Leaving home to my son

[Taxing Matters]

hi tm,

i really dont see much of a downside to a trust. are you counting the one-time need for re-titling ? i suppose that is a bit of an inconvenience. but if that is your biggest downside, i dont think you have much to fight with !!

Again, depending on the particular person's goals and the applicable state law there may be other estate planning tools that do the job at least as well as a trust if not better. I don't (as a lot of those trust seminar people do) push any one estate planning method as being superior to every other estate planning device in every circumstance. Trusts have their place and I recommend them when they suit the client's goals and circumstances. But I look at ALL the various tools available and evaluate them in light of the client's needs and recommend the ones that I believe will best suit the client. Any estate planning lawyer who exclusively recommends only one estate planning device and does not look at everything does his/her client a disservice and potentially sets himself/herself up for future malpractice claims.

You like trusts and believe them the best, at least for your circumstances. And perhaps they best for you. I won't argue that since I don't know your circumstances. In any event you are happy with them and that's what matters for you. But again, do not assume that trusts are the best thing for everyone in every circumstance in each jurisdiction in the U.S. They aren't. There are just too may different circumstances and the laws vary too much much from one jurisdiction to another to say that any one estate planning device is the best for everyone in all jurisdictions.

I will agree with one thing. If you want to delay distribution of the trust assets and subject that distribution to various limitations then you do need a trust. But as I said before, very few clients want to do that — even after that option is pointed out to them. You obviously do, but in that respect you are distinctly in the minority of people out there.

truly, i do not think that most of these attorneys know about the live-on trust. or at least they do not have a trust document to support it - that sort of trust does need a document with a spendthrift clause, and many other clauses to deal with a business entity that survives.

There are almost an infinite variety of ways trusts can be set up to work. Those that delay distribution of some or all of the trust assets after the grantors death can be set up all kinds of ways, not just using spendthrift limitations. And of course, most clients don't have a business that they set up to carry on for years within the trust, but of course that is a possibility. Whether that's a good idea or not depends on the kind of business, the client's circumstances and what his/her goals are.

 

[TrustUser]

i was talking about a spendthrift clause, to protect the assets from creditors of a beneficiary. something that should be in an ongoing trust, that is not really necessary in a glorified will.

i dont quite get your comment about a business within the trust ? i am just talking about having an ongoing trust, that distributes income to the beneficiaries on a monthly basis. just like a retirement plan does. a way for the parents to help their children out, on a monthly basis.

from my experience, i am not in the minority of those who actually know about them. you and i obviously talk to different sorts of people !!

perhaps one reason why i find more people interested is the way that i present it to them ? they really like the idea of doling out monthly income to their children, to help insure that their vitals are taken care of

 

[TrustUser]

i will say that all the people i talk to are from california - just people local to me

but it has nothing to do with probate costs, since a regular trust also takes care of that

you do need to have enough assets for it to be worthwhile, for an ongoing trust

i am not saying they are good for someone with a smaller amount of money

it would need to produce enough monthly income to make a difference !!

with the housing prices in california, most homeowners out here have enough equity where they can be helpful

i am sure you do well for your clients. and i can buy that you find different alternatives for people

like i said, a lot can depend on how much one owns

lets just call a truce on the matter - i dont want to beat a dead horse !!

 

[Taxing Matters]

i was talking about a spendthrift clause, to protect the assets from creditors of a beneficiary. something that should be in an ongoing trust, that is not really necessary in a glorified will.

It's not always necessary or even desirable to have a spend thrift clause in a trust that delays distribution of trust assets.

i dont quite get your comment about a business within the trust ?

You are the one who first mentioned:

and many other clauses to deal with a business entity that survives

A trust is not a business entity, though a trust may own and operate a business. A business entity is a corporation, LLC, LLP, etc.

i am just talking about having an ongoing trust, that distributes income to the beneficiaries on a monthly basis. just like a retirement plan does. a way for the parents to help their children out, on a monthly basis.

Then that does not involve any business entities.

from my experience, i am not in the minority of those who actually know about them. you and i obviously talk to different sorts of people !!

