Living Trust as a Contingent Beneficiary...Yes or No?

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Janz Hobbs

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Texas
Background:
Married, no children, no heirs. Ages 50 and 59.
We are leaving our estate to four charities, none of whom have been notified they are beneficiaries.
Estate currently valued under $2 million.
All of our accounts and assets are jointly owned, and we are each other's beneficiaries.

We have a revocable living trust set up, it is currently unfunded, but planned on putting house back in after refinance. We also have pour-over wills.

Two years ago we had our trust amended and restated, and the attorney named it incorrectly. They've offered to fix it, and we also want to change our executor again.

Our Trust contains a Surviving Grantor's Trust and a Marital Trust. I've recently been told these are not commonly found in living trusts, are not needed, and only present complications for the surviving grantor.

Now we are questioning if we even need a trust based on the size of our estate and having no heirs. (FYI, it also includes a pet trust to take care of our pets after we're gone.)

We've spent over $5k making changes to this document and don't want to spend more if it's unnecessary.

Questions:
What are the benefits of a trust for a married couple in our position? Privacy? Sheltering assets from potential lawsuits?

Do we need to bother with this trust?

Do we need to remove the Surviving Grantor's and Marital Trusts within the living trust?

We've gotten so much conflicting information, I'm just trying to figure this out and not go broke doing so.

Thanks very much!
 
Janz Hobbs said:
What are the benefits of a trust for a married couple in our position? Privacy? Sheltering assets from potential lawsuits?
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Don't seek the counsel of strangers when important financial matters are involved.

Janz Hobbs said:
Do we need to bother with this trust?
Click to expand...

Don't seek the counsel of strangers when important financial matters and estate planning are involved.

Janz Hobbs said:
Do we need to remove the Surviving Grantor's and Marital Trusts within the living trust?
Click to expand...

Don't seek the counsel of strangers when important financial matters and estate planning are involved.


Janz Hobbs said:
We've gotten so much conflicting information, I'm just trying to figure this out and not go broke doing so.
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If you seek the counsel of strangers when important financial matters and estate planning are involved that is EXACTLY what MIGHT occur.

Discuss your concerns with reputable estate planning attorney and no one else.
 
Janz Hobbs said:
Married, no children, no heirs.
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Everyone has heirs. If you have no will or trust that says otherwise, there is an order for these things that usually goes something like this: spouse, issue (i.e., children, grandchildren, etc.), parents, siblings, issue of siblings, grandparents, aunts/uncles, issue of aunts/uncles, etc.

Janz Hobbs said:
Estate currently valued under $2 million.
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With assets of this magnitude, you would be extremely foolish not to retain the services of an estate planning attorney to help you with the issues in your post.

Janz Hobbs said:
we also want to change our executor again.
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I assume you meant trustee, not executor.

Janz Hobbs said:
Our Trust contains a Surviving Grantor's Trust and a Marital Trust. I've recently been told these are not commonly found in living trusts, are not needed, and only present complications for the surviving grantor.
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You've been told by whom? Did this person offer an explanation why he/she thinks they "are not needed" and will "present complications for the surviving grantor"?

Janz Hobbs said:
What are the benefits of a trust for a married couple in our position?
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For the first of you to die, it provides zero benefits whatsoever. Determining whether it will provide any benefit for the survivor would require reading the trust instrument and being completely familiar with your financial situation. Since we don't really have any understanding of
"[y]our position," we have no way of intelligently saying more than that.

Janz Hobbs said:
Privacy?
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Maybe.

Janz Hobbs said:
Sheltering assets from potential lawsuits?
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No.

Janz Hobbs said:
Do we need to bother with this trust?

Do we need to remove the Surviving Grantor's and Marital Trusts within the living trust?
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I haven't the slightest idea, and I certainly hope that you would not consider acting on a response to these questions provided by an anonymous stranger on the internet.
 
