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Will and Trust Questions


Kevin H

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We are 'residents' of South Dakota. We bank in Texas and spend most of our time in Wyoming and North Carolina. We need wills and a trust. Do we need to set it all up in South Dakota due to our 'residency', or can we do it anywhere?

 

Both would be as basic as one can get. Our situation has no complexity at all just wanting to avoid issues down the road.

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After being the successor trustee to my mother's trust a couple years ago, don't worry about complexity in drawing up a trust. Just make sure it is very accurate and complete, as you will make life miserable for the one responsible for settling things when the time comes if things aren't right. Fortunately for me, her trust was perfect, and I was able to handle everything without too much stress.

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Just doing this now through an attorney in Rapid City. I had it done previously in TX and this attorney said that SD has some beneficial tax laws and suggested making some simple changes to make it SD compliant. That is the direction I am going.

 

Do you know what those beneficial tax laws are? Neither Texas nor South Dakota has a state inheritance tax,and the federal estate tax doesn't apply if the estate is less than $5.45 million.

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When we went full time and "moved" to TX we had our wills redone in the state of TX. Just as importantly as the wills, apparently TX has "specific" wording that needs to be used with advance directives and DNRs in order for them to be honored, and that was one of the main things we needed to change.

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Our AZ stuff didn't pass the SD muster, had to be redone. No changes that I could see in reading them over, had to compare the two to find the fiddly bits that got tweaked. Couple hunderd bucks to save a whole lot of grief for our kids.

 

Oh, the SD docs didn't work for us when we moved back to AZ 10 years later either so it isn't just an SD or TX thing.

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First question you need answered is do you really need a trust.

 

Having a trust sounds really official but most people don't need one. Spend a few bucks to get a legal answer. Consult a lawyer in the state of which you are are a resident to get a legal answer.

 

In our case, with one daughter that would get everything, there is no need to have a trust. We just need a good will.

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Depending on your state and your assets you might not need a trust but if you do and don't have one you are leaving behind a mess and it is possible a lot of what you thought would be left to your kids will go elsewhere.

 

It is a complicated mess so start by Googling up your state of choice with something like: Do I need a trust in xxxx

 

I'd recommend a lawyer over some fill in the blanks forms, a bit more expensive but once you are dead it is hard to correct errors and omissions.

 

Trust, will and your medical document package should all be current for your state of domicile.

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My experience with a trust that an uncle established shortly before his death makes me look at any trust with a jaundiced eye. The shysters that drew up the trust - also managed to sell my 86 year old uncle with Stage 4 prostate cancer a large annuity. The terms of the annuity were that it would begin to pay out in 20 years and that withdrawals prior to the start of the payment in 20 years would come with a penalty ... BUT, that upon the annuitant's passing, the money could be withdrawn without penalty. This all sounded good to my uncle ... so he signed up. What he didn't realize - was that when they sold him the annuity - they listed his Trust as the annuitant. The shysters collected their commission on the sale of the annuity shortly after the paperwork was signed - and indemnified themselves from any "clawback" of their commission when my then 86 year old uncle failed to live for the 20 years. By listing his trust as the annuitant - it negated the clause governing the early withdrawal upon death - since the trust is a legal entity that can't die. In the end, that cost my uncles heirs $25K in early withdrawal penalties.

 

In my state (Michigan) - estate taxes aren't levied on estates that are less than $5 million dollars. If you're like many of us whose wishes are for the surviving spouse to inherent 100% ... and if there's no surviving spouse ... have their estate divided equally between their surviving children - a simple will stating exactly that works just fine.

 

Far as I'm concerned - for most of us, the whole trust game is there for the lawyers to prey on us.

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Actually the trust game today is a way to avoid lawyers and the taxman preying on us in a lot of states. A trust is simple to set up, simple to execute and avoids courts and probate in states where that is an issue. If your state doesn't have these issues or your stuff doesn't trigger probate then you might not need one but in a lot of states probate delays and costs are pretty grim. It is an old game:

 

 

Henry VIII relied on probate to raise taxes to finance his armies. When land passed through probate, the estate paid a tax. Then the Church created the idea of a trust, which avoided probate and deprived the King of his tax revenues. Henry VIII went to Parliament and had them pass the "Rule Against Perpetuities" which effectively said that a trust can't go on forever, so that its contents can be probated and taxed.

 

Yes you can get a bad trust and folks selling some them that are crooks or just incompetent, mom got hit by a door-to-door trust salesman. Took her to the cleaners for $2000 for pretty much a fill in the blanks trust, got her for another $500 for a legal review that was just a lawyer looking at it and checking the names and social security numbers. Charged her another $1500 to update it a few years later. The trust was a horrible mess, she hadn't done ANY of the things required to make use of it and it was not, even as revised going to do what she needed.