Different people in different circumstances with varying goals located in different jurisdiction, and in my practice mostly outside CA. And that's my point. The right estate planning tools for any particular person depends on their circumstances, goals, and the laws of the jurisdiction where they are domiciled.

perhaps one reason why i find more people interested is the way that i present it to them ? they really like the idea of doling out monthly income to their children, to help insure that their vitals are taken care of

My clients with children who are still minors or least college age at the time of coming up with the estate plan will of course be interested in a trust that delays and restricts distribution of the youngster's inheritance to ensure that the kid's basic needs will be met and that the kid can get an education after high school. But typically once the kids are age 25 or so (and assuming the kid is not so disabled he/she cannot care for himself/herself) they no longer want the distribution to be restricted and the kid can get all his/her inheritance outright. They understand that adult kids will not thank their parents for being overly controlling from beyond the grave and that as adults they should be able to do what they want with their assets. If they make mistakes with it, that's part of life and there are lessons the kid can learn from that. So yes, for people with kids under about age 25 trusts that restrict distribution to the kids for certain purposes are indeed popular. Otherwise, however, only a small number of clients want that sort of thing.

 

[commentator]

May I just tentatively mention that if the person deeds the house to her son, and then within the next seven years finds herself in need of Medicaid, the transfer might be looked upon as a transfer of assets to qualify for Medicaid. This needs to be considered with any decision. When a person says, 'How can I make sure my house and property go to my son?" a lot of times they are saying, "How can I be sure Medicaid doesn't get it, even if I have to have a lot of expensive medical care before I'm gone?"

 

[Taxing Matters]

May I just tentatively mention that if the person deeds the house to her son, and then within the next seven years finds herself in need of Medicaid, the transfer might be looked upon as a transfer of assets to qualify for Medicaid. This needs to be considered with any decision. When a person says, 'How can I make sure my house and property go to my son?" a lot of times they are saying, "How can I be sure Medicaid doesn't get it, even if I have to have a lot of expensive medical care before I'm gone?"

Certainly if you want to both give stuff to your kids (or friends or whomever) and also try to plan into qualifying for Medicaid you need to consider rules like the lookback period. But I tell clients who ask about this kind of Medicaid planning to first take a good hard look at the kind of care you get in a Medicaid home and ask themselves if that's the kind of care they want to have in order to preserve assets for their kids. In general, homes that will take you just on Medicaid are not very good as Medicaid doesn't pay a lot. A lot of clients end up deciding they'd rather use their assets first to provide a level of care that's better for them for as long as they can and then only if they still have something left when they die give stuff to their kids. And that's a sentiment I agree with for myself. I'll use what I've worked hard for to get the kind of care I want. I don't want to give my stuff to others and then find that I'm relegated to a Medicare facility that I could have avoided if I'd used what I had on myself instead of giving it away. But again, different people have different goals and situations.

 

[TrustUser]

well, lets not get lost in semantics. i was calling a trust a business entity, because it is involved in doing business. buying and selling property, stocks and bonds, filing its own tax return, etc.

not sure why you would not want to protect assets in a trust from creditors of a beneficiary ? certainly not on a normal basis.

first of all, the assets are the parents. the kids are not entitled to them, and they should be damn thankful to get anything at all. plus, i dont think kids will look at it, as being over-controlling from the grave. unlike the assets that a child owns directly, assets in a trust can be protected from the child's creditors. i know i would be very thankful to have an asset that is protected. many of us would like to protect our own assets in this way, but cant. so i respectfully disagree with your synopsis.

i will say one thing, though. the children who actually do think their parents are controlling from the grave, are the very ones who need control from the grave. you can take that to the bank !!

 

[TrustUser]

kids can still learn a helluva lot of lessons with their own monies. like all of us already have !!

 

[Taxing Matters]

not sure why you would not want to protect assets in a trust from creditors of a beneficiary ? certainly not on a normal basis.

The problem is that the protection comes at the cost of the kid not having access to the assets to do with what he or she wants. He might have a great idea for a business that could be funded with his inheritance, but if the parent restricts the adult child's ability to access those assets via an ongoing trust he may miss out on that chance, for example. I could give you many more examples, of course, but you get the idea. In general, asset protection comes at the cost of losing control. That's the trade off, and one that most people will not want or need to make as their risk of getting overrun by their creditors is not so great as to make it worth giving up control of their assets.

first of all, the assets are the parents. the kids are not entitled to them, and they should be damn thankful to get anything at all.

