wills, with testamentary trusts to care for our minor children if we died. At some point our attorney contacted us and recommended two individual revocable trusts to protect each of our federal estate tax exclusions - this was before federal DSUE portability. When I retired we asked our attorney about a joint revocable trust. He said he had developed a model that works in our state, and that is what we have now.

My wife has a very que sera, sera attitude about federal estate taxes, so our JRT gives everything directly to our children. Now we have one child and their family living in MA. I have advised that child they, and their spouse, should go to a qualified estate attorney in MA and get their first estate plan prepared. I have told them to advise their attorney about their situation with our JRT, with the intent we could amend our JRT to coordinate with whatever will or trust setup their attorney advises.
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Re: Is this estate plan reasonable?

Post by bsteiner »

fourwheelcycle wrote: Wed Aug 17, 2022 10:08 am
bsteiner wrote: Wed Aug 17, 2022 8:39 am You can accomplish the same thing without any revocable trusts. You can put the trust for the Massachusetts exempt amount, and any other trusts (such as a marital (QTIP) trust), in your Will.
Right. I have read a lot about MA estate planning, although my wife and I live in a state with no estate taxes.

We started out with traditional wills, with testamentary trusts to care for our minor children if we died. At some point our attorney contacted us and recommended two individual revocable trusts to protect each of our federal estate tax exclusions - this was before federal DSUE portability. When I retired we asked our attorney about a joint revocable trust. He said he had developed a model that works in our state, and that is what we have now.

My wife has a very que sera, sera attitude about federal estate taxes, so our JRT gives everything directly to our children. Now we have one child and their family living in MA. I have advised that child they, and their spouse, should go to a qualified estate attorney in MA and get their first estate plan prepared. I have told them to advise their attorney about their situation with our JRT, with the intent we could amend our JRT to coordinate with whatever will or trust setup their attorney advises.
Before portability, you could protect each spouse's Federal estate tax exclusion amount in the same way either in a Will or in a revocable trust. So that's not a feature of either form.

With portability, of course, even if you don't create a credit shelter (bypass) trust, the surviving spouse will get the benefit of the deceased spouse's unused Federal exclusion amount if the deceased spouse's executors elect portability.

If you provide for the child in Massachusetts in trust rather than outright, in addition to the other benefits of doing so, you'll keep his/her inheritance out of his/her estate for Massachusetts estate tax purposes.

Not just in response to your post, but in general, it would be helpful if posters would tell us what state they're in, since there are some things that apply in particular states. For example, about 1/3 of the states have a state estate or inheritance tax (or both), and Massachusetts and Oregon have a state estate tax with a $1 million exempt amount.

Even the state with the smallest population (Wyoming) has over 500,000 people so telling us what state you're in won't tell us who you are.
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

Most of the pitfalls surrounding a joint trust in a separate property state vs a community property state are going to circle around these issues IMO:

Ownership of the property (joint, separate, tenants in common)
Divorce
No medicaid protection
May be susceptible to creditor claims
There’s a few more, but those are the ones that come to the top of my head.

It’s a lot easier of a plan to draft two wills and beneficiary designations for the joint property (if desired).

On the other end of the complexity spectrum would be two RLT’s and a joint RLT to hold the joint property.

It’s also going to come down to what the attorney is familiar and comfortable with.

Like I always say, everything’s a cost/benefit analysis vs the alternative.
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Re: Is this estate plan reasonable?

Post by marcopolo »

bsteiner wrote: Wed Aug 17, 2022 10:21 am
fourwheelcycle wrote: Wed Aug 17, 2022 10:08 am
bsteiner wrote: Wed Aug 17, 2022 8:39 am You can accomplish the same thing without any revocable trusts. You can put the trust for the Massachusetts exempt amount, and any other trusts (such as a marital (QTIP) trust), in your Will.
Right. I have read a lot about MA estate planning, although my wife and I live in a state with no estate taxes.

We started out with traditional wills, with testamentary trusts to care for our minor children if we died. At some point our attorney contacted us and recommended two individual revocable trusts to protect each of our federal estate tax exclusions - this was before federal DSUE portability. When I retired we asked our attorney about a joint revocable trust. He said he had developed a model that works in our state, and that is what we have now.

My wife has a very que sera, sera attitude about federal estate taxes, so our JRT gives everything directly to our children. Now we have one child and their family living in MA. I have advised that child they, and their spouse, should go to a qualified estate attorney in MA and get their first estate plan prepared. I have told them to advise their attorney about their situation with our JRT, with the intent we could amend our JRT to coordinate with whatever will or trust setup their attorney advises.
Before portability, you could protect each spouse's Federal estate tax exclusion amount in the same way either in a Will or in a revocable trust. So that's not a feature of either form.

With portability, of course, even if you don't create a credit shelter (bypass) trust, the surviving spouse will get the benefit of the deceased spouse's unused Federal exclusion amount if the deceased spouse's executors elect portability.

If you provide for the child in Massachusetts in trust rather than outright, in addition to the other benefits of doing so, you'll keep his/her inheritance out of his/her estate for Massachusetts estate tax purposes.