With a $2,000,000 estate you shouldn't be concerned with paying even another $5000 to get your estate planning done correctly.
 
army judge said:
Don't seek the counsel of strangers when important financial matters are involved.



Don't seek the counsel of strangers when important financial matters and estate planning are involved.



Don't seek the counsel of strangers when important financial matters and estate planning are involved.




If you seek the counsel of strangers when important financial matters and estate planning are involved that is EXACTLY what MIGHT occur.

Discuss your concerns with reputable estate planning attorney and no one else.
Click to expand...



...All of the "advice" I've received is from estate planning attorneys. Three different ones to be exact.

zddoodah said:
Everyone has heirs. If you have no will or trust that says otherwise, there is an order for these things that usually goes something like this: spouse, issue (i.e., children, grandchildren, etc.), parents, siblings, issue of siblings, grandparents, aunts/uncles, issue of aunts/uncles, etc.

Between the two of us, we (I) have one brother. I am leaving him some money when I die, but he is not responsible and I cannot leave him as a trustee or executor.

With assets of this magnitude, you would be extremely foolish not to retain the services of an estate planning attorney to help you with the issues in your post.

I have...the first one re-did our trust and put the wrong name on it. I've since spoken to two others and am not feeling confident.

I assume you meant trustee, not executor.

Yes, Trustee on the Trust, Executor on the wills.

You've been told by whom? Did this person offer an explanation why he/she thinks they "are not needed" and will "present complications for the surviving grantor"?

Estate planning attorney here in Texas, supposedly seasoned. He said that it's foolish to have these in the trust. For example...if the surviving spouse takes funds out of the estate to go on vacation, and one of the beneficiaries (one of four charities) finds out, they can object and/or sue. This is ridiculous, right? First of all, they don't even know they have been named as beneficiaries at this point, and won't until both of our deaths, and then only if there is money left to distribute!
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adjusterjack said:
With a $2,000,000 estate you shouldn't be concerned with paying even another $5000 to get your estate planning done correctly.
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Ok, to be clear, most of that value is in real estate, so there's that. I'm willing to spend what it takes to do the right thing. I'm here for direction...and an answer to the question of whether or not I need a trust.
 
Janz Hobbs said:
Ok, to be clear, most of that value is in real estate, so there's that. I'm willing to spend what it takes to do the right thing. I'm here for direction...and an answer to the question of whether or not I need a trust.
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A trust would be wise, in my opinion.
 
Janz Hobbs said:
answer to the question of whether or not I need a trust.
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You indicate the two of you wish all of your earthly assets to be GIFTED (upon the demise of you BOTH) to four charities.

People elect to use trusts to ease any erosion of their assets by the various taxing entities.

I won't comment on the efficacy of such a belief, other than to say, one can certainly exercise whatever choices he/she/it may have.

In your case, your intent to bequeath the entirety of your assets is certainly an unselfish motive.

No one can tell you if a trust is better than simply bequeathing your "combined" assets via a will.

You and the other party must make any and all decisions regarding the final disposition of your assets.

An attorney can only accomplish your wishes.

I wish you a long, healthy, prosperous life; God bless you both for doing what you can to aid others in need.
 
Zigner said:
Janz Hobbs said:
I'm here for direction...and an answer to the question of whether or not I need a trust.
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A trust would be wise, in my opinion.
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I don't disagree with this, but I think it's worth pointing out that the primary benefit in having a trust will belong to the beneficiaries. For an individual leaving his/her assets to family and/or friends, a trust streamlines the process of transferring assets by (possibly) avoiding probate. Needless to say, avoiding probate is of no benefit whatsoever to the dead settlor of the trust. Since you're leaving everything to charities, the question becomes whether you want the ultimate amounts that those charities received to be maximized and are you willing to spend money now to achieve that result?

Janz Hobbs said:
All of the "advice" I've received is from estate planning attorneys. Three different ones to be exact.
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If you feel like you're getting conflicting information, then that's something you need to sit down and discuss with one or all of them. Folks on the internet who know virtually nothing about you have no way of intelligently knowing what's best for you.
 
