Is current access to some of AB Trust contents allowed?

[boostm3]

What is the name of your state (only U.S. law)? NY

I hope this type of estate question is relevant to this forum.

I am the trustee of my Father's AB trust. I became the Successor trustee two yrs ago when he passed away. .As trustee, I make sure, among other things, that my mom who is listed as beneficiary gets the dividends and other income that assets in the trust throw off. The trust comprises the house that Mom lives in as well as a muni bond fund and stock investment acct. When mom dies, its stipulated that the funds in this trust, as well those owned directly by her pass directly to myself and my sister.

My question is this. Mom is old but in good health, and, she has plenty of money outside of this trust, ie, more than she could ever use, under her own name. We want to know if, as trustee, I may take ownership of any of the funds in this trust for my own use with her blessing. Her feeling is, why have to wait til she dies for me to inherit the money if some of it can be made available now, without it being vulnerable to the Gift tax, or other taxes. .Being a muni fund, I dont believe capital gains would be a major issue, so this would be the most logical asset in the trust to use for current access.

Thanks for your advice..

 

[tranquility]

See an attorney. Way, way more facts would be needed and your description leaves something to be desired. A review of the trust(s) would be required as well.

 

[boostm3]

See an attorney. Way, way more facts would be needed and your description leaves something to be desired. A review of the trust(s) would be required as well.

I will see an attorney; likely the one who draw up the agreement.. However, if you could tell me what about my description 'leaves something to be desired', perhaps we could enter a dialog here; I could certainly fill in any blanks youd require to provide some kind of direction... After all, Im sure this is far from a unique setup.

 

[tranquility]

Which trust are you talking about? What powers does mom have in that trust? How much are you thinking of? What are the enumerated powers of the trust?

As lawyers say, without the facts there is no issue. By asking the question in the abstract, you require the poster to make a legal article on all the ramifications of all the choices. That's not going to happen. As a general rule, mom is past the time to disclaim. Anything she does not take is a gift. But, that may not be true depending on how the trust is written.

 

[boostm3]

Which trust are you talking about? What powers does mom have in that trust? How much are you thinking of? What are the enumerated powers of the trust?

As lawyers say, without the facts there is no issue. By asking the question in the abstract, you require the poster to make a legal article on all the ramifications of all the choices. That's not going to happen. As a general rule, mom is past the time to disclaim. Anything she does not take is a gift. But, that may not be true depending on how the trust is written.

>>Which trust are you talking about? <<

Mom and Dad both had an ab trust and they both named me as successor trustee. Both trusts owned different assets but both were symetrical in that they both named the surviving spouse as beneficiary wtih the children being the ulitmate benificiaries at time of surviving spouses death.. Like standard bypass trusts, any income the assets in the trust of the decedent generates are to be directed by me, the trustee, to the surviving spouse. Of course the purpose of said trust is to pass the amount contained therein directly on to the children and thereby have its own 2 million dollar death tax exemption (currently), whereas without it, it would be combined with the other spouses assets and then the combined assets would be subject to the death tax upon death of the surving spouse. Its a very standard bypass trust in this regard.

>>What powers does mom have in that trust?<<

Virtually none. All the powers lie with me, the trustee. Even the house she lives in my parents gave up ownership to by moving its ownership into my dad's bypass trust. As trustee of the trust that owns the house, currently worth $1.5 mil plus stocks and stock funds worth about $600k, im responsible for the real estate taxes, and am responsible for filing trust taxes, generating the K-1 forrm for my mom, etc. I can buy and selll assets in the trust as I see fit. The wording of the trust document is that I am to forward to mom any income the trust assets generate. But she has the right, of course, to ammend that, if she wishes.

I realize you will be unable to give definitive advice here, but I was just hoping for maybe some general comments based on the additional info Ive supplied.

 

[tranquility]

From your discription, no, mom could not gift the money from the trust and it is too late to disclaim the amount so you could get it by merger or by operation of the trust. Sorry.

 

[boostm3]

From your discription, no, mom could not gift the money from the trust and it is too late to disclaim the amount so you could get it by merger or by operation of the trust. Sorry.

Ok, thanks Tranquility.. thats what i thought would be the case....

