Everything You Wanted To Know About Trust Funds

trust fund2I was speaking to Bob, a 42 year old acquaintance who told me that he received a trust fund when he was 35 because his parents sold his grandparent’s company for around a hundred million dollars. Can you imagine getting a phone call from dad one day after busting your butt in high school, college, and work for 21 years to find out you just inherited $10 million bucks? What’s more, you learn that your seven year old son also inherited $3 million dollars with a trust of his own. Time to kick back and do nothing!

I asked Bob why he was still working, and he said, “For pride. I want to see what I can do on my own. I never want to touch my grandparents’ money because I would feel a lot of shame. What business do I have using their money to pay for a first class plane ticket when he bent over backwards building his own company.” Bob said he would never touch his trust fund for as long as he lives.

Bob is a rare breed because I’m pretty sure most of us would molest the trust fund in some way. I’m looking to buy a house in San Francisco, for example. What’s withdrawing $200,000 for a downpayment when there is $9.8 million left? At least I’m not buying a mega-mansion for $8 million. I’m going to London for Wimbledon this summer. Instead of going back home in the middle of the tennis tournament due to work and insane $1,500 tournament ticket prices, I’d just stay through to the end.

Maybe I’m being dishonorable with my grandparents’ money, but gosh darn it. I’m telling you guys the truth! Can you handle it?

RING RING DAD

After hearing Bob’s story on inheriting a multi-million dollar trust fund in his mid-30s, I shot an e-mail to my dad that evening and wrote,

“Dear Dad,

I hope all is well. Any chance I have a trust fund?

Your loving son”

My father, true to form, responded in his usual curt manner, “No, you don’t.”

Damn it! Back to the salt mines I go.

THE BASIC THOUGHT PROCESS BEHIND TRUST FUNDS

The quick and dirty way to think about trust funds is to first think about the death/estate tax. The estate tax is basically a tax the greedy government deploys whenever you die with assets above a certain amount. For those who love to spend everything they have, you guys might just be on to something!

For the year 2014, $5.34 million of your estate will be excluded from taxation upon your death. For couples who are legally married, the federal exemption of $5.34 million may pass directly from the first-to-die to the surviving spouse, thus providing a federal exemption upon the second spouse’s death that will increase from $5.34 million to $10.68 million.

In other words, if you have less than $5.34 million in assets as an individual or less than $10.68 million in assets as a married couple, there’s really no need to set up a trust fund to avoid taxation for an offspring. All you’ve got to do is write in your will who gets what upon your death. 99.5% of all estates fall under this amount so for practically all of us, this post is irrelevant. On the flip side, now you have a good idea of who the really rich people are if you find out they have a trust fund.

If you do have more than $5.34 million as an individual or $10.68 million as a married couple, creating a trust fund per person is a smart way to go because you get to avoid the estate tax on any money over those amounts for singles or married couples. The highest rate for the estate tax is currently 40% (down from 55% in 2001). Either way, taxing people more when they die seems like a very peculiar thing to do since their incomes were already taxed when they were alive.

But given there’s been such a widening of the wealth gap over the past century, it might not be a bad idea to redistribute some of the wealth to those who need money the most. Unfortunately, the government has proven time and time again to be inept at helping people in need.

Another fantastic reason to set up a trust fund is to avoid potentially messy probate proceedings upon your death. Can you imagine family members fighting over your assets, no matter how small or large they are? “If you know exactly how you want to distribute your assets, why make your beneficiaries go through all the paperwork after your death to handle this when you can spend a small amount up front to set up the trust,” says John in the comments below. John said his trust cost $5,000 to set up.

UNIFIED CREDIT AND ANNUAL GIFT TAX EXCLUSION

If you’re really rich then you should be aware of the unified credit in estate planning. It gets its name because the federal gift tax and estate tax are integrated into one unified tax system.

