Trust vs Will

[shobuddy]

I live in Maryland and both my parents are elderly with my father's health not so good. I'm married and have one brother who is single and we all get along well. Together we drafted a Will for each of my parents using Quicken Willmaker Plus software. Their Wills state that if one passes away, the spouse 100% of everything. If the spouse also passes, me and my brother get everything 50/50. My parents own two homes one of which is paid off and the other they are still paying. Outside of that they don't have any major assets aside from their retirement accounts which at this time they are not drawing from. Each home is worth between 400k and 500k. They don't have any debt aside from the one house that they are paying on. After drafting the Will and talking to some friends, they suggested doing a Trust instead. I did some reading on Trusts but am still not sure whether a Will is better or a Trust. In the even of death, I don't expect any infighting among the surviving family members. I understand that a Trust saves on Probate costs and perhaps taxes? But costs more to setup up front. I'd like to get some suggestions on whether to take the Will or Trust path with the goal being keeping the most amount of money with the family and not loosing it to court costs, taxes, etc.

 

[adjusterjack]

Your parents are worth at least a million dollars.

Probating an estate like that is likely to cost more than the cost of a revocable living trust.

It's too bad your dumb ass legislators killed the idea of beneficiary deeds a few years ago. Many other states have adopted them and simplified the transfer of homes upon the death of the owner.

The retirement funds (IRAs, 404(k)s) can't be owned by trusts.

But a trust for two homes, a couple of cars, bank accounts, etc, shouldn't cost much to set up and will eliminate a variety of probate costs, delays, and hassles.

 

[Taxing Matters]

After drafting the Will and talking to some friends, they suggested doing a Trust instead.

Unless those friends are lawyers who practice estate planning in your parent’s state and know ALL the relevant facts I suggest you not take their advice. Trusts have become very popular and the trust industry has done a very good job in getting people to think that everyone should use them. They can be useful for some estate plans but are not right for others.

If your parents do a revocable inter vivos trust (popularly called revocable living trusts) and put their assets into that trust then for the assets in that trust probate is avoided because your parents no longer own those assets when they die — the trust does. Avoiding probate means of course that you avoid the costs of probate and avoid the time it takes, too. The trustee of the trust just follows the directions in the trust as to what to do with the assets. A trust is also private whereas as will is a public document once lodged for probate.

But as you noted trusts have their own costs to set up and operate. In some states probate is not terribly costly for most estates, and unless there is a real need to expedite distribution of assets in those states the will may still be the least expensive way to go and work just fine. Your parents estates are likely to be well below the value needed to trigger federal and Maryland estate tax, which for 2018 will be $10 million and it goes up each year from there. Maryland does have an inheritance tax, but it does not apply to transfers to the decedent’s spouse or children. So, simply put there isn’t going to be any estate or inheritance taxes to worry about here and thus a trust won’t help you save tax.

Really your parents ought to consult an estate planning lawyer to determine what is the best plan for them. There are more options besides a will or trust. It may be that a trust would be better, but they should have the lawyer explain to them clearly why it is better before they incur the expense of going that route. It may be that the wills they have now will work just fine.

 

[Taxing Matters]

Your parents are worth at least a million dollars.

Probating an estate like that is likely to cost more than the cost of a revocable living trust.

Not necessarily the case, Jack. Most of the value is in just two pieces of real estate, and probating that would generally not be that complicated. In some of the jurisdictions in which I practice probate even for this million dollar estate would not be very much. Where it really gets expensive is in states where the personal representative of the estate is by statute entitled to a fee that is a percentage of the estate. Maryland has such a statute but if the kids are going to be the personal representatives and they get along, they could waive the fee. That is something for them to discuss with the estate planning lawyer.

 

[TrustUser]

So, simply put there isn’t going to be any estate or inheritance taxes to worry about here and thus a trust won’t help you save tax.

although it is a common misconception, living trusts are not vehicles that save on taxes

 

[TrustUser]

Not necessarily the case, Jack. Most of the value is in just two pieces of real estate, and probating that would generally not be that complicated. In some of the jurisdictions in which I practice probate even for this million dollar estate would not be very much. Where it really gets expensive is in states where the personal representative of the estate is by statute entitled to a fee that is a percentage of the estate. Maryland has such a statute but if the kids are going to be the personal representatives and they get along, they could waive the fee. That is something for them to discuss with the estate planning lawyer.

go with a trust. it is private, and then you dont have to worry about the probate system at all. i suspect you would find it difficult to find a place where probate on a million dollars of real estate cost less than a trust. however, i know there are lots of places where said probate can be 25 times more expensive, and a helluva lot more headaches, and wasted time, and, and, and etc..

 

[TrustUser]

also, your family may want to talk it over, but it may be that you would like to keep said assets in trust, after both your parents pass. many advantages to that.

one, being that the assets can be protected from the creditors of the beneficiaries.