What are your opinions on the trust containing articles for a marital trust and a surviving grantor's trust?

Is this common or unusual?

Helpful?

I realize you don't know what the document says, but I'm assuming this must be standard language (we didn't ask for these or add anything).

I'm not going to run out and make any changes based on anything said here...I'm just gathering information and am interested in hearing your thoughts.

Thank you~
 
Janz Hobbs said:
What are your opinions on the trust containing articles for a marital trust and a surviving grantor's trust?
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I think they're a good idea in some cases and not in others. Whether they're a good idea for you is something no one here can intelligently address. If you want generalized discussion, I'm sure a few well thought out google searches will generate a wealth of information.
 
Janz Hobbs said:
What are your opinions on the trust containing articles for a marital trust and a surviving grantor's trust?
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I'd have to read the trusts to see what was actually done to be sure, but I suspect that what was done here was a credit shelter trust arrangement that was popular years ago but not used nearly so much today. The purpose of such a trust arrangement is to maximize the federal unified credit against estate and gift tax while also trying to ensure the surviving spouse will have as much as possible to meet his or her needs during his/her remaining lifetime.

The problem that used to come up is that if you give everything to your spouse when you die, which is what most couples would generally do, that transfer is free of federal estate tax but gives up the credit of the first spouse to die. When the second spouse dies, then only his/her credit is available to cover the gifts from that spouse to the beneficiaries. For example. Suppose that Amy and Bill have assets of $2 million at a time when the federal unified credit was $1 million dollars. They have two kids, Claire and David. Bill dies first with an estate of $1 million.

If he gives it all to Amy, there is no tax on his estate due to the marital deduction. Then when Amy dies, she has an estate worth $2 million, but she only can cover $1 million of it with her unified credit. The remaining $1 million gets taxed (using the rates that were in effect a few years ago) at 45%. So $450,000 goes to the government and Claire and David split the remaining $1,550,000.

Bill could just split his estate at his death and give $500,000 to each to Claire and David, which are tax free because the $1 million total gifts they get are covered by the $1 million unified credit. Then when Amy dies, she also gives Claire and David $500,000 each, for a total of $1 million that is covered by her unified credit. So doing this avoids giving the government $450,000. The tax result is good, but it means that there is $1 million that Bill gives the kids when he dies that then is not available for Amy to use should she need it during her lifetime.

The credit shelter trust avoids that problem by having Bill give his estate to trust in which the kids will get the balance in the trust when Amy dies but that during Amy's lifetime gives the income from the trust and a right to get some of the principal, too, if needed. The gift to the trust uses up the $1 million unified credit and eventually the kids will get the trust assets, but it also provides extra security for Amy while she lives. Then when Amy dies she gives her estate to the kids using her unified credit and the trust gives what is left in the trust to the kids, too. This time no estate tax is paid but Amy gets something from Bill's estate to help her during the years she survives him.

Quite often two trusts would be done, the second one a marital trust. That marital trust would qualify for the marital deduction but would limit the spouse's use of the assets after she dies; it's a way of controlling what happens with the money after Amy dies rather than letting her decide where it goes.

The credit shelter trust is no longer needed in most cases because about a decade ago Congress finally woke up to the fact that people were having to use the credit shelter trusts to get a result that should simply be available under the law. So Congress allowed for an election by the estate of the first spouse to die to transfer his/her credit to the surviving spouse. Using that election, Bill can give his $1 million estate to Amy for her to use, and give her his $1 million credit. Then when Amy dies, she now has $2 million of credit to cover all of the $2 million she gives to the kids.

Also, the unified credit today is much higher than before. For those dying in 2018 through 2025 the credit is over $10 million (which means for a married couple $20 million could pass tax free) and after 2025 it will go back down to something over $5 million each. So for couples with less than $10 million in assets to pass there is no need to worry about federal estate tax. A lot of states no longer have estate/inheritance taxes either. The credit shelter trust might be useful for people with smaller estates in some states that still have some kind estate tax, though.

