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Dr Fear

Surly Lawyers - Probate Question

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So, Grandma died a few weeks ago and I am doing the probate, I've done them before, but not many.  There are two main assets being a non-homestead family property and an investment account. The investment account is now frozen and they will only deal with an executor, so we have to do a full probate.

My main issue is that there are testamentary trusts in the will for the 4 heirs (4 children ages 63-68) and none of the trigger conditions to terminate the trusts have happened or will happen soon.  There is a provision (below) for the trustee to distribute the principal.  The goal would be get the money directly to the heirs and not leave it in a trust. Everyone is on board with this.  So do I just set up the trusts and immediately liquidate them?  Can I petition the court to ignore the trusts?  Something else?

 

Will.thumb.jpg.df0f9e1966225f7639935407ec53712f.jpg 

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That is pretty much a spendthrift provision, which is generally regarded as preventing the distribution of the entire corpus of the trust to the beneficiary.  Are you the trustee?

One thing that's going to be unfortunate is that settling the trusts is a tax-free event, but distributing them is not.

Not sure it will fly, but having the heirs beneficiaries consent on record to bypassing the trusts entirely would probably be preferable, both from a fiduciary liability and a tax standpoint.

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16 minutes ago, TwiceHorn said:

That is pretty much a spendthrift provision, which is generally regarded as preventing the distribution of the entire corpus of the trust to the beneficiary.  Are you the trustee?

One thing that's going to be unfortunate is that settling the trusts is a tax-free event, but distributing them is not.

Not sure it will fly, but having the heirs beneficiaries consent on record to bypassing the trusts entirely would probably be preferable, both from a fiduciary liability and a tax standpoint.

Ehhh, I may be over my skis on this one.  This is in Harris County, anyone have a attorney recommendation?

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There is a pretty large, unless your relative was really rich, threshold to cross before inherited funds/value trigger taxable events IIRC and I am not an accountant nor lawyer.    You can inherit x amount before it becomes taxable.  However, the trust issue might complicate things a bit.

Hmm, maybe not:

 

inherited trust funds and taxes

 

You can discuss the forms required to get the investment disbursed with the company holding the funds/investments.  Because they will want you to have each person recieving funds/investments fill the form out at minimum to determine if any withholding needs to happen and each of them sign it so all know whether withholding happened or not.  So when it comes time for tax returns the amounts and any withholding or not (if the totals don't go over the threshold mentioned above).  

Good records for everyone so they can do their taxes correctly should make it fairly easy.  If you are talking about yuge sums of money/investments that is a different story.

When my mom died a few years ago the amounts didn't rise to the thresholds then,   and they have been raised with the recent tax changes from 2 years ago.  so it was just accounting for the received funds, filling out the paperwork before the transfers could take place, and then making sure you had those totals from the forms so you could fill out your taxes correctly.

 

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It's not a matter of the exemption.  That deals with estate taxes, which are paid by the estate before distributions.

The issue I'm talking about is taxation of the recipient.  Almost all distributions from an estate to an heir or beneficiary are tax free to the heir/beneficiary.

In the case of the will cited above, the beneficiary from the estate is the trust, so that passes tax-free.  Subsequent distributions from the trust are going to be income to the beneficiaries of the trust in most cases.

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2 minutes ago, Jerry Callo said:

What will?  I didn't see any will.

Haha, there is that.  Some financial institutions will deal on the basis of a death certificate, but probably not large sums.

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I should add that a "spendthrift trust" gives the beneficiary protection against his/her creditors because distributions from the trust are solely within the discretion of the trustee.  Creditors thus can't compel the beneficiary to distribute the entire trust to themselves, generally speaking.

Although the theory is that the beneficiary can't get it all, or all at once, hence the creditor protection, I'm not sure the trustee is bound NOT to distribute it all or all at once.

But, if you can bypass the trusts altogether, that would be a beneficial tax situation.

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If I understand the question correctly, you are asking whether the trust must be set up if the conditions in the will aren’t met. 
 

Short answer: no. 
 

Long answer: most testamentary trusts are conditional (under certain age at times of testator’s death or incapacitated at time of testator’s death). If the condition is not met, the trust is disregarded and the property is distributed outright to the beneficiary during the administration of the estate. 

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