Trust U/W - Simple or Complex?

[Taxing Matters]

OK, let me copy (re-type) the actual wording.

quote *
Section 5.01 Distributions of Income and Principle: The Trustee shall distribute to or apply for the benefit of my husband, and my surviving descendants, so much of the income and the principle of the Family Trust as the Trustee determines to be appropriate to provide for the continued health, education, support and maintenance of such beneficiaries in accordance with the standard of living that each enjoyed at the date of my death. The Trustee shall not be bound to observe equality in making distributions to or for the benefit of the respective beneficiaries, and may make disproportionate distributions based upon the Trustee's evaluation of the relative needs of each beneficiary.

For purposes of determining whether to make any distribution of principle or income from the Family Trust, the Trustee may consider, but shall never be required to consider, the other income or principle resources that are reasonably available to a beneficiary, including income and principle that may be available from other Trusts or, for any beneficiary other than my husband, that reasonably could be available from gainful employment that is available to such beneficiary. I would prefer the Trustee not to consider any incidental income earned by a beneficiary while securing education, but the Trustee may give consideration to earnings from permanent employment.
unquote

And to re-emphasize, I am the Trustee, husband, and beneficiary.

The drafting of this trust was not particularly expert, IMO. First, though it is a minor thing, the correct term is principal, not principle. Second, by giving you pretty much unrestrained power to make distributions to yourself the entire trust is at risk for being attached by your creditors. Does your wife you have any living descendants? If the answer is no and you are the only beneficiary then in pretty much every state the result here would be that the trust is ineffective. If she does have living descendants then the applicable state law will matter as to whether the trust is still good. But drafting a trust with that much power to any beneficiary kind of defeats the purpose of setting up the trust in the first place. May as well just give the assets outright to the intended beneficiary.

 

[Arkayem]

the bottom line is that when the beneficiary has too much say so, then those funds will be considered to be his own personal funds, as opposed to trust funds

meaning that a creditor can attach to them, in the same way that he would be able to attach to the rest of your wealth

i am fairly certain your situation has crossed that line A LONG WAY !!

There is huge amount of additional detail in the Trust rules; far more than I can type here. I only typed in what the distribution rules are. The attorney who wrote this one of the most experienced in Dallas and he assured me that the liberal distribution rules did not have any of the liability risk you are describing. My current attorney agrees.

 

[Arkayem]

The drafting of this trust was not particularly expert, IMO. First, though it is a minor thing, the correct term is principal, not principle. Second, by giving you pretty much unrestrained power to make distributions to yourself the entire trust is at risk for being attached by your creditors. Does your wife you have any living descendants? If the answer is no and you are the only beneficiary then in pretty much every state the result here would be that the trust is ineffective. If she does have living descendants then the applicable state law will matter as to whether the trust is still good. But drafting a trust with that much power to any beneficiary kind of defeats the purpose of setting up the trust in the first place. May as well just give the assets outright to the intended beneficiary.

principle vs. principal was a typo on my part.

Yes, there are living descendants. My current attorney assures me that the trust is very well written and is solid. The original intent was simply to act as a bypass trust back when the maximum that could pass from a joint estate tax-free was $650K. This approach doubled that amount and provided some tax relief. Of course, after this was written the law changed, drastically increasing the amount that can pass tax-free, and now protects more than enough to cover what would have been our joint estate.

My attorney and I have discussed distributing the assets to the descendants, now, but the reason the trust was written the way it was was to allow me to distribute the earnings and capital gains to myself for the rest of my life, before it passed to the other descendants.

 

[TrustUser]

just reading what you typed simply confirms what i already thought - the beneficiary has way too much leeway, to consider it a trust, in any real sense of the word - ASSUMING you ever get challenged by it

 

[TrustUser]

other than louisiana (which i dont even try to understand), trust laws are fairly similar from state to state

and i am referring to an extremely general concept, not some specific thing that some state may change

so unless there is something about texas state law that is quite different from the norm, i am sticking with what i previously said

 

[TrustUser]

hi arkayem,

as far as your attorneys are concerned, i would like to get a clarification. in your first post, you stated that your wife's will created a trust ?

i wanted to verify that this is really true.

if so, then my opinion of your attorney goes way down hill. there is no reason in the world that i can think of to have a will create a trust, other than to keep lawyers involved in your private affairs.

what should have been done was to create an A/B trust. there are 2 main reasons for this. one is the reason you already mentioned - doubling your tax-free amount. i recall the 650 figure. i think it was 625 back when i was initially getting involved.