 

We took her to a reputable trust lawyer, they revoked the original trust and the modified version and set her up a new one that did what she wanted. They also did all the ownership transfers needed to make the trust work as designed. As part of the service they reviewed all her other assets and made sure they were set up the way she actually wanted them to be. What made me happy is that they will give me, the executor, a checklist of what to do step by step to take care of all of her assets when she passes.

 

If you Google Arizona probate you'll find the process is much more of a problem than a trust for most of the assets and a will for anything minor. I didn't look up SD today but I recall it was similar.

 

Every situation is different and what works for one may be a bad deal for another and if you move states the rules change.

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Count on it to cost $1000 -$2000 to update a complete set of estate documents if moving them from one state to another. Good lawyers cost money but there are plenty of bad lawyers that will take your money too. You have to do your homework.

Amen I think mind was $2030 and took over 7 month to get a draft copy, but all the T's were crossed and I's dotted so to speak..

As Stanley mentioned ask the question if the estate would go to probate. And I can tell that can be much more expense. And if there is a Bank lock box involved get a written record while your loved one can still acknowledge the contains just in case you have one of the bad attorney's

Clay

Been there and experienced that.

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Ouch, 7 months is horrible, in SD it was a week to have the final stuff signed as the original AZ version had all the needed info. Going back to AZ, ours took about 2 weeks as we had to wait for the house title to transfer, mom's mess was closer to 3 weeks if I'm recalling correctly, again waiting on stuff to transfer and getting back confirmations that the beneficiary designations had been fixed.

 

Finding a good place to get it done is very important, reading reviews and talking to friends and businessmen (like your mail service) in the area can be a huge help. The firm we went with specializes in wills, trusts and estates and is a multi-generation operation so if the father dies the kids will still be there running the firm to take care of us or our kids needs. We have sent several friends to them and they are happy with the results too.

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Depending on your state and your assets you might not need a trust but if you do and don't have one you are leaving behind a mess and it is possible a lot of what you thought would be left to your kids will go elsewhere.

 

I'm not aware of any state where a person "needs" a trust instead of a will. A properly written will can accomplish the same distribution of one's estate as a properly written trust can. There's nothing inherently "better" about a trust when it comes to specifying how you want your property disposed of at your death.

 

 

Actually the trust game today is a way to avoid lawyers and the taxman preying on us in a lot of states.

 

There is nothing a trust can do to avoid taxes that a will can't do.

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Blues, maybe I'm reading the rules wrong but everything I have found recommends avoiding probate court in Arizona as it is a long, involved and expensive process for most folks. If you have little to distribute there are shortcuts you can take within the AZ probate system that make it less painful.

 

We have worked with three different Arizona trust lawyers over the years and we trust their advice to go with a trust in AZ and our situation. Our SD lawyer said pretty much the same thing and he was doing trusts like ours just to meet RVers so I trust his opinion too. Fellow had a desk that I'd bet was worth more than our RV!

 

As always get good advice and do what is right for you.

 

Me I don't want to be fighting family for 6 months as mom's case works through the AZ probate court, don't want to have to be bonded, don't want to pay a probate lawyer a percentage of mom's estate (flat fee offers usually don't apply if there is a dispute) don't want any aggravation from my other family that I can possibly avoid. I want done in a month, which I can do with a trust and keeping the will under $50,000 in total assets.

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In our case we had a ranch and wanted a way for our cattle to be immediately sold and free up assets immediately to care for other ranch needs. Our attorney recommended a trust. Now the immediate ability for our assets to be freed up to cover expenses and the quick sale of assets that a trust provides appeals to us. When Mom passed we had to come up with some significant money to cover expenses until probate was complete. I don't want to put our kids in the same situation. The attorney has assured us the trust will accomplish this. At least so far the trust has been a lot less than probate. The few things that will go through probate should not be overly expensive. Hopefully the attorney is right.

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Blues, maybe I'm reading the rules wrong but everything I have found recommends avoiding probate court in Arizona as it is a long, involved and expensive process for most folks. If you have little to distribute there are shortcuts you can take within the AZ probate system that make it less painful.

 

We have worked with three different Arizona trust lawyers over the years and we trust their advice to go with a trust in AZ and our situation. Our SD lawyer said pretty much the same thing and he was doing trusts like ours just to meet RVers so I trust his opinion too. Fellow had a desk that I'd bet was worth more than our RV!

 

As always get good advice and do what is right for you.

 

Me I don't want to be fighting family for 6 months as mom's case works through the AZ probate court, don't want to have to be bonded, don't want to pay a probate lawyer a percentage of mom's estate (flat fee offers usually don't apply if there is a dispute) don't want any aggravation from my other family that I can possibly avoid. I want done in a month, which I can do with a trust and keeping the will under $50,000 in total assets.