I agree. And you are entitled to give it to them any way you want, even if the kids will regard it as overly controlling. You evidently are of the view that this ought to be routine for most people, but I can tell you that most clients don't want to control their adult kids that way. I can also tell you that very restrictive trusts do indeed draw the wrath of the kids. Indeed, it is sometimes better that the parent leave nothing than leave the assets gated behind a restrictive trust as the kid will be reminded for years of how the parent didn't trust him enough to handle the assets himself.

plus, i dont think kids will look at it, as being over-controlling from the grave.

Trust me, a lot of kids do look it just that way.

unlike the assets that a child owns directly, assets in a trust can be protected from the child's creditors.

Unless the kid already has serious debt issues at the time the parent dies, this kind of thing can be overly protective and unnecessary. It may be that the kid never has any serious debt problems and doesn't need to be shielded from creditors. But the message the parent sends in that case is that the parent is betting the kid will end up mired in debt and that the parent doesn't think the kid can manage things on his own.

i know i would be very thankful to have an asset that is protected. many of us would like to protect our own assets in this way, but cant. so i respectfully disagree with your synopsis.

But you can do it for yourself, if you wanted. However you cannot do it with a revocable trust. You'd have to create an irrevocable trust, put in the terms limiting your access to the trust assets, and name an independent trustee who would then make all the decisions on managing the trust. In short, you'd give up control of your own assets. And you'd have to do before you incur the debt that you are trying to protect against. If you think it so great to do for kids not yet in debt and think you'd like it too, then go for it. I suspect, though, that you'd not want to do that and suffer that loss of control unless you were in a situation where a very large debt obligation was a significant possibility. So if you aren't willing to do it for yourself why is it so great to do it for your kids when they aren't facing serious debt problems? I think a likely answer is that you still get to control the assets from the grave. You don't want to give up that control while living because it is not convenient for you (which is understandable) but have no problem imposing that same inconvenience on the kids because you are the one doing the controlling not the one being controlled.

 

[TrustUser]

i will try to get back to you on a lengthier basis, but i still disagree with your synopsis. i would prefer to have funds that are protected. and i am not at all in debt, or have any financial problems. i would not at all look at it as a punishment from my parents. and again, i think the majority of kids who see it that way, are also the ones who truly need to "be controlled from the grave".

i can see though, that we will never come to an agreement on this.

 

[tanbaby1218]

You have a few options here.
You can make a basic will leaving the house to your son
You can set up a trust which would avoid your son having to go to probate court.
You can transfer the house to your son now with you keeping a life estate (you live there until you die)

so even though there will be money still owed on the house, just put in the will that the house is his when i die? he lives there now, will that help as far as what the bank may ask or demand as far as money is concerned??

 

[TrustUser]

with regards to me, i wasnt aware that i could be a beneficiary in my own irrevocable trust. and from my current research, that is somewhat still the case.
There are other limitations with trusts to shield assets. One limitation is that you cannot settle your trust for your sole benefit. Forlawsuit protection, you should have no beneficial interest in the trust. You can, however, retain income rights based on some ascertainable standard (health needs, etc.). Some states disallow self-settled trusts for asset protection. The grantor can neither control the trust nor have anybeneficial rights.
so i dont find this to be even a worthy part of this discussion. with the trust i am talking about, the beneficiary would be the trustee. he or she may be able to take funds, and make a business investment. that would entail to what degree the trust wanted to limit the types of investments that the trustee could make.
knowing me, i probably would place limits on them. because it is my goal to establish a safe amount of funds that are protected, and can provide for the necessities in life, if needed. again, much like a retirement plan. i think many, if not most, kids would take this in a highly positive way.
and if there was any wonder about it, the parent could always explain to his children why he was doing things. truly, any kid who was still negative about it, is absolutely someone who needs the protection the most. many, many people are poor with money.
so again, i respectfully disagree with your synopsis of this situation. i have thought this over thoroughly, so it is unlikely that you will have some input for me that i have not already considered. and i have no desire to change your mind about it. just stating how i feel.