Its almost impossibly difficult to do a good job of estate planning when the rules change every year; ie without knowing the amount of the exclusion, its impossible to fund the respective 'A' and 'B' shares of the bypass trust for the best sheltering effect. Dad's 'B' share which holds the amount of the exclusion at $2 mil will be $1.5 mil underfunded if it all has to be settled next year. The following year it wont matter. .But from 2011 and on, its a total crap shoot. Assuming the amount of the exclusion will wind up being somewhere between $2 mil and $4 mil once congress redoes the relevant tax code, the amount of Dad's 'B' share will prove to be 'underfunded', and theres absolutely nothing that can be done about it.

Doesnt seem quite right. Also, Dad's 'B' share holds real estate, valued at the amount of the exclusion when he died and the final appraisal was taken, however today, its lost about $1/2 mil in value, meaning the 'B' share is already underfunded.. And again, nothing can be done about it.. Had I been smarter or advised better, I could have had the appraiser go a little 'light' on the appraisal.. There's always a small margin of flexibility any appraiser has. But in the end, with widely varying real estate values, and with constantly changing exclusion amounts, estate planning is way way more complicated than one would think it would have to be.. Since the amounts are always changing, I would have hoped the tax law would have made allowances.

Clearly, I hope for too much!

 

[tranquility]

Assuming the amount of the exclusion will wind up being somewhere between $2 mil and $4 mil once congress redoes the relevant tax code, the amount of Dad's 'B' share will prove to be 'underfunded', and theres absolutely nothing that can be done about it.

When you say "underfunded", do you mean that it was funded with less than the amount which could have been excluded or with less than required under the original trust scheme?

Dad's 'B' share holds real estate, valued at the amount of the exclusion when he died and the final appraisal was taken, however today, its lost about $1/2 mil in value, meaning the 'B' share is already underfunded..

Holding the value in real estate for such a large amount for such a long time could be a fiduciary breach. Be careful. Also, I wouldn't use the term underfunded.

Had I been smarter or advised better, I could have had the appraiser go a little 'light' on the appraisal..

Not enough to make a difference. At least the beneficiaries will have a good basis in the property when they actually get control.

I would have hoped the tax law would have made allowances.

I'm not sure of the problem here. Don't look to the tax law, but to the basic issues of why trusts are allowed in the first place.

 

[boostm3]

>>When you say "underfunded", do you mean that it was funded with less than the amount which could have been excluded or with less than required under the original trust scheme?<<

I meant underfunded with respect to what the current or future estate tax deduction would allow.. its not modifiable according to the constant changing amounts allowed buy estate tax code unfortunately.. Meaning, your always dealing with old news when trying to fund these effectively, seems to me.

>>Holding the value in real estate for such a large amount for such a long time could be a fiduciary breach. Be careful. Also, I wouldn't use the term underfunded.<<

Breach? there is no breach. the real estate im referring to is their house on cape cod where mom lives but which was relegated to comprise the sum and substance of dad's B share. When I use the term 'underfunded' Im speaking of in a practical sense, not a legal sense. I know I cannot add property to the B share just because the house has lost value from 2.2 mil at time of funding to now.. ITs underfunded in that with the lowered value, I could have packed more in, had the house been appraised lower.. Its a moot point, I know, because it cant be done.. but it Does leave me underfunded in terms of the allowable shelterable amount.. The B share therefore now only holds about $1.6 mil instead of $2 mil..

>>Not enough to make a difference. At least the beneficiaries will have a good basis in the property when they actually get control.<<

Yes, thanks, it Could be worse!!

>>I'm not sure of the problem here. Don't look to the tax law, but to the basic issues of why trusts are allowed in the first place.<<

All Im grousing about is that we funded the trust based on reality at the time... Had I funded it now instead of then, ie had dad lived a little longer, wed have placed $3.5 mil in the B share, and every bit of it would have been sheltered.. AS it is, while $2 mil was what we allowed for, with the decrease in the house's value, we are no longer getting the full amount of the exclusion.. And theres nothing in the law that allows us to 'make up the dif'. Plus , with the ever changing annual exclusion amounts, seems to me that an estate will Never be able to fund the trust so has to get the max benefit allowed by law, either because of asset depreciation contained in the 'B' share, or, because we have to use shelter amounts based on today, and not indexed to the reality of the tax code as of tomorrow, the shelter amounts of which are unknowable at time of funding.

This is all mental accounting, I realilze, but to not get the most out of the shelter bothers me.