 

In my post, I asked specifically about your statement about needing a trust instead of a will because otherwise "it is possible a lot of what you thought would be left to your kids will go elsewhere." As far as I know, there's nothing a trust can do in that regard that a will can't. Do you have specifics?

 

Same with using a trust instead of a will to avoid, as you said, the "taxman preying" on people. Trusts don't offer any tax benefits that wills don't have.

 

I briefly glanced at Arizona probate information, and it sounds kind of like Texas, which is one of the "easy probate" states. This site:

 

http://www.thepaquettelawfirm.com/faq/what-is-the-cost-of-an-arizona-probate/

 

indicates that the filing fee is pretty low. Also, a will can (and generally does) provide that the executor doesn't have to be bonded, and according to that site, lawyers in Arizona are prohibited from charging a fee based on the amount of the estate, so they will charge hourly for their work.

 

As for the difficulty of dealing with beneficiaries, revocable living trusts can be challenged, just like wills. And don't forget that for the rest of the trustor's life, s/he will have to be sure to transfer all of the assets (and subsequently acquire items) into the trust--something your mother failed to do, and not at all uncommon, unfortunately. And because of that, any decent revocable trust will have a pour-over will just in case, and if something is left out of the trust, there will have to be probate and avoiding probate is supposedly the reason for having the revocable trust in the first place.

 

Actually, this is from the State Bar of Arizona's website's section on trusts vs. wills:

 

Myth: Probate costs and attorney fees are usually as high as 10% of your estate.

Fact: Arizona court costs to open a probate are very modest. In addition, Arizona lawyers may charge only reasonable fees for necessary services, not percentage fees. Fees may increase in the event of tax issues, disputed creditor claims, or other litigation, but these same issues can arise with a trust.

 

Myth: In probate, assets are not distributed for several years.

Fact: An informal probate procedure can start as early as five days after death, and distribution can occur as soon as it is clear there are sufficient assets to pay expenses, creditors and taxes. Creditors have up to four months to submit claims and the personal representative may, but need not, delay distribution until the end of the creditors' claim period. A trustee may also have to delay distribution to pay taxes or divide property. An improperly prepared or funded trust may require money and time to correct before distribution can be carried out.

 

Myth: Probate forces the liquidation of your assets.

Fact: Liquidating assets is necessary only to pay expenses, creditors, taxes, or to make distributions to beneficiaries. A trust is not a guarantee against such liquidation for the same purposes.

 

Myth: Probate litigation is more expensive than trust litigation.

Fact: Unhappy family members or beneficiaries can challenge both wills and trusts. A trust is not a guarantee against litigation. Expenses will depend on the nature of the litigation.

 

Myth: A trust will avoid federal estate taxes.

Fact: A will or trust that provides for a "credit shelter trust" arrangement can reduce estate taxes for married couples who have combined assets over the federal estate tax exemption. A trust in and of itself does not reduce estate taxes at an individual's death, nor does a will.

 

Myth: Probate proceedings are complex and require special court approval.

Fact: In Arizona, most estates use informal probate procedures that do not require formal court approval. In many cases, personal appearance in court is not required.

 

That doesn't sound very onerous to me.

 

That's not to say that a living trust is never appropriate, but it's all too common to see "tax advantages" and "onerous probate" tossed around when that's not necessarily the case.

 

Plus, you never hear about the advantages of probate, like shortening the statute of limitations on creditors' claims (a living trust doesn't do that), or the flexibility to appoint an independent executor to serve without bond, which means paying creditors and distributing assets without court interference, but also the ability to specify a dependent administration, perhaps with bond required, if court oversight is desired because of the situation (like maybe squabbling beneficiaries, or if the executor is just the best choice of a bunch of bad alternatives).

 

That said, one situation where revocable trusts do have a nice benefit is when a person owns property out of state. If a trust holds that property, then ancillary probate to handle just that one asset in the other state won't be necessary.

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Blues, I paid good money for the legal advice I got and I'm going with what several different lawyers in two different states told me. If you are sure a trust is a bad idea for you then of course follow your instincts and go with just a will.

 

I know I'm going to be facing a legal battle on mom's death and the advice I got was to go with a trust for most everything and a small will as it will reduce the problems I will face.

 

On our deaths we don't expect any problems but it will be nice for the kids to have things set up the way we do now. Maybe unnecessary but the cost of the trust package versus the will package was quite small so we didn't consider going against the advice we'd been given to save the money.

 

Your two questions, on money not going where it was intended we have been assured, multiple times by multiple lawyers that in our case the trust/will combo will be less expensive and get the bulk of mom's assets distributed faster. I'm not so sure about just what tax advantages we are getting with a will over a trust, the savings might have come from some of the related changes we were told to make.

 

As to not being bonded, it may not be required but since I am nearly certain I'm going to be raked over the coals in court I'd like some protection. Since the amount of the bond will be based on the amount in probate, less money there equals less expense for the estate.