The unified credit allows you to give away $5 million (plus the annual inflation adjustments) during your lifetime without having to pay gift tax. Heck, why there is a gift tax in the first place is beyond me.

For 2014, you can give $14,000 a year to as many people as you want without triggering the gift tax. The amount is indexed each year for inflation.

In addition to the annual exclusion amounts, you can also give the following without triggering the gift tax:

  • Charitable gifts.
  • Gifts to a spouse.
  • Gifts to a political organization for its use.
  • Gifts of educational expenses.
  • Gifts of medical expenses.

MORE QUESTIONS AND ANSWERS ABOUT TRUST FUNDS

Given I’m not a lawyer, but I have slept at a Holiday Inn Express, I’ve asked my Yakezie blogger buddy Evan from My Journey To Millions help answer some follow up questions I had that you may also have about trust funds. Evan is an estate planning lawyer out in New York City.

Sam: How much does it cost a typical family to set up a trust fund with a lawyer? What determines the cost of setting it up? e.g. time, amount in the trust, etc.

Evan: Are you talking about inter vivos trust (during life? to receive gifts?) or testamentary (created at death for inheritance). I can’t really answer time and cost they are all relative to where one lives and what type of attorney they are using. Living in the NYC area you can find a competent attorney at $1,000 for a plan all the way up to $50K in some larger firms in the city (and everything in between).

Sam: What are the list of rules you can institute before the trust beneficiary can legally withdraw money from the fund? e.g. age seems to be a common one, but what about saying “Only if the trust beneficiary gets married,” “Only if the trust beneficiary has a job making less than $50,000,” “Only if the trust beneficiary gets a graduate degree in Philosophy from a top 20 school,” etc.

Evan: The rules can vary from pure age (the majority) to some of the examples you provided. What one has to avoid is using a rule that is either ambigious and/or against public policy. An example that I remember seeing was “income as long as they are following Jewish customs.” It is easy to imagine the horror that would incur in court over “what is Jewish enough for a payout.”

Sam: I’d like to know how many rules one can create. I imagine a lot of trust beneficiaries grow up to be not the ideal people in the eyes of the trustees. How do we make sure good people get the money and not spoiled, lazy folks?

Evan: If we are talking inter vivos (i.e. created during life) then often you’ll see provisions where the Grantors/Settlors/Trustors are able to fire the trustee and replace with someone who is not subordinate under IRC 672 (e.g. no kids no employees). If we are talking about at death beneficiaries often have the power to replace trustees and if not expressed specifically there is often a provision in a State’s laws to provide for same.

Sam: What are the main tax advantages of setting up a trust fund?

Evan: The main tax advantage is for estate taxes not income taxes. Especially when you consider that Trusts are taxed at a compressed tax schedule for income tax purposes.

Sam: Is the trust fund only necessary for those who are worth more than $5.34 million since $5.34 million is exempt from the death tax as of now?

Evan: ABSOLUTELY NOT. A trust is nothing more than a tool. It is hard to get people to think about trust outside the connotation of a stuffed shirt Ivy League brat. For example could 21 year old Sam have inherited his parents’ money? No way, he would have blown it on the BMW you’ve talked about since you’re pretty frugal. Me? I would have went for the Benz. So you lock it up in a trust until an age someone thinks is appropriate.

Sam: What if you have a child with special needs and isn’t very good with money?

Evan: Then you’d have to look into a 3rd party special needs trust REGARDLESS of how much money the family has.

Sam: Can you basically set up a trust so that only a certain amount can be withdrawn a year by the trustee? e.g. $3 million trust, max $30,000 a year for the next 30 years?

Evan: You wouldn’t do it but you could limit your Trustee’s discretionary power. Often one is looking for flexibility with control.

Sam: What’s the most common misconception about trust fund babies in your experience?

Evan: That they must be wealthy beyond belief. As explained above there are tons of random examples.

Sam: At what income and net worth level do you see trust funds start to be created?

