Should I become a trustee?

[jinx]

Hoping to get some advice on a trust situation from the group.  I will consult with an attorney next week, but wanted to get a sense for what I may be getting into.  Here is the situation...

My mother just received an inheritance and now has an estate worth around a 1.2 million.  She lives very frugally and has no immediate plans for the money. Her expenses are covered by social security.  She is under the impression that she needs to set up a trust which would contain all her assets.  Her motivation is to avoid probate costs to the estate upon her death and I have been asked to be a trustee for my mother's estate.  I don't know much about the subject, but an hesitant to do so.  My concerns are:

1.  I would prefer not to manage the estate.  She can be irresponsible with record keeping and I am afraid I may be legally responsible/co-responsible for any tax mistakes/decisions she makes.

2.  It is her money and I want her to have free access to it.  If all her assets are under the trust, will she need to request money from me (the trustee) for large purchases (ex: vacations, etc)?

3.  I am not sure the complexity of the trust and necessary tax accounting (I would hire a CPA) are worth the cost of trying to avoid probate costs.

Anyone have any experience with a similar situation?  Thanks in advance!

[Hatton]

Why not just a will.  No estate taxes here.  My father had an estate of about 600k and a will worked fine.

[jinx]

Thanks hatton1.  I was thinking a will would be fine also.  My mom feels strongly that a trust is necessary base on advice from "friends."

[Craigy]

Who asked you to do this?  How did she get the idea in her head?  Sometimes elderly people hear during a bridge game that they need a trust, when it's really not necessary.

In some states there is an asset-based cost of probate, in others there is not.  So that may or may not be a good reason.

Practical questions:

• does her state actually impose substantial probate fees


• what's in it for you (why bother?)


• are you going to be compensated for your services as trustee


• is your mother going to want to spend down those assets


• who would be the beneficiaries of the trust (i.e., who is looking over your shoulder, besides your mother?)

 

[jinx]

Good questions Craigy.

 

She asked me to do this and has had a relative, who is an attorney, draw up some papers.  I told her I wanted to discuss with an impartial attorney and CPA to understand my obligations/responsibilities before signing anything.

-We are in GA.  I will see what probate fees would be.

-I am not looking for any reimbursement.  I am happy to assist her, but would prefer her to take responsibilities for the estate management.

- She does not have any plans to spend down the assets.  I am trying to convince her to at least take a small percentage (2-4%) each year and splurge or travel.

-  She plans to leave the estate to myself and several other siblings.

 

Unless probate fees are exorbitant, I will push for her to keep a will.  At the very least, maybe a trust which I would only be involved after her death (successor trustee?)  Just read about this option and am not sure if it applies.

[StarTrekDoc]

If you're worried she makes poor decisions, you may actually benefit from a living trust to manage finances as if it hits probate and you're on the will -  you'll have to get involved through probate and spend the time and energy that way anyways.   It's going to be your 'headache' as the beneficiary --- it's just a matter of which way is easier and more cost efficient in your state.

You can always name a 3rd party fiduciary for the trustee (more costs again).

The 'several other siblings' can be a biggie.

[adventure]

You seem to hesitate to handle this responsibility. Are you hesitant to admit what doing the work would really mean (read: death)?

Are you hesitant to do the extra work/hassle? To learn how? Have any of your SO's, spouses, siblings, close friends gone through this? Hesitant to admit what doing the work would really mean (read: family loss)

jinx wrote:

I am afraid I may be legally responsible/co-responsible for any tax mistakes/decisions she makes.

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For ^^, Are you hesitant from a larger legal perspective, or from a potential sibling issue?

You are both a beneficiary, and the chosen one (so to speak)

StarTrekDoc wrote:

It’s going to be your ‘headache’ as the beneficiary — it’s just a matter of which way is easier and more cost efficient in your state.

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I read this as, the train is coming, you can try and dodge it, but perhaps owning the responsibility is the best course of action. Planning ahead seems to be the best course of action. While I don't know the full costs, I can't imagine trying to pinch pennies here is worthwhile, and you aren't paying for it (at least directly). Get an attorney who does this, get a CPA if you don't want to deal with the numbers, the trust should pay for it. Parent has access to the funds (at least, read about a revocable trust) during living years.

Also,

jinx wrote:

I am happy to assist her, but would prefer her to take responsibilities for the estate management.

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Is this really an option now? Is she capable? Does she want to? Is she just delegating something she doesn't want to deal with? When will this not be an option any longer? What happens then? I'd also ask... why is she pushing for this now? Is she aware that things should be in order (even if decades away)? Is she trying to be nice to the family, and help push to get things in order before it's a larger hassle?

StarTrekDoc wrote:

–  She plans to leave the estate to myself and several other siblings.   Unless probate fees are exorbitant, I will push for her to keep a will.

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Is there a will?

jinx wrote:

– She does not have any plans to spend down the assets.  I am trying to convince her to at least take a small percentage (2-4%) each year and splurge or travel.