 

[Taxing Matters]

There are other limitations with trusts to shield assets. One limitation is that you cannot settle your trust for your sole benefit. Forlawsuit protection, you should have no beneficial interest in the trust. You can, however, retain income rights based on some ascertainable standard (health needs, etc.). Some states disallow self-settled trusts for asset protection. The grantor can neither control the trust nor have anybeneficial rights.

As I said, you give up control of your assets to do it. Exactly how much control varies by state.

with the trust i am talking about, the beneficiary would be the trustee. he or she may be able to take funds, and make a business investment. that would entail to what degree the trust wanted to limit the types of investments that the trustee could make.

And to make the trust effective for asset protection for the kid, the kid too can't have too much control. Same concept. Making the kid the trustee or providing the kid too much power to determine when he gets assets from the trust are bad ideas for asset protection, if that's the goal.

and if there was any wonder about it, the parent could always explain to his children why he was doing things.

I always encourage parents to do that. It really helps with reducing will and trust contests later, especially where not all the kids are sharing equally.

truly, any kid who was still negative about it, is absolutely someone who needs the protection the most.

I disagree with that. How the kid feels about it logically has no connection to how good or bad the kid is with money. I've seen examples of kids who disliked the time gating of their inheritance behind a trust who were brilliant with investing and managing their money.

so again, i respectfully disagree with your synopsis of this situation. i have thought this over thoroughly, so it is unlikely that you will have some input for me that i have not already considered. and i have no desire to change your mind about it. just stating how i feel.

You're entitled to your views on it. I don't share your views and nothing you've said changes my mind. And a lot of my clients don't share your views of what is the best way to pass assets to their kids either. But of course you should do with your assets what you wish. That is, after all, what estate planning is all about.

 

[TrustUser]

i do not know how to separate all the issues so nicely, like you do. but i only want to make a comment on this particular statement of yours, because we are actually in agreement on this.

And to make the trust effective for asset protection for the kid, the kid too can't have too much control. Same concept. Making the kid the trustee or providing the kid too much power to determine when he gets assets from the trust are bad ideas for asset protection, if that's the goal.

i agree with this statement, but i am not doing this. i learned a long time ago that it is not a good idea (overall) to give the trustee much discretion on decisions. because then it is too easy to defeat the protection of the trust (as you stated)

first, the beneficiary would never be getting the assets from the trust. the trust is ongoing, with the goal of providing monthly protection for the beneficiary. i might not have made that clear. this is what i consider to be an ongoing trust. i was not thinking of distributing the assets on some sort of basis (like 10% after 5 years, etc.)

the trust would have directions to follow. and it is the trustee's job to follow those directions. if done, then asset protection is conserved. because even though the trustee and beneficiary are the same, decisions are being made in a custodial manner, not a beneficial manner.

but the trustee would still be in charge of what to buy and sell, as long as he was abiding by the trust. personally, i dont want the trustee to start up a business with these funds, because it would be my personal goal for the investments to be safer. however, another parent could just as easily allow the trustee to make that sort of investment. in both cases, it would be an ongoing trust. the difference would just be in which sorts of assets the trustee would be able to purchase.

and as i said, i am in no way attempting or hoping to change your mind about anything. just stating my perspective.

 

[Taxing Matters]

and as i said, i am in no way attempting or hoping to change your mind about anything. just stating my perspective.

You are free to structure your estate as you wish. Different people have different views on who they ought to give their assets to and how. If you want to lock the bequest to your kids behind a very restrictive trust in the name of preventing possible future creditors (if there are any) of the kid reaching those assets or to guard against what you assume will be bad financial decisions of the kid then you can do that. (Though if you believe the kid is not capable of managing money well it would not make sense then to make him trustee of the trust. And if you trust him to manage money well, why the concern about future creditors grabbing it all?) I don't happen to share your outlook but I respect your right to do with your assets what you want. My main point this thread is that most clients with adult kids don't want to restrict their kids use of their inheritance the way you apparently wish to restrict yours and that while you are very keen on the use of trusts for estate planning, trusts are not the answer for everyone. As I said from the outset, the right estate plan depends on the person's circumstances, their goals, and the laws of their state. In states like the ones in which I practice, often the plans that best suit the client with no minor children don't involve the use of trusts at all. In short, trusts are not the answer for everyone, despite your seeming insistence that everyone should use them.