Do you have the house in joint tenancy? Because if you do, it goes to the survivor. What are you hoping to accomplish with a trust?

You can it anytime, now is good, then you just title the home in the trust.
They are really separate things, an attorney can add the house after you buy it. Do the trust now, so it will be ready.

I would question something that you don't own yet as being an asset to include in a trust. This might be an instance where a "pour over" clause comes into play to account for current or future assets intentionally or unintentionally left out of the trust. I would say to set up your trust at any time you feel comfortable doing it whether it's before the sale of your existing home and the purchase of the new one or afterwards - your estate planner would definitely know how to handle your situation and set up the trust accordingly.

For Marge727: a trust is an excellent vehicle for avoiding probate and can reduce the federal estate tax for those who have valuable assets. Sometimes a will just isn't enough to insure an estate will pass smoothly to a survivor.

As an aside, and not to hijack your original question, I'm the sole family home occupant as my Father passed away and I ended 5 years of in-home caregiving for my Mother who is now in a nursing home. My folks both had trusts - Mom's is as it was whereas my Father's was retitled to a "Family Trust". The house was deliberately kept outside for reasons known only to my Father. When Mom passes, I will take the deed to the lawyer who will handle the transfer to me and adjust the assets at the time both trusts are dissolved to compensate my brother for his share of the house, etc.

marge - the reason why we need to put it into trust is I am not a US citizen and not subject to the unlimited marital deduction should I survive my husband. His half of the home would be added to his estate and would be included in the value of his estate, and thus, would be taxable to me once the limit is exceeded.

Right now, we live in a community property state (AZ), but we are moving to MN sometime this year, which is not a community property state. Currently, the title is Right of Survivorship (I think that is the term) where it would go to me automatically, but his share of the value would be included as taxable in his estate.

DH and I each have a revocable trust. Each trust "owns" half of our home. Upon either of our deaths that party's trust devolves upon the other spouse. (At least I *think* that's how it works; not an attorney! LOL)

duluth - I'm just trying to plan ahead so that we can put the new home we buy into a trust.

chisue - I wondered if that is how they typically work or if the trust can be joint from the very beginning.

I know I have to talk to a lawyer, but because of my lack of US citizenship, that is another monkey wrench and requires a different kind of trust.

Sparksals: I sense what you're trying to do and I also sense I might be a little too literal minded. Though not listed chapter and verse in the document itself, assets included in a trust are retitled in the name of the trust: ie a brokerage account in the name of "Jane Doe" becomes "Jane Doe Trust" and so on. While the possibilty of purchasing real property, asset growth, divesting, etc. is written into and/or implied in the language of the trust, without deed in hand for your new house purchase, you can't put this particular item in trust - yet.

Seems logical that both parties should have a trust - in the event of a death, the trust of one transfers to the other. In establishing trusts, it would be common to equally divide assets accumulated in common - or all assets regardless of who earned them or brought them into the marriage if a couple is so inclined; once established, it makes little difference that trusts might grow (or decline) at different rates.

duluthinbloom, marge is an attorney who handles real estate and probates. Just the general question of why a trust is neede is valid. Boy, I hope we end up with enough money to ever end up with a federal tax problem.

Gloria

duluth - oh yes, I absolutely realize I can't put our future home into a trust until we own it. Thanks for the explanation that things can be added here and there. I wasn't sure if it was a one shot deal.

quiltgo - for us, because of my lack of US citizenship, it doesn't take alot of money for me to be taxed to the hilt should I survive my husband. I don't qualify for the same estate limitations US citizen's do - like the exemptions that increase each year until 2010 (or is it 2011?). Because my exemption is peanuts compared to what US citizens get, we have no choice but to put our assets into a trust even though they don't meet the typical amount of estate an American citizen can inherit from their spouse tax free.

I never thought being a middle class couple with average savings, no debt and $100K equity in our home could be subject to huge taxation if my husband dies before me. Unfortunately, that's the case for us.

As I understand it, IRS reasoning is that if I survive my husband and had the same exemption US citizens have, I could very well go back to Canada, take all the assets and not pay tax on them when I die since I would be in Canada (which has far more lax inheritance taxes). That's why they impose such strict limits to Permanent residents.

In fact, taxation upon death btwn Canada and the US are completely opposite. Canadians pay tax throughout their lifetime and the estate gets a break. Americans pay lower taxes during their lifetime, but the estate pays big time when the 2nd spouse dies.

Isn't the trust just well a trust, it doesn't name every asset in it, but the title of property designates it is in the trust?
If I'm wrong, I should be calling my attorney. I've bought and sold property since establishing my trust, but haven't changed the trust.

Make sure you check with your house insurance company regarding your trust. I represent at least 1 company that WILL NOT insure a house in an IRrevocable trust. Revocables with that company are OK, just not irrevocables. A simple phone call will answer your question.

spanky-- thanks for letting me know about the insurance issue! I would never have thought of that.

Why don't they insure hmes in an irrevocable trust?

Goodness, I had no idea that there could be an insurance problem with a home titled in an Irrevocable Trust - learn something new every day!

And BTW, do make an effort to keep certain stuff updated on ANY Revocable Trust:
1) The Asset List - our state (CA) does not require this to be notarized, so our attorney gave us an e-file we could use to keep the Schedule of Assets updated.

2) Primary and successor (contingent) beneficiaries

3) Primary and successor (contingent) trustees

I mention these because if you are a couple establishing an RT, once the first person dies, that part of the estate becomes Irrevocable. And NO changes can be made on the beneficiary or trustee list, no matter how outdated they become! There is a way to change it but it's not easy, and requires a court appearance by your estate lawyer (e.g., $$$, LOL).

A trust is a "living" document. It is NOT a "set and forget" thing! A bad trust is worse than no trust at all, and all the language should be carefully explained to you as to exactly what it will mean when one or both of the Trustors dies. A trust can eliminate probate, but not the need for a lawyer. It can also reduce flexibility in handling assets, in certain cases.

Also, check the language in your trust to ensure that the surviving Trustor has full access to the value of the assets in the trust! It is not uncommon to use "boilerplate" language that restricts access to the now-Irrevocable assets to only interest and income, NOT principal.

We recently had to split my MIL's trust into A/B Trusts, not because of estate taxes (none are due) but because their list of successor trustees & beneficiaries were so woefully outdated. They had created the trust 25 years ago and never paid it any heed since, but when her husband died we finally realized this could be a problem that needed our action.

The lawyer, the tax advisor, and the investment advisory firm were all VERY surprised that my MIL has access to the principal of the Irrevocable Trust (her husband's estate portion). They all said this is not at all common or usual.

You're gonna shoot me...I flip flopped what I meant. They WILL insure IRREVOCABLE, but not revocable.

Basically with an irrevocable trust, we would always be dealing with a fixed entity...sort of like an individual insured/s. With a revocable trust, we could be dealing with different parties at any time. If there's anything insurance companies don't like it's uncertainty.

Sorry for the confusion. I don't see many, but when I do it's always an issue.

Good to have memory jogged by jkom51 re. survivor having full access to assets.

High net-worth individuals or those more vulnerable to lawsuits resulting in high monetary judgments and would need to protect assets from creditors would be the likely candidates for establishing the IRREVOCABLE trