On 6/4/2014 4:49 PM,
honda....@gmail.com wrote:
> The husband wants to have the final say on the beneficiaries.
>
> The draft of the trust the friend is considering specifies 35 years
> old before a beneficiary can receive the dissolved trust's income
> and/or proceeds. That is, the nephews must be 35 before they get any
> income from the trust. For the nephews' issue (= the nephews' kids),
> the nephews must not only die but their issue (kids) must also be at
> least 35 before the trust dissolves.
>
> The assets are stocks and bonds in an account with only the husband's
> name on it. The husband recently inherited these stocks and bonds
> from a parent. My understanding is community property is not an issue
> for this part (the recently inherited stocks and bonds)of the
> estate.
It seems estate tax isn't a driver as it's so far below the limit. If
the threshold changes downward, he can amend the trust. It's all about
use and distribution of the trust assets, especially because he's
relatively young - there may be 30+ years ahead.
Community vs separate property - the inheritance from his parents is
separate, unless converted. That has significance if his wife passes
away first. Community assets are fully stepped up in cost basis at the
death of either spouse - eg stocks, stock mutual funds, the house.
Keeping them separate gives up that potential tax benefit.
Strictly for passing the assets to the nephews, he could set up a
revocable trust for himself that becomes irrevocable when he passes
away. Then, it's either distributed to the nephews if they're old
enough, or managed by a successor trustee until that time comes. While
irrevocable & in existence it would file its own tax returns and, if
income isn't distributed, pay taxes.
Of course, that cuts out the wife, so the trust will probably provide
some level of support for her if she outlives him. How much depends on
his wishes and her finances (less of an issue if there's other money
too). This could be a sticky conversation though; every restaurant check
during their retirement could raise the question of whether to pay for
it using "their money" or "the nephew's trust."
Also given the many years ahead, long-term care, and care and planning
around dementia and Alzheimer's need to be considered. Should the trust
be available to use entirely for care? Could it be depleted by a
successor trustee through gifts to the nephews, in lieu of paying for
more expensive care? Is asset protection part of the goal of this trust?
-Tad