the second reason is to make sure that the deceased spouse has some say so about where the assets go. that half would typically go to whomever the deceased spouse wanted. because what was happening in some circumstances is the survivor would get re-married, and sometimes the whole estate would end up transferring to the children of the person the survivor married. people that the deceased spouse never knew, thus effectively negating his/her wishes entirely.

and i recall all that language about health, welfare and education of the surviving spouse, etc. i initially wrote my trusts up that way.

but like anything else, i learned from others, and became more knowledgeable.

so what i started doing was making it much simpler. the survivor already received half of the assets in the survivor trust, with which the survivor could do anything they wanted with that half.

i then distributed the income of the family trust to the survivor, as well. but the corpus would end up going to the beneficiaries of the deceased spouse.

because once that phrase of "to enjoy the lifestyle that survivor is used to having" appears in some sort of form like that - it becomes too wishy-washy, for lack of a better term. who is there to say what lifestyle that actually is, etc. the bottom line is that the survivor can pretty much define for himself what his lifestyle used to be, and end up taking whatever he chooses.

if the trustee was someone other than yourself making that decision, you might stand some sort of chance. but when the beneficiary is totally in charge of making that decision, it simply is no longer a trust, in the legal sense. any creditor would be able to attach to those assets in the same way that they could attach to any other of your personal assets.

any attorney telling you differently simply doesnt know what he is talking about. that includes the best attorney in dallas, if he is telling you this.

 

[Taxing Matters]

if so, then my opinion of your attorney goes way down hill. there is no reason in the world that i can think of to have a will create a trust, other than to keep lawyers involved in your private affairs.

My opinion is rather different. As you are not an estate planning lawyer and I gather your experience is primarily in California, you are not looking it the entire world of possibilities that exist out there. Prior to the changes to the estate tax over the last 10 years, creating a credit shelter trust in a will was fairly common in some states — those states in which probate was neither costly nor took very long, like one of the states in which I practice. Although I know you strongly favor using revocable living trusts to avoid probate as much as possible (and in California that has long been the prevailing practice) it might surprise you that those are not always the best solution. Each client's needs are different.

what should have been done was to create an A/B trust.

And that can be done from a testamentary trust (a trust created from a will) too.

any attorney telling you differently simply doesnt know what he is talking about.

I'm sorry, but you are way off base on that. You don't have a full grasp of all estate planning options and you have not had the experience of designing estate plans for a large variety of clients. You seem to think that pretty much there is a one size fits all solution for estate planning and that is far from being the case. While you might not see the need or benefit in other types of estate plans, there are indeed clients for whom those plans are much better than what you have been doing for yourself. Most estate planning lawyers make the recommendations they do for reason — to give their clients the best plans to meet their needs — not to jack up fees as you have implied earlier in this thread. I find that a bit offensive.

 

[Arkayem]

hi arkayem,

as far as your attorneys are concerned, i would like to get a clarification. in your first post, you stated that your wife's will created a trust ?

i wanted to verify that this is really true.

if so, then my opinion of your attorney goes way down hill. there is no reason in the world that i can think of to have a will create a trust, other than to keep lawyers involved in your private affairs.

what should have been done was to create an A/B trust. there are 2 main reasons for this. one is the reason you already mentioned - doubling your tax-free amount. i recall the 650 figure. i think it was 625 back when i was initially getting involved.

the second reason is to make sure that the deceased spouse has some say so about where the assets go. that half would typically go to whomever the deceased spouse wanted. because what was happening in some circumstances is the survivor would get re-married, and sometimes the whole estate would end up transferring to the children of the person the survivor married. people that the deceased spouse never knew, thus effectively negating his/her wishes entirely.

and i recall all that language about health, welfare and education of the surviving spouse, etc. i initially wrote my trusts up that way.

but like anything else, i learned from others, and became more knowledgeable.

so what i started doing was making it much simpler. the survivor already received half of the assets in the survivor trust, with which the survivor could do anything they wanted with that half.

i then distributed the income of the family trust to the survivor, as well. but the corpus would end up going to the beneficiaries of the deceased spouse.

because once that phrase of "to enjoy the lifestyle that survivor is used to having" appears in some sort of form like that - it becomes too wishy-washy, for lack of a better term. who is there to say what lifestyle that actually is, etc. the bottom line is that the survivor can pretty much define for himself what his lifestyle used to be, and end up taking whatever he chooses.

if the trustee was someone other than yourself making that decision, you might stand some sort of chance. but when the beneficiary is totally in charge of making that decision, it simply is no longer a trust, in the legal sense. any creditor would be able to attach to those assets in the same way that they could attach to any other of your personal assets.

any attorney telling you differently simply doesnt know what he is talking about. that includes the best attorney in dallas, if he is telling you this.