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Why push? Why doesn't she? Try and think about her perspective too, however much sense it makes or doesn't.

[Hank]

I'd be hesitant to be the sole trustee if you have other siblings who are going to be beneficiaries.  All it takes is one sibling (or brother-in-law / sister-in-law) to accuse you of self-dealing or mismanaging the trust and you could have years of family acrimony and possibly expensive litigation.

There ought to be a really strong reason why you have fewer than all of the siblings as trustees.  Despite the cost, a professional fiduciary as trustee may be appropriate.  Look at Vanguard or a mid-sized bank like Northern Trust, First Republic Bank, or BB&T.

[StarTrekDoc]

Hank wrote:

I’d be hesitant to be the sole trustee if you have other siblings who are going to be beneficiaries.  All it takes is one sibling (or brother-in-law / sister-in-law) to accuse you of self-dealing or mismanaging the trust and you could have years of family acrimony and possibly expensive litigation.

There ought to be a really strong reason why you have fewer than all of the siblings as trustees.  Despite the cost, a professional fiduciary as trustee may be appropriate.  Look at Vanguard or a mid-sized bank like Northern Trust, First Republic Bank, or BB&T.

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Exactly.   One other resource if the family has a close family friend.   I'm the trustee for a very close family we grew up with since childhood.

I was hesitant since all three siblings are close to us, but figured we know a heck more of the dynamics than a 3rd party bank would and could 'hold the peace' better, so I took on that mantle of responsibility for better-or-worse.

If you don't have a great relationship or think $$$ will play a destabilizing manner between your siblings. -- get a 3rd party.  I'd avoid trustees to all siblings as that gets nowhere fast.   One ship.  One captain.

 

[jinx]

Great advice all around. Thank you!

My mother is in her 60s and is in very good health.  She is active and exercises daily (often twice a day) at the gym.  Hopefully, she will be with us for many years.  I don't mind discussing plans for when she does die, but I don't think I need to be a trustee right now.  I think she wants someone to "manage" the money and taxes, etc.  I am happy to assist with these issues, but don't want to be the sole person responsible. I have always helped her out in these areas and will continue to do so.  In fact, tomorrow we are meeting with Fidelity to discuss long-term financial plans and convert inherited stocks to low cost index funds.

If she insists on a trust, I may propose she name herself as the trustee and I be made the successor trustee (at death).  While we are at Fidelity, I will also inquire about professional trust management.

Your comments regarding potential sibling discontent are probably pretty accurate. I can see a few siblings and in laws arguing about whether the estate is being managed optimally.

[jfoxcpacfp]

One issue that I believe she may have overlooked is protection for her assets in the event she has to enter a nursing home. Since she has no plans to spend the money, she might want to consider a Medicaid trust and start the 5-year look-back period.

A living trust for the purposes of avoiding probate is not a Medicaid trust. Georgia has a simplified probate process for small estates, so probate is really not a big hassle there, especially if the main assets are in an irrevocable Medicaid-qualified trust.

If her "inheritance" is as the beneficiary of a retirement plan, this becomes much more complicated.

[PHANTASOS]

An option that is less expensive than setting up a trust or probating a will:

For a taxable account you can fill out a transfer-on-death registration that will make the assets pass to the designated beneficiary outside of probate.  No probate, no trust required.  From your earlier post, it sounds like most of the inheritance is in taxable accounts (step up in basis being used to change into index funds).  Of course, beneficiary designations are also available on retirement accounts.

I will confess that I am rather enamored with Lange's cascading beneficiary plan, to provide maximum flexibility (the WCI article is good, but it's worth reading his book).

Of course it's only less expensive if medicaid doesn't eventually seize everything, or if her eventual cognitive decline doesn't lead to bad decisions while she has access to big piles of money.

[Hank]

Phantasos wrote:

An option that is less expensive than setting up a trust or probating a will:

For a taxable account you can fill out a transfer-on-death registration that will make the assets pass to the designated beneficiary outside of probate.  No probate, no trust required.  From your earlier post, it sounds like most of the inheritance is in taxable accounts (step up in basis being used to change into index funds).  Of course, beneficiary designations are also available on retirement accounts.

I will confess that I am rather enamored with Lange’s cascading beneficiary plan, to provide maximum flexibility (the WCI article is good, but it’s worth reading his book).

Of course it’s only less expensive if medicaid doesn’t eventually seize everything, or if her eventual cognitive decline doesn’t lead to bad decisions while she has access to big piles of money.

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I'm a fan of Lange's cascading beneficiary approach as well.  That and Roth conversions between say 55 and 70 1/2.

Even if your mother doesn't do something unfortunate with the money due to cognitive decline, greedy siblings or in-laws might say she didn't have capacity when she finally put assets into a new trust.

You want to start the clock early when you have a new will or trust to make sure that you clearly weren't impaired when you made the decision to move the assets.  Likewise you want to start the timer on the five year look back period for Medicaid asset transfers.