 

I'm not a legal estate expert, only been involved in settling two estates so far, so I got expert advice form folks with good reputations for mom's one and ours.

 

So, talk to your lawyer, get a second or third opinion if you want but in the end you must make your own decision.

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As to not being bonded, it may not be required but since I am nearly certain I'm going to be raked over the coals in court I'd like some protection.

Between observation and experience, I have concluded that disbursing the estate of a deceased person very often, if not in the majority of cases, causes family fights and hard feelings. To my amazement, my mother's estate which consisted of less than $3,000 in total value plus a life insurance policy payment of $2,600 still caused an upheaval among her children. As executor of that estate, I was accused of getting wealthy at her expense, even after she had lived her last 7 1/2 years in a full care center with the later years being paid for mostly by Medicaid due to the fact that her total estate had fallen to the point where she could not pay the excess cost over what she got from SS and dad's pension.

 

I'll not get into the details of her estate or the issue of will versus trust, but it is important to recognize that if there is more than one possible heir, the probability of a dispute, or at least talk of making one is very likely. My experience has made me very conscious of the potential problems for us, even though ours will not be a large estate. It is my suggestion that you sit down with your heirs and discuss your plans well before you depart this earth in order to minimize the potential family conflicts.

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Blues, I paid good money for the legal advice I got . . .

 

. . .I know I'm going to be facing a legal battle on mom's death and the advice I got was to go with a trust for most everything and a small will as it will reduce the problems I will face.

 

 

You are so right on this point.

Even with a Living Will the bank would not allow us to easily access the safe deposit box when my Dad passed. We were not on the signature card and it was not specified in the trust. There are so many details to cover in some families that good legal advice is essential to problem avoidance.

 

On another note, we recently learned that our Medical Directive is not recognized in Arizona because we own property in that state. Arizona requires that we have a directive particular to there state. Its an issue that we have not resolved as of yet.

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I am surprised that no one has suggested the "payable upon death" option instead of a trust. To keep it simple,it is in play before a will or probate. In our situation with two daughters,they each get 50%. They can fight over the odds and ends.

Since it is payed immediately,money is not an issue.

Not for everyone,but it fits our needs perfectly.

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You can do a lot with the "payable on death" option if it is offered on an investment and it is something our legal guys all recommended for most of her accounts. It does have limitations though as you have to set the distribution early enough in your life that your competence can't be questioned and making changes once you start having issues is a really bad idea if you are looking at a troublemaker in the family.

 

Mom was told that she shouldn't fiddle anything she has set up in her trust, will or distribution instructions without careful thought. Part of the trust/will/medical service was a competency evaluation by the lawyer and an attachment to the trust that he had interviewed her and found her to be competent to execute the document. That isn't bullet proof but it gives the judge something to hang his hat on once we get this mess to court. Any changes she makes now will of course open up the competency issues again and she is struggling a bit with complicated things now, at 92. I'm not sure she could do nearly as well today on the interview and she recalls it as being very stressful and doesn't want to do that again.

 

When you get to stuff that you can't designate outside the inheritance system or distribution schemes that are too complicated for a simple percentage the trust comes in quite handy. We are doing a few things to offset what mom wants to consider "early distributions" like helping buy a house.

 

Don't even get me started on dad's durable (I think that is the term) trust! He was deathly ill with cancer, drugged heavily, and decided to re-do his will as a classic (?) trust, holding his property until my mom's death. Now the basic idea of doing that was good, it protected mom from bad decisions on her part by ensuring she would always have an income beyond Social Security but by waiting so long he did not do a good job of it. He also trusted his friends, a lawyer he had worked with for 20 some years but that had little experience in trusts and a banker he had known even longer as the administrator. The lawyer failed to spot all the loopholes as I said, the banker was forced to sell his bank to a big bank company, they have been ripping us off every quarter since with outrageous fees, about 25% of the trust distributions so far have been to them for managing it! We could try to get the trust moved but that would again open up a can of worms and might cause mom to get shorted in the process.

 

 

Get good advice, act now before there are complications and once done resist fiddling, it is a great investment in peace of mind if nothing else.

 

 

On minor stuff our trust has a section called "bequests" that you can use for items not needing a title, collectibles, mementos and just stuff. You just write what it is, who it goes to then sign and date the entry on the form. Mom has had a good time looking at her stuff and deciding who gets what, not really sure the oldest grandkid really wants her microwave/convection oven as he lives 1500 miles away and it is several years old but it goes to him in the bequests and if he doesn't send me a letter telling me to donate it, UPS will be delivering it to him. Same with all the other stuff, I'll ship the designated small bits while the bulk is to be held for pickup for 30 days and if not picked up donated so we can clear the apartment lease at that point.

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