Not just in response to your post, but in general, it would be helpful if posters would tell us what state they're in, since there are some things that apply in particular states. For example, about 1/3 of the states have a state estate or inheritance tax (or both), and Massachusetts and Oregon have a state estate tax with a $1 million exempt amount.

Even the state with the smallest population (Wyoming) has over 500,000 people so telling us what state you're in won't tell us who you are.
First of all, a huge thanks to you and Lee_WSP for taking the time to share your knowledge here.

We are in Hawaii. Has portability similar amount to federal.
All assets are jointly owned.
We are the same age (55).
No previous marriage.
Two adult children
Current net worth ~$7M

Our attorney discussed testamentary, separate RLT, and Joint RLT options with us, and recommended Joint RLT because it accomplished what we wanted and was simpler to manage.

We do not expect to get 100% step up basis at death of first spouse. 50% is what we expect, which is what I think would also happen with separate RLTs. Then 100% step up at death of second spouse, which i think is a better outcome for beneficiaries. Aside from that we want to avoid probate and keep assets out of children's estates.

Is there any compelling reason to change our estate plan to use separate RLTs?
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Lee_WSP
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

marcopolo wrote: Wed Aug 17, 2022 12:16 pm
All assets are jointly owned.
We are the same age (55).
No previous marriage.
Two adult children
Current net worth ~$7M

Is there any compelling reason to change our estate plan to use separate RLTs?
I cannot say that there are any truly compelling reasons outside of divorce to bulldoze an otherwise perfectly good plan just to create further clarification of some small issues.

It's just going to require a lot of accounting (more accounting than in a community property state) to make sure all the i's and t's are crossed and dotted. In a community property state, all property acquired is presumed to be community and you need to account for separate property. In a separate property state, there is no such thing as community property and all property is separate even if held in a joint/pot/single account.
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Re: Is this estate plan reasonable?

Post by campy2010 »

I’m surprise that a friend close enough to be you dPOA isn’t included as a beneficiary in your estate. To me, it seems a little selfish to use someone’s time for what can be an emotional and difficult task and not provide some sort of token of appreciation for their effort.
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Lee_WSP
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Re: Is this estate plan reasonable?

Post by Lee_WSP »

campy2010 wrote: Wed Aug 17, 2022 12:34 pm I’m surprise that a friend close enough to be you dPOA isn’t included as a beneficiary in your estate. To me, it seems a little selfish to use someone’s time for what can be an emotional and difficult task and not provide some sort of token of appreciation for their effort.
This is one of the things people don’t realize when formulating their estate plans. Being a personal rep or POA is a thankless and low/zero paying job and there’s a good chance everyone’s going to hate you (PR).
marcopolo
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Re: Is this estate plan reasonable?

Post by marcopolo »

Lee_WSP wrote: Wed Aug 17, 2022 12:24 pm
marcopolo wrote: Wed Aug 17, 2022 12:16 pm
All assets are jointly owned.
We are the same age (55).
No previous marriage.
Two adult children
Current net worth ~$7M

Is there any compelling reason to change our estate plan to use separate RLTs?
I cannot say that there are any truly compelling reasons outside of divorce to bulldoze an otherwise perfectly good plan just to create further clarification of some small issues.

It's just going to require a lot of accounting (more accounting than in a community property state) to make sure all the i's and t's are crossed and dotted. In a community property state, all property acquired is presumed to be community and you need to account for separate property. In a separate property state, there is no such thing as community property and all property is separate even if held in a joint/pot/single account.
Thanks. I will keep this thread in mind if the need arises to redo our estate plans in the future.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

Lee_WSP wrote: Tue Aug 16, 2022 5:55 pm It's an interesting set of facts. I'm not entirely sure how I'd approach it myself. It's really easy to solve in a community property state.

So, you have one or two major pieces of not easily divisible property you want to put in trust that you own together? I'm not sure I'll be able to offer any suggestions, but I can probably help point you in the right direction with regards to questions you should ask.

As far as a joint bank account goes, I think keeping that out of trust for ease of use is usually the best solution, just stay under a certain threshold. You can take care of that via TOD designations and/or accept that a simultaneous death is so unlikely that it should not be the primary concern.
Thanks for the comments.

The only property that isn't easily divisible is the residence. The hangup for me is the joint brokerage account. Though it can be split, I'd rather not do it. We've used it as a checking account for quite a few years and it's quite convenient from an investment management standpoint to have essentially all of our taxable securities in that one account. As I said earlier, I'm trying to reduce complexity as we age, not increase it. While I can certainly handle one more account my wife is quite comfortable with the current arrangement. I'd rather not rock that boat, though will if necessary.
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

skeptical wrote: Tue Aug 16, 2022 5:26 pm I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.
Thanks. You've done a lot more research than I have and I appreciate that you shared your experiences.

This is exactly the vibe I'm getting from the attorney: "This is how we do it and we know that it works." I must say I'm not really crazy about trying to reinvent the wheel at several hundred dollars an hour.
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Chip
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Re: Is this estate plan reasonable?

