OT: Living Trust or Will?

[shiva_shakti]

I could use some opinions, suggestions and/or feedback...

my parents are in their mid-seventies. there have been some ongoing health concerns with my Dad (he is having his 4th surgery in 3 months this week - it's more or less indicative that his body is getting old and parts wear out). while I have several siblings, there is only one sibling besides myself that is capable of setting emotions aside to deal with the reality of the situation as a whole. what I mean by that is, my Mom is having a hard time - I don't want to cross any lines with her in the way of respect or get enmeshed with my folks, but I do want communications to remain open so that my brother and I can do our best to make sure that our parents' needs are met; I have communicated just that to my Mom. my brother and I have talked about discussing things like what my parents want in the event that one or both of them dies or becomes incapacitated - neither of us know. we know that there is a will. I have heard that a living trust is better. I am more concerned about knowing what they want in case they cannot communicate effectively at the time due to illness, grief, ... I don't know that this is even something that is appropriate for us to approach them about, but their health issues are more of an imminent inevitability now than before. and I am pretty sure that if my Dad dies before my Mom, it is going to be a very traumatic thing for her. I think that if we had some process in mind, it would make it easier for her ...

has anyone here had to deal with such a thing? if so, is this something to discuss with them or leave alone? if it is something to discuss, any recommendations as to where to look for advice to do so?

I appreciate your listening - thanks!

shiva

[Filliam H. Muffman]

A living trust is a good way to go if they have a lot of assets. It will help if they know a lawyer that they trust and has some experience with this type of thing. One of the best results for my parents was that they had to make a complete list of assets. It saved my mom a lot of problems when dad died 18 months ago. My mom is making things way too complicated though, like I do not understand why she still wants three checking accounts.

[shiva_shakti]

thank you Filliam.

I am not aware of them having a lot of assets. but again, we never really talked about money or finances or investments as a family... I would say that it's safe to say that they don't.

a lawyer that they can trust... hmmm... uh.... ??? do lawyers come in that model?

thank you, really, ... any information/feedback helps...

shiva

[fmgtech]

There are three basic instruments that just about everyone should have. Each one performs a different function. First just a regular will, i.e. one that deals with property and assets. Next a living will or durable medical power of attorney which is health related and basically an instrument which states what you want to happen if you become incapacitated. Finally the living trust is primarily important as a device to avoid probate. It doesn't help you to avoid estate taxes just probate. If the assets are fairly low (less than $500,000), you might be able to get by without the living trust. There are other things you can do like Pay On Death for most bank accounts, CDs etc. For real property in some cases you can use Joint Tenancy, but you must be careful about what are called Basis rules.

There has been a lot of previous discussion on this and some people say it is necessary to get an attorney to do all this. Some of it can be done on your own, but it just depends on what you feel comfortable with.

[shiva_shakti]

thank you fmgtech. you've given me a lot of information to go on. I will take a look at the history here on the forum as well to see what I can glean from previous discussions.

shiva

[Dick Moore]

My father in law set up living trusts for himself and for my mother in law. Their commercial and income property was equally divided between the two trusts, except for their residence, which was deeded directly to six heirs jointly (and capital gains taxes paid) as a way to give the daughters and the sons in law some immediate goodies. The two trust arrangement kept each trust under the taxable minmum, so that on death, each trust's property aquired a new tax basis for the heirs, and so that no captial gains taxes or death taxes were owed. Probate was avoided, and all bank accounts had been held with joint tenancy with rights of survivorship for a number of years with all the heirs, so there were no problems with closing the accounts and disbursing the assets. In general, these situations have to have existed for a number of years so that the IRS can see that they are not hasty dodges to avoid taxes. All of this worked very smoothly, especially since one of the heirs was always a trustee on each trust.

The idea was to involve the county, state, and feds to the least possible degree, and that absolutely depends on a general understanding among the heirs that these arrangements are desirable and will be honored. If any one heirs disagrees and wants to contest the settlements, then the advantages of living trusts or family trusts go out the window. In that case, a clear and recent will for each parent, well attested, is the best protection.

There is no best way to deal with these issues, and probate is unneceassarily feared by many who think that the costs to lawyers will drain the assets. Probate is not a generally bad thing, and with minimal competent legal help is easily navigated at relatively low cost. The keys are current, well-attested wills for each parent, and heirs who all are on board with the program. If those situations don't obtain, then nothing you can do now will prevent a disaster.

[Sam3]

It sounds like both instruments are not mutually exclusive, i.e. if you have a living trust, then the will is not necessary and vice-versa. Would that be a correct assumption?

[samintx]

I set up a trust for my mother. I was the only blood child but there were some step-children she didn't want to get ANYTHING. Till she died I was trustee and attended all her financial/medical needs from the Trust. When she died the Trust was mine immediately to spend, didn't go thru Probate where snoopy people or relatives could find out how much she had, not subject the lawsuits or attachments i.e. my kids will always be assured it will be there when I'm gone. I have a Trust also.

Probably any assets left in my mother's Trust will pass tax free to my children because I never owned any of my Mother's property/assets.

But as with anything it all depends on how much money is involved, what assets are involved and who the people around your parents are and relationships.

[wowzer]

Don't forget to get a Health Care Proxy. It's important to not get stuck without one. GL

[Chupa Chupa]

[quote samintx]

Probably any assets left in my mother's Trust will pass tax free to my children because I never owned any of my Mother's property/assets.
No not tax free. Trusts can avoid many things, but taxes is not one of them.

Shiva...the main reason people set up Living Trusts is for the reasons samintx noted. It's private, it's harder for those left out to fight than a Will, it avoids probate (but not taxes). However, even if you have a Living Trust you need a Will. The legal term is "Pour Over" Will. It's purpose is to define who gets what with assets acquired after the Living Trust was created or never included in the LT when it was created. Property in the Pour Over does have to go through probate.

So, if you have a contentious family, or a mixed family (lots of divorces), or lots of assets that need to go to specific people a Living Trust might be right. But, Estate Planning is too important a subject to not talk with an attorney before doing anything. There may be other options in your state that could cost you less money or be more advantageous.