 

[Taxing Matters]

although it is a common misconception, living trusts are not vehicles that save on taxes

That is not true. There are situations in which use of a trust can indeed save tax. I do it for clients that have estates large enough to worry about federal estate and gift taxes, for example (less and less common as Congress keeps jacking up how large an estate needs to be to be subject to those taxes). It is true that a revocable living trust generally will not save any tax over using a will. However, not all living trusts are revocable trusts (or have any other features that would make the trust a grantor trust under the Internal Revenue Code (IRC)). Certainly for the vast majority of people, use of a trust is not going to be a significant way to save tax. But there are some people for whom it can make a considerable difference.

i suspect you would find it difficult to find a place where probate on a million dollars of real estate cost less than a trust.

They exist, as I have seen it first hand. That is why I caution that the parents really need to see an estate planning attorney for advice. Their specific circumstances and the applicable state law really matters. It is not the case that trusts, even for a large estate, are necessarily the best way to go. The details of the assets that comprise the estate and how it will be distributed matter. Moreover, even if probate is best avoided, there are ways to do that without the use of a trust, and perhaps one of those may be more desirable for this family. I would not, as you have done here, recommend a trust or any other estate planning device without knowing all the facts and having interviewed the person making the estate plan.

 

[TrustUser]

That is not true. There are situations in which use of a trust can indeed save tax. I do it for clients that have estates large enough to worry about federal estate and gift taxes, for example (less and less common as Congress keeps jacking up how large an estate needs to be to be subject to those taxes). It is true that a revocable living trust generally will not save any tax over using a will. However, not all living trusts are revocable trusts (or have any other features that would make the trust a grantor trust under the Internal Revenue Code (IRC)). Certainly for the vast majority of people, use of a trust is not going to be a significant way to save tax. But there are some people for whom it can make a considerable difference.



They exist, as I have seen it first hand. That is why I caution that the parents really need to see an estate planning attorney for advice. Their specific circumstances and the applicable state law really matters. It is not the case that trusts, even for a large estate, are necessarily the best way to go. The details of the assets that comprise the estate and how it will be distributed matter. Moreover, even if probate is best avoided, there are ways to do that without the use of a trust, and perhaps one of those may be more desirable for this family. I would not, as you have done here, recommend a trust or any other estate planning device without knowing all the facts and having interviewed the person making the estate plan.

as i stated, we were talking about living trusts. in the vernacular, this is synonymous with a revocable grantor trust, and certainly what the op was referring to.

i will repeat - living trusts (i.e. revocable grantor trusts) have nothing to do with taxes. they are not even recognized by the federal govt.

yes, i am sure that you have seen it first hand. for every one that you can count on your hand for which probate is less expensive, i could show you enough that it would take 25 people using both toes and fingers to count the ones in which probate is more expensive.

and the ones that are less expensive would be in tens or hundreds of dollars. the ones that are more expensive could be in the thousands or tens of thousands of dollars.

this is an advice web site. it is not meant to be an exact representation of any individual's situation, nor is any reasonable op expecting that to be true.

so instead of saying "you should check with an attorney to make sure", which every op already knows, i gave the op my opinion, why i have that opinion, and the overwhelming odds of it being advantageous for him to put it in a trust.

i also gave him a reason to do so, that is not a part of a will, unless someone wants to go thru the ridiculous procedure of having a will create a trust.

there are all sorts of legal people who are advertising trust creations for 500-700. and this is in california, which is always about the most expensive place to buy stuff. now these trusts may not be complete enough if someone wants to keep the trust going, once it becomes irrevocable. but they certainly do the job that a will would do, in terms of distributing assets.

so the most the op is out, with a trust, is say $500-700. that is a small amount, compared to the costs of MOST PROBATES for million dollar estates, ESPECIALLY when those estates consist of real estate.

and as i suggested, the op and his brother might like to talk it over with their parents about keeping the trust going, and operating much like a pension fund for the two brothers, once the parents have died

i only step in on things that i know about - i dont call myself trustuser, for nothing !!

any time you want to battle me on the use of trusts, feel free to do so. no one on this site has gotten the best of me, yet !!

 

[Taxing Matters]

as i stated, we were talking about living trusts. in the vernacular, this is synonymous with a revocable grantor trust, and certainly what the op was referring to.

i will repeat - living trusts (i.e. revocable grantor trusts) have nothing to do with taxes. they are not even recognized by the federal govt.

I will repeat it again — not all living trusts are revocable living trusts. Revocable living trusts are but a subset of the entire universe of living trusts. I’m pretty sure you know this. I don’t to whose “vernacular” you are referring, but certainly estate planning and tax lawyers know there is difference. If you mean that the average person who has little knowledge of trusts might think the term “living trust” means a revocable living trust, I agree with you. But their understanding is wrong, and I see no reason to perpetuate that misunderstanding.