Post by Chip »

bsteiner wrote: Wed Aug 17, 2022 10:21 am Not just in response to your post, but in general, it would be helpful if posters would tell us what state they're in, since there are some things that apply in particular states. For example, about 1/3 of the states have a state estate or inheritance tax (or both), and Massachusetts and Oregon have a state estate tax with a $1 million exempt amount.
I'm in Ohio. There is no state estate tax that I am aware of.
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Re: Is this estate plan reasonable?

Post by bsteiner »

Chip wrote: Wed Aug 17, 2022 2:27 pm
Lee_WSP wrote: Tue Aug 16, 2022 5:55 pm It's an interesting set of facts. I'm not entirely sure how I'd approach it myself. It's really easy to solve in a community property state.

So, you have one or two major pieces of not easily divisible property you want to put in trust that you own together? I'm not sure I'll be able to offer any suggestions, but I can probably help point you in the right direction with regards to questions you should ask.

As far as a joint bank account goes, I think keeping that out of trust for ease of use is usually the best solution, just stay under a certain threshold. You can take care of that via TOD designations and/or accept that a simultaneous death is so unlikely that it should not be the primary concern.
Thanks for the comments.

The only property that isn't easily divisible is the residence. The hangup for me is the joint brokerage account. Though it can be split, I'd rather not do it. We've used it as a checking account for quite a few years and it's quite convenient from an investment management standpoint to have essentially all of our taxable securities in that one account. As I said earlier, I'm trying to reduce complexity as we age, not increase it. While I can certainly handle one more account my wife is quite comfortable with the current arrangement. I'd rather not rock that boat, though will if necessary.
One way to divide a residence or an account is to hold it as tenants in common. That allows the share of the first spouse to die to pass to the credit shelter trust without the need for a disclamer, so that the surviving spouse may have a power of appointment over the credit shelter trust, and may participate in discretionary distributions to others. In the case of the investment account, as a practical matter, nothing changes during the couple's lifetime. It's still one account.

We used to do that more often before portability so that each spouse would have some assets to fund the credit shelter trust regardless of which spouse died first.

But if you're leaving most of your estate to charity, is there a need to divide the assets instead of continuing to hold them jointly?
Topic Author
Chip
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Re: Is this estate plan reasonable?

Post by Chip »

campy2010 wrote: Wed Aug 17, 2022 12:34 pm I’m surprise that a friend close enough to be you dPOA isn’t included as a beneficiary in your estate. To me, it seems a little selfish to use someone’s time for what can be an emotional and difficult task and not provide some sort of token of appreciation for their effort.
That's because you don't understand our particular situation and that of our friend. Our friend has no need for the money and would probably disclaim it anyway. We have and will continue to encourage them to take trustee fees to compensate them for their time. I've also made it clear that I want them to hire whatever services are required to absolutely minimize their workload. Further, I have spent significant time helping with their financial planning and continue to do so. I've also offered to act in the same roles for them. Trust me, the last thing I will be is selfish.
skeptical
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Re: Is this estate plan reasonable?

Post by skeptical »

Chip wrote: Wed Aug 17, 2022 2:31 pm
skeptical wrote: Tue Aug 16, 2022 5:26 pm I have gone down the same path. I posed the same questions here, and spoke to three different estate lawyers. It is very difficult to find a lawyer who will take on a joint trust, they will only do two trusts and you have to determine how to split your assets.

Bottom line is that while it may be possible to do this with a single joint trust, the lawyers you speak with will invariably have the standard documents and expertise to do this as two trusts, and have a tried and true path to make it work. For the single joint trust, you are asking them to write something from scratch that is unknown and unproven, and case law indicates it may not work even if written well, or you will have to find one of the very few lawyers who do this as standard practice, and they are difficult to find.
Thanks. You've done a lot more research than I have and I appreciate that you shared your experiences.

This is exactly the vibe I'm getting from the attorney: "This is how we do it and we know that it works." I must say I'm not really crazy about trying to reinvent the wheel at several hundred dollars an hour.
Not only expensive to reinvent the wheel, more importantly it adds a risk factor during the estate process - I prefer something that has been proven to work by many other people for something like this than to get a fancy and shiny new wheel that may not make the trip.
Topic Author
Chip
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Re: Is this estate plan reasonable?

Post by Chip »

Luckywon wrote: Tue Aug 16, 2022 6:12 pm Since the RLT(s) will only hold your taxable assets, it seems if you are both incapacitated (or a survivor is incapacitated) that there will be two buckets of money controlled by at least two agents who may or may not be the same person, i.e. the trustees of your RLT(s) and the attorneys-in-fact for your retirement accounts. I am curious how you envision managing this. Do you have a preference for how your taxable/retirement assets would be used? How will you bring those preferences to bear? Do you hope to have the trustees and AIF be the same person? How will you assure that, or facilitate co-ordination if they end up being different people? Asking because I have considered the same issues in our planning.
We will use the same person as successor trustee, AIF and executor on second death.
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