Yes, my wife's will created the Bypass Trust, aka a Credit Shelter Trust, or an A/B Trust, and is a type of Testamentary Trust. I have had lots of interaction with trusts over the years and know that it is VERY common in Texas and in Georgia (where I now live) for a trust to be created UW (under will).

 

[Arkayem]

My opinion is rather different. As you are not an estate planning lawyer and I gather your experience is primarily in California, you are not looking it the entire world of possibilities that exist out there. Prior to the changes to the estate tax over the last 10 years, creating a credit shelter trust in a will was fairly common in some states — those states in which probate was neither costly nor took very long, like one of the states in which I practice. Although I know you strongly favor using revocable living trusts to avoid probate as much as possible (and in California that has long been the prevailing practice) it might surprise you that those are not always the best solution. Each client's needs are different.



And that can be done from a testamentary trust (a trust created from a will) too.



I'm sorry, but you are way off base on that. You don't have a full grasp of all estate planning options and you have not had the experience of designing estate plans for a large variety of clients. You seem to think that pretty much there is a one size fits all solution for estate planning and that is far from being the case. While you might not see the need or benefit in other types of estate plans, there are indeed clients for whom those plans are much better than what you have been doing for yourself. Most estate planning lawyers make the recommendations they do for reason — to give their clients the best plans to meet their needs — not to jack up fees as you have implied earlier in this thread. I find that a bit offensive.

I agree with you. Thank you.

If the purpose for the trust is to set aside assets for descendants after you die, then I think it is often much less expensive to construct a Testamentary Trust versus writing and maintaining multiple stand-alone trusts for decades while a person is still alive. In our case my wife and I had an estate attorney prepare identical wills for my wife and me, that would create a trust for whichever of us passed away first. There will be no trust created for me as the second to die. There was no intent to avoid probate, which is cheap and easy in both Texas and Georgia.

 

[TrustUser]

writing and maintaining multiple trusts ?

if we are comparing apples to apples, whatever you would write into a stand-alone trust WOULD BE EXACTLY THE SAME as what would be written into a will - if you are getting the same end product

and we are not talking about multiple trusts. there is 1 trust document. and while you are alive, just 1 trust - the splitting of the trust does not occur until one spouse dies

and may i ask what you would be "maintaining" in this single trust while you are both alive ?

i would also like to ask if there are any instructions in your trust that talks about how to manage your assets while you are alive, but incapacitated ?

 

[Zigner]

and we are not talking about multiple trusts. there is 1 trust document. and while you are alive, just 1 trust - the splitting of the trust does not occur until one spouse dies

OP's spouse died 5 years ago...

 

[TrustUser]

My opinion is rather different. As you are not an estate planning lawyer and I gather your experience is primarily in California, you are not looking it the entire world of possibilities that exist out there. Prior to the changes to the estate tax over the last 10 years, creating a credit shelter trust in a will was fairly common in some states — those states in which probate was neither costly nor took very long, like one of the states in which I practice. Although I know you strongly favor using revocable living trusts to avoid probate as much as possible (and in California that has long been the prevailing practice) it might surprise you that those are not always the best solution. Each client's needs are different.



And that can be done from a testamentary trust (a trust created from a will) too.



I'm sorry, but you are way off base on that. You don't have a full grasp of all estate planning options and you have not had the experience of designing estate plans for a large variety of clients. You seem to think that pretty much there is a one size fits all solution for estate planning and that is far from being the case. While you might not see the need or benefit in other types of estate plans, there are indeed clients for whom those plans are much better than what you have been doing for yourself. Most estate planning lawyers make the recommendations they do for reason — to give their clients the best plans to meet their needs — not to jack up fees as you have implied earlier in this thread. I find that a bit offensive.

the entire world of possibilities ?? the only difference in this situation is whether a trust is being created beforehand or through a will. so i find your statement about giving their clients the best plans to meet their needs a non-sequitor.

 

[TrustUser]

OP's spouse died 5 years ago...

so ? what does that have to do with the price of bananas ?

 

[Zigner]

so ? what does that have to do with the price of bananas ?

Just that you seemed to have missed that fact.

 

[TrustUser]

i havent missed that fact. there is nothing to talk about it. when the spouse dies plays no part at all in this discussion. that is what i am asking you to provide. what is different about the fact that the spouse died 5 years ago ? 10 years ago ? or yesterday ?

how does the timing of the death play into this discussion ?

we either have a will creating a trust, or a trust itself

the op made a statement about maintaining a trust while the 2 are both alive. and i am still waiting for the answer to my question of what needs to be maintained ? does it need an oil change once a year ? new spark plugs ? what ??