Evan: All depends on the situation – Special Needs Trusts (SNT) get created with anything, while dynasty trusts (multi-generational trusts) usually take millions to make sense. Something good to know: Invter vivos vs testamentary do not refer to when the child gets the money – it refers to when it is funded. Inter vivos trusts are funded while the parents are alive (i.e. using the $14k/yr gifts) while testamentary trusts are funded while mom and dad die. 

TRUST FUNDS FOR ALL!

Thanks to Evan’s feedback, it looks like trust funds are available not just for the very wealthy, but for everyone who wants to have more control over how their funds get dispersed during their lifetimes and after death. There are plenty of people out there who need financial help, but would probably waste their windfall given the lack of discipline or money management skills. A trust fund can help make the money last longer to a loved one, besides just avoiding estate taxes upon death.

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Thanks,

Sam

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Kristy says

    When we had our first child 8 years ago my husband and I set up wills and trusts for her and any future children. Part of the reason was that we don’t trust my family from trying to take the kids and all of our money (we are worth more dead due to life insurance right now) and we wanted our kids to be taken care of for the rest of their lives. We also set up a guardian for who will raise our kids if we die. In addition, we have an executor of the estate who will take care of our finances and give money to the legal guardian and children while they are being raised. We have it set up where the executor can use the money for college and any needs up until college. After that, the kids will receive half of what’s remaining at 25 and the other half at 30. We have been talking about increasing the age the kids receive half of their funds and I am not sure how I feel about it. I hope we covered everyting in our will and trust…..maybe I will gain some insight by reading some of the comments.

    • swensodts says

      (we are worth more dead due to life insurance right now) – That’s saying something about your relatives? Sounds like a rather morose line of thought. I’ve seen several families, with clearly defined wills, torn apart over them. Court Battles that have lasted years. All the planning in the world won’t stop some people from fighting over free or life changing money.

      • Kristy says

        Of course its morose. The discussion of wills and trusts is not usually taken lightly. But yes, if we die then the kids will have life insurance on top of everything else we have. Because the kids are little, we have larger life insurance policies. I don’t trust some of my family…..not everyone comes from happy homes. Unfortunately, we can only plan and hope that our families would not fight us on our wishes if something did happen to us.

    • Fatchance says

      My will sets up a trust for my kids that gives my brother in law guidance but complete control over distributing funds to my kids. In a separate letter, I explain that if my daughter has a child and is working hard but could use help with a down payment on a house, then please help her out. If my son is dead broke because of drug addictions, he is to get nothing…ever. I do not want my kids getting anything until they have had a chance to make it on their own. Currently they each get half when they turn 40. I honestly thought of raising this age to 60. That way they have a comfortable retirement no matter what but reap what they sew during their working careers.
      This may sound a little harsh, but my spouse does taxes for very rich people who have left vast sums for their spoiled kids and it almost always screws them up.
      Sam, the person you reference who got $10M but does not want to touch it and make it on his own is EXACTLY how I would love my kids to turn out. From the stories I hear from the wife, he is the exception to the rule and sounds like a good man.

      • says

        I have clients who decided to never pay out their trust and then I have clients that pay out at 21. There is no “right” answer but the documents have to follow your testamentary intent.

    • says

      Nice job being so on the ball with estate planning.

      I would strongly consider raising the earliest age to 35, not 25. Let’s all think back to when we were 25. Oh man, I think I would have gone a little nuts…. b/c I had my little moment of quarter life crisis as well.

      At 35, I would totally appreciate the money much more b/c I’ve had many more years to understand about investing, taxes, real estate, and so forth.

      • kristy says

        Thanks! I feel the same way as you do…at 25 I would have blown through some cash. Now, at the ripe old age of 35, I feel like I would be far more responsible. On the other hand, I also wouldn’t mind helping the kids out at 25, so maybe I could add some things to our will/trust.