Note that gifts to charity are tax free, too. Here, the planning would be to set up a charitable trust that would provide for the surviving spouse and then give the trust to the charity when the second spouse dies. Again, though, you only need worry about that if you have an estate large enough to be subject to estate tax in the first place.
 
Janz Hobbs said:
Can you give me an idea as to the downside of having them in the trust, based on my original post?
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It all depends on the type of trust that you use. By far the most common trust used today for estate planning is the revocable living trust. These trusts are merely will substitutes. They direct where you want your stuff to go when you die but unlike a will the assets in the trust do not go through probate. In states where probate tends to be slow and/or expensive the revocable living trust can get the distribution done faster and without the costs of probate. I don't know what probate is like in your state. Because the trust is revocable it is a grantor trust under the Internal Revenue Code (IRC). Grantor trusts are basically ignored for federal tax purposes, so the income and deductions of the trust are reported on the tax returns of the grantors (you and your wife) and when you die all the assets in the trust are part of your gross estate for federal estate tax purposes, giving all the assets in the trust the same bump up in basis that they get if they were part of your probate estate. The trust being revocable also means it's very easy to change later if you want.

There are almost an endless variety of ways that trusts can be constructed, each with their own uses, with different benefits and drawbacks. There are today too a lot of ways to avoid probate that you can do without using a trust at all.
 
Lots of differing opinions on this topic, so looking forward to your opinions.

My husband and I have a Revocable Living Trust.
We are the only trustees.
We are each other's only/primary beneficiaries.
We don't have kids or any other beneficiaries.
Our contingent beneficiaries are four charities.

Should we name each other as primary beneficiaries at 100%, and the four charities as contingent beneficiaries, each getting 25%; therefore leaving the trust completely out of it.

Or

Should we name the trust as the 100% primary beneficiary? My understanding is that this way if I'm dead, the funds will go straight to the charities, and vice versa?

Are there tax consequences to either scenario? (We are well below the threshold.)

At one retirement seminar we attended, the financial planner was ADAMANT that we NEVER list a trust as a beneficiary!!! Thus my confusion/hesitation.

Thanks a lot!
 
You would be wise to seek out the advice of a local professional estate planner (ie: an attorney) who can review your entire situation and give advice that is personalized.
 
Janz Hobbs said:
Should we name each other as primary beneficiaries at 100%, and the four charities as contingent beneficiaries, each getting 25%; therefore leaving the trust completely out of it.
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I don't understand this question. You wrote that you and your husband are each other's "only/primary beneficiaries" or the trust, which I assume means that, when one of you dies, the other remains as the only beneficiary of the trust. You then told us that you have four charities as "contingent beneficiaries" of the trust, which I assume means that, once both of you die, the charities receive the trust assets. Right? So, are you considering changing that? If not, what are you talking about here? Also, if you're considering "leaving the trust completely out of it," what would you be naming each other and the charities as beneficiaries of?

Janz Hobbs said:
Should we name the trust as the 100% primary beneficiary?
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Beneficiary of what?

Absent an explanation of what you're talking about, all I can say is that you should consult with an estate planning attorney.
 
Janz Hobbs said:
At one retirement seminar we attended, the financial planner was ADAMANT that we NEVER list a trust as a beneficiary!!! Thus my confusion/hesitation.
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When you started this thread three months ago, it was suggested that you retain an attorney familiar with trusts and estate matters.

Don't waste your time seeking free information that could ruin you financially, or fail to do what you wish done upon your demise, after all, you and your beloved are the only beneficiaries of your financial largess, which will pass to four charities after BOTH of you are called to the vast, great unknown.

Interview and retain an attorney you trust to assist you with your trust.
 
Janz Hobbs said:
Are there tax consequences to either scenario? (We are well below the threshold.)