It is also not accurate to say that the “federal government” does not even recognize revocable living trusts. It certainly does. Indeed, the Internal Revenue Code has specific rules that address grantor trusts, which includes revocable living trusts. While it is true that for income tax purposes a grantor trust is effectively treated as though it does not exist, there are circumstances in which that grantor trust matters. Most people will never see those situations, but the fact that it is not common does not make it true that these trusts are “not even recognized” by the federal government.

yes, i am sure that you have seen it first hand. for every one that you can count on your hand for which probate is less expensive, i could show you enough that it would take 25 people using both toes and fingers to count the ones in which probate is more expensive.

In California, the state to which you referred in your post, I’m sure you could. But California is not representative of the costs for probate in every state. And I’d be astonished if you had personal experience with a significant number of probate cases in every state to be truly knowledgeable of the typical costs of probate in every single state, let alone how that plays out in difference circumstances in each state. Your statements suggest you do not have that experience in some of the jurisdictions in which I practice. In some of the jurisdictions I practice, a simple estate is not very costly at all to administer. And simple does not mean low value. An estate might have a large value but still be very simple to probate and thus cost very little to probate. I have experience with that where I practice. Of course, some small estates on the other hand might turn out to be very messy and cost a fair bit to settle.

So I’ll say it again, trusts are not always the answer for estate planning. They work great for some clients but are not right for others. I have done many estate plans that did not use a trust and that resulted in very little cost to administer after death. The applicable state law and client circumstances really do make a difference. Perhaps you do not fully appreciate the importance of those differences. Estate planning is not one size fits all.

It may be that trusts would be good for the OP’s parents. I am certainly not here saying that trusts are worthless or not good to use. I use them myself for some of my clients. But given my experience I think it would be foolish to say that it automatically must be the right choice when I have done estate plans that do not use trusts and that have worked very well with little cost to administer. That's why in the end, I think the OP’s parents are best served by seeing an estate planning lawyer to get a plan that will best fit their circumstances rather than taking the advice of some anonymous person (whether that person is you, me, or anyone else on these boards) on the internet whose qualifications they do not know and with whom they have never even spoken.

 

[LdiJ]

Just to mention one point that hasn't been covered...the retirement accounts should have beneficiaries. Your parents should be the beneficiaries of each other's accounts, and when the first one of them passes away the other should name another beneficiary or other beneficiaries going forward.

 

[HRZ]

THe guidelines for probate fees in MD are on line and are based on gross assets not necessarily the amount of work ...other fee arrangements are workable too , if negioated up front .

 

[TrustUser]

you asked "whose vernacular ?"

go to google. look up all the sites that advertise living trusts for creation. you would be hard-pressed to find even one of those sites who is advertising anything but a revocable grantor trust. on the other hand, you will find MILLIONS who are advertising revocable grantor trusts

revocable grantor trusts are used SYNONYMOUSLY with the term "living trust"

the fact that you want to nitpick, and not use the vernacular just makes you confusing to people you give advice to

and you are beating a dead horse, since you are about the only person who uses the term that way. it would be like me trying to remind people that "gay" means "happy". i could choose to be like you, and go to lengthy explanations every time i used the word gay. or simply accept the fact that everyone else uses the term exclusively to describe a homosexual person, and use the term happy, gleeful, etc to describe a "highly satisfied state of mind"

i, on the other hand, am not confusing. i knew dang well what the op was referring to, and answered his question in the way that it was asked

 

[Ohiogal]

I live in Maryland and both my parents are elderly with my father's health not so good. I'm married and have one brother who is single and we all get along well. Together we drafted a Will for each of my parents using Quicken Willmaker Plus software. Their Wills state that if one passes away, the spouse 100% of everything. If the spouse also passes, me and my brother get everything 50/50. My parents own two homes one of which is paid off and the other they are still paying. Outside of that they don't have any major assets aside from their retirement accounts which at this time they are not drawing from. Each home is worth between 400k and 500k. They don't have any debt aside from the one house that they are paying on. After drafting the Will and talking to some friends, they suggested doing a Trust instead. I did some reading on Trusts but am still not sure whether a Will is better or a Trust. In the even of death, I don't expect any infighting among the surviving family members. I understand that a Trust saves on Probate costs and perhaps taxes? But costs more to setup up front. I'd like to get some suggestions on whether to take the Will or Trust path with the goal being keeping the most amount of money with the family and not loosing it to court costs, taxes, etc.

So you broke the law and think this is appropriate? Have your parents HIRE an attorney. YOU stay out of it. You have no right to draft a will for your parents stating you get a single penny. HOW DARE YOU! That will can be cast aside easily.

 

[Ohiogal]

go with a trust. it is private, and then you dont have to worry about the probate system at all. i suspect you would find it difficult to find a place where probate on a million dollars of real estate cost less than a trust. however, i know there are lots of places where said probate can be 25 times more expensive, and a helluva lot more headaches, and wasted time, and, and, and etc..

OP can't do crap. She cannot have something prepared from which she benefits. But hey continue to encourage that.