  2. Tom says

    For the extremely wealthy (>$100m), there is the option to have private placement life insurance (PPLI) which essentially shields their investments from taxation primarily through the use of offshore tax jurisdictions and housing the investment in a life insurance plan.

    As for myself, I probably wouldn’t stop working completely. I would probably take a year off to travel then work some easy part-time tourism job in Honduras or maybe Hawaii.

  3. Betty says

    I don’t see things quite like your friend. I do understand being honorable
    with the trust. But, never touching the funds doesn’t honor his grandparents
    in my opinion.

    To me it sounds like he is saying, thanks for the gift. I don’t need it. I can manage fine
    on my own, thank you very much.

    His grandfather was proud to give his family a better life. That way all his hard work
    could bring it’s own reward. There is joy in giving. Joy in seeing the recipient use
    the gift for good.

    I think your friend should honor his grandfather by making this gift count. His life,
    his time, his energy was/is worth more than pride.

    Now that being said, I do feel strongly that the gift should be honored. It should be
    used to bring forth blessings.

    • says

      While I can’t put words is Sam’s friend’s mouth…but another way to look at it is that he is guaranteeing that his grandfather’s legacy is there for future generations

      • says

        I like that way of thinking. It’s like an ongoing insurance policy… let’s keep on passing it down until one family member really gets down on his/her luck for whatever reason.

        That said, I do admit I’d spend some of it, perhaps mindfully using the money to help other people in need.

  4. says

    Your email to your Dad made me laugh. My Mom always jokes when they spend money on something they enjoy, but don’t need: “We spent your inheritance on bird seed today.”

    I’m just hopeful that my parents will be in a good position to make it through retirement, and that I’m in a better position to help, if necessary. None of my siblings would be able to help support them. As nice as it would seem to have a trust fund, I’m not sure the type of person I would have turned out to be, had that been the case.

    • says

      Haha, that’s awesome. I’m happy when I can make readers laugh too :)

      I kinda feel the same way about my sibling being able to help my parents, so I’ve already got the strong mindset that it will be up to me to help financially and physically. I’m looking forward to fulfilling such an honor, although I’m not looking forward to my parents getting old for their sake. But, I’ll do the best I can as they did the best they could for me growing up.

  5. says

    Several of my friends have trusts and no one has behaved poorly as a result (probably because they were raised well). I know a few who used it to help subsidize costs of a law degree/MBA or purchased real estate, while others haven’t touched the money.

    If I have a trust, I don’t particularly want to know about it or it’s value until after my parents’ deaths when I would have access. I’d rather be like your friend Bob and live without the expectation of money and achieve my own success. But you can bet that I would actually do some spending/investing/charitable giving with it and not feel guilty about using some of the funds.

    • says

      “If I have a trust, I don’t particularly want to know about it or it’s value until after my parents’ deaths when I would have access.”

      A lot of clients choose not to share that information until necessary. I think it in Sam’s example it was a bit different as the trust was now funded and the beneficiaries should at least know what is going on if for no other reason then checks and balances.

  6. John says

    Trusts are a fairly useful and more common tool than most people think. For example, before same-sex couples could get legally married, Trusts were important for those couples shared assets to protect them from other family members who could legally claim them without the trust (e.g., a jointly owned house and one partner dies, the family might kick the other partner out and sell the house without the trust in place).

    Basically, trusts can be used to avoid lengthy and difficult probate proceedings. If you know exactly how you want to distribute your assets, why make your beneficiaries go through all the paperwork after your death to handle this when you can spend a small amount up front to set up the trust.

    When my partner died, we had everything spelled out in a trust and it made handling the assets easier… and I’m especially grateful that one thing was easy given how hard the rest of the process was.

    As far as cost goes, our two trusts cost about $5K 10 years ago (these included a will for each of us as well, and we probably could have got these more cheaply done, but we wanted good quality work). We probably avoided more than twice that in probate costs.