At one retirement seminar we attended, the financial planner was ADAMANT that we NEVER list a trust as a beneficiary!!! Thus my confusion/hesitation.
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I'm not sure what qualifications this "financial planner" has, but if he/she is simply a financial planner then he/she is not qualified to opine on that since that answer calls for legal advice and moreover is outside the scope of what financial planners are skilled at. Wills leave assets to trusts all the time, and there are good reasons for doing that. So saying that a trust should never be a beneficiary of an estate is simply wrong. That's the first indication that this financial planner is probably not someone whom you want to look to for advice.

The main purpose for most people in using a revocable living trust is to avoid probate. Probate is in some states rather expensive. (I don't know about Texas, but I don't get the sense that it is among the states where probate costs are known to be quite high.) Probate can be slow. That depends on the details of the probate process in the state, what assets are involved, and what debts have to be sorted out. And probate is a public record. Anyone can go to the courthouse and see the will and anything else that was filed in the court during the probate process.

Assets placed in a living trust (which is the popular name for what the law calls an inter vivos trust) do not become part of the probate estate at all. So the assets already in the trust at death never become part of the probate process. And the trust document does not get filed with the courts unless there is a dispute about the trust that ends up going to court. So trusts are private. And since the assets in the trust are not subject to probate, usually the trust can be settled out faster than the probate estate would be. Making the trust revocable gives two additional benefits. First, it gives you flexibility because if your needs change you can undo the trust and do something different. Second, a revocable trust is a grantor trust under the Internal Revenue Code (IRC). Grantor trusts are ignored under the tax law and the assets in the trust are treated as though they are assets of the grantor. So you get the same tax advantages as you would if your assets were not in a trust and instead go to probate, most notably the step up in basis in the assets.

But even with a revocable living trust, often not every asset manages to make into the trust before you die. For that reason, it's a smart idea to have a will to address stray assets that didn't make it into the trust. That will can be very simple and just give all the probate estate assets to the trust. This sort of will is called a "pour over will" because it pours all the assets in the estate over into the trust.

What you usually would not do is have everything go to your estate and then have the estate give all that to the trust. Doing that means all your assets still go through probate, and then you send the assets to a trust before going to the final beneficiaries. That simply adds an extra step that in most cases does not benefit you at all.

So if you want to use a revocable living trust for avoiding probate make sure you fund it with at least your most significant assets. Then have a will to deal with anything that doesn't get put into the trust before you die.

For a lot of assets, you have other options for avoiding probate that do not involve a trust, like naming pay on death beneficiaries on your financial accounts or owning property jointly with someone else as joint tenants with a right of survivorship.

And you can always just have everything to probate and have your will deal with it all.

Each person's situation is different, so to come up with the plan that works best for you, see an estate planning attorney (not a financial planner). The attorney can advise you on what makes the best sense for your situation and can draft the documents you need to do it. The financial planner cannot do that for you.

 
All - my apologies. I failed to specify that the question was pertaining to a beneficiary form for a life insurance policy - that's probably why this thread was moved here. We have taken care of all of our trust/will issues. Also, I have spoken to three attorneys and have gotten three different answers...thus my inquiry here.

Our original attorney told us to list the trust as primary beneficiary on everything (401ks, annuities, beneficiary forms, etc.). Another said to list the trust only ever as a contingent beneficiary. A third said to not list the trust as a beneficiary on anything...just to list each other as primary, and the charities as contingent at 25% each. I'm a bit dismayed at the varying opinions from these attorneys, all of whom are in estate planning and none of whom are newly licensed.

I'd have to wonder what is the point in having a trust if we're not directing all assets/proceeds/payments into it.

Also, just to clarify, the federal agency my husband is retiring from conducts a 3-day seminar on retirement, including a discussion with an attorney and a financial planner. They both said to not list the trust as a beneficiary or contingent beneficiary.

I am just here to get opinions, and am going to do more research before making changes. This inquiry is just part of my research.

If anyone would like to weigh in with this new piece of information, I'd appreciate it. Thanks.
 
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