    I think even married couples today can benefit from having everything spelled out in a trust, but if you’re not married and you have jointly-held assets (or you want your assets to go to people who you aren’t married to), you definitely need a trust.

    • says

      John – that is a fantastic point! There is a ton of literature on same sex planning. Even with the dismantling of DOMA there is still a need for trusts for same sex couples as some States, unbelievably, do not allow/provide for same sex couples.

      The type of trust you are referring to is usually called a Revocable Living Trust (for others out there).

    • says

      John – Very good point about avoiding probate. I’ve seen some hairy situations when it came to dividing up property before. Not fun when it comes to family and money.

  7. Dave says

    Sam,
    Need you to confirm because based on my understanding, I am not sure your following statement is totally accurate: “For couples who are legally married, the federal exemption of $5.34 million may pass directly from the first-to-die to the surviving spouse, thus providing a federal exemption upon the second spouse’s death that will increase from $5.34 million to $10.68 million.”.

    The way I understand is the following: lets say, for example, that a couple has $6M total assets. If one of them passes away and they have no provision in their Will for the creation of a testamentary trust, then the entire $6M would pass to the surviving spouse with no tax implications. However, when the surviving spouse then passes away, that spouse will only have their own federal exemption of $5.34M (not the combined of the two of them) thus needing to pay taxes on the remaining $660K. However, if each of their Wills established a testamentary trust, the following would occur: upon the death of one of the spouses, the first $5.34M would go into trust directly for the benefit of their child (or whomever). The trust would be completely controlled by the surviving spouse but would no longer be part of his/her estate. Therefore, upon the death of the other parent, the remaining $660K that was part of their estate would pass, without federal taxation, to the family. This is the only way that I knew that you could fully take advantage of the federal exemption of $10.68M for both spouses. Otherwise, you are giving up one spouse’s exemption if the testamentary trust is not created. Of course, this isn’t an issue for most of us so it is a moot point but I just wanted to clarify to see whether I have it correct or whether the law has changed.

    Regards,
    Dave

    • says

      I took a tax seminar about a year ago, and the presenter did a lot of estate planning with very wealthy clients. The way he explained it, Sam’s understanding is correct; one spouse can pass their remaining exemption on to the living spouse. Although, with anything involving taxes, there are exceptions, and stipulations, and the living spouse remarrying has an impact (although I don’t remember exactly what it is).

    • says

      Dave,

      That was correct prior to the creation of “Portability.”
      Portability allows a surviving spouse to utilize a previously deceased spouse’s (spouse has to die after 2011) Credit Shelter Amount without having to implement a proper tax sensitive estate plan. The executor of a deceased spouse’s estate may transfer any unused estate exemption to the surviving spouse unused Exclusion Amount is the lesser of the basic Exclusion amount OR the basic exclusion amount of the surviving spouse’s last deceased spouse over the amount of the deceased spouse’s taxable estate (i.e. remaining amount).

      The executor of the first spouse’s estate must file an estate tax return on a timely basis and make the election. So even if a small first estate – may now have to file an estate tax return. Obviously will incur legal fees to do so and only the most recent deceased spouse’s unused exemption may be used.

      Some more info: http://www.myjourneytomillions.com/articles/portability-estate-planning/

      The passing of portability was kind of shocking to most Attorneys in the field.

  8. says

    Too much money, if not earned can certainly affect your motivation. I went to school with a guy who was heir to a huge sugar fortune. He would tell us about the millions he was getting when he turned 34 years old. He planned to stretch college until he came into that fortune. Something tells me he was not ready for this windfall! I knew someone (parents owned income property in NYC) who drove a Ferrari to pick up rents for his parents. He was not learning the business, instead he was like any other low level employee. These people acted entitled and did not work as though they had an opportunity.

    I sometimes wish I had this opportunity, although I think it is rare that the children surpass their parents’ wealth. There is something about earning money that makes it more worthwhile.

    • says

      Can you imagine knowing at an early age you would be inheriting MILLIONS at the age of 34? Why try as hard? Why get in early and leave late? Why study for 5+ hours a day. It would be so easy to just slack off.

      There is no way I am ever telling my kids they have a trust if I ever set one up. The age I’d allow them to receive the funds would be 40+, and be strictly tied towards education, medical, or charity.

      • says

        My children already received their “inheritance.” We gave them an excellent private school education and paid for college too. They have all the skills and knowledge to do well in life and they are already demonstrating it. A lump sum inheritance or trust fund would just damage their motivation, so we will spend, give away or indulge our future grandchildren.

  9. S says

    I suspect most people who are in the above-average class that you write about should consider setting up trust funds (at least in their wills) for their beneficiaries. Trust funds, if constructed correctly, offer liability protection which is one of their primary benefits. If you have young children, you probably have some decent amount of life insurance. Typically, you would want those funds placed in trust to protect them from creditors of your beneficiaries.

    • says

      S,

      One way you could cut costs but still have some protection is naming the contingent beneficiary on the life insurance policy as the estate vs the children outright…and then use Sam’s discussion points above about a testamentary trust.

      Regardless of income and/or assets most real estate planning attorneys will include a trust for the benefit of the children until at least 21 or 25 (or at least talk to their clients about it).

  10. swensodts says

    I agree with your comment, that I find it disturbing how the Gov’t says on already taxed money, we are taking a little more before you pass it along, anything you can do to prevent that, I’m all for it – Here’s a way to avoid the stigma of a trust – STOP Telling people you have one!! As the lawyer said, not every trust is a multimillion dollar fund, if your running around telling people you have a trust that you’re living off of, then you deserve the scorn, IMHO

  11. nbsdmp says

    I’ve set my trust up in a manner that would give my brother and sister’s families a nice cushion to make life a little easier (paid for homes and cars/kids college and a 5 years of a comfortable income), but not where even close to where they wouldn’t ever need to work again. I think that the guy in your example should loosen up a bit honestly and enjoy the efforts of his grandfather. If I keep going at my current pace that is probably about where I would end up…but I do not believe in family Dynasty’s or creating “generational wealth”. 70% of my estate will go to charity.

    That being said, I really doubt that I want to keep on the same path…I’ve come across too many business owners that slaved their whole life only to end up dying at their desk with no succession plan and $100M in the bank…no thanks! The trick is when to jump off the train : )

    • says

      Have you thought about advanced lifetime charitable gifting as a way to see your favorite charity succeed during your life w/o just writing a check? There are inter vivos Charitable lead and charitable remainder trusts depending on your goal.

      • nbsdmp says

        Actually yes, that is something I have considered. In actuality though, I think I will always enjoy working in some capacity…and at some point I think that capacity will be working in a philanthropic manner. I do plan managing my own giving during my years here on this planet vs. somebody just getting a surprise big check. I look at it sort of like how I view how the government spends my tax dollars, I think I can allocate them with more purpose and greater impact myself. Now if I get hit by a bus tomorrow…people will just be getting big checks…that is why I look out for buses : )

  12. Richie says

    I’m a married physician with 2 kids. Due to late start earning actual income (10+ years of med school/residency), I’m at the low end of your Mass Affluent group. Therefore, we don’t have ultra-high net worth yet. Nevertheless, we do have 4 trusts. Both my wife and I have significant life insurance policies and have ILITs for each. Our oldest has special needs and we set up a supplemental needs trust to avoid some dirtbag in the future trying to pilfer her primary source of income. We also set up one for our youngest in anticipation of leaving some for him and as a clear route for some wealthy relatives to give money for his future education. The incremental cost of that additional simple trust was small. The biggest hassle is filing taxes on the trusts that have income (ie the SNT and the simple one). The ILITs don’t need tax returns but do need Crummey letters each year when I deposit the insurance premiums. While I’m not ultra wealthy now, I have potential based on income so thought it prudent to plan early.

    BTW Sam, I have learned a lot from your site and want to say Thanks for this useful info and for connecting me with PC which is a tremendous service!

    • says

      Doc,

      The very fact that you know what an ILIT and SNT are means you are WAY ahead of the game! Then add in the fact that you read Sam’s site?! You are light years ahead of your colleagues. My day job is a director a wealth management firm and it makes me sick seeing the tax return of some doctors when compared to their balance sheet. It is like they WANT to work until they are 72, and even then, have an unsure retirement.

      I have talked about Special Needs Planning before but you likely know the basics already:
      http://www.myjourneytomillions.com/articles/category/special-needs/

      • Richie says

        No advice. Being a dad is amazing, fun and humbling experience. Any advice would be kind of cliche but in that vein it is like financial planning in that small things done consistently over time pay off big.

        I found your site through google search. I finally am getting finances in order and was searching google for “average net worth” and found your site. Been hooked ever since!

  13. Josh says

    First, good for your friend Bob! He sounds like a stand up guy. Also regarding estate tax amounts, the figures you list as exemption seem to be a very fair amount. Anything above it should be taxed heavily in my view after the person is gone. Anyone who’s made a huge fortune during his/her lifetime was only able to do it due to the society around them and the government policies which provided a stable environment for that person to excel. Without the mighty U.S. military keeping peace across the world, no U.S. multinationals would be able to expand their operations internationally very easily and succeed. Imagine if war broke out every two years in many regions where U.S. companies operate overseas. Without the police departments keeping peace in U.S. cities, especially in affluent communities, no one can truly succeed. Thus when someone passes, their fortune should be taxed as much as reasonable in my view even though the it won’t be spent that wisely either by the government or the people inheriting it. I view the estate tax as a debt to society that’s paid back. Just my two cents.

    • says

      I go back and forth on the topic of whether estate taxes are fair and just. Your argument is well placed (especially when you combine it with the fact that it really only does affect the top 1%). However, something feels wrong about taxing assets that have already been taxed.

      Notwithstanding I believe MORE people should be pro-estate taxes for the simple reason that step up basis wouldn’t occur for most people otherwise:

      http://www.myjourneytomillions.com/articles/people-favor-federal-estate-tax/

      • says

        I like your argument. Could you just clarify something for me on the step up function?

        For the $5.34/$10.68 million limits, given nothing is taxed under these amounts anyway, does the step up function even apply? Or, does the step up function definitely apply b/c perhaps eventually, the heirs would want to sell the property or stock they inherit, and shouldn’t be taxed based on their parent’s or grandparent’s cost basis?

        Does the step up function stop working beyond the $5.34/$10.68 limits?

        • says

          Step up works across the board (minus 2010 which was a weird year and not worth discussing b/c it isn’t law now). You get it below and above that number, but some people justify the estate tax law b/c of the step up. I think an example helps – in Canada they don’t have an estate tax, but capital gains tax is due for all assets at death (not sure about their exemption amounts).

  14. Michelle says

    Another way to avoid probate is to complete transfer of death or payable on death forms for each of your financial accounts. Rules may vary by states, but banking and brokerage houses can provide you with the form that allows you to declare beneficiaries. It is free, easy and easily amendable. While it obviously does not allow for the same level of detail as a trust, it is the bare minimum one should have in place. Firms generally do not advertise or solicit this service, but it is there!

  15. says

    Hah hah! You made me crack up when l read your succinct email to your dad, and laughed even harder at your dad’s response! Sounds like what my dad would have written! Not your warm fuzzy type. Once, one of my older sisters wrote him asking for money and he replied with “Dear Ms…. Kindly resend your letter correcting all errors made so l can be assured that my money is being well spent. There will be no money forthcoming either, but l am expecting the letter” . Boy, was she pissed!!!!!
    Btw.. I would molest that money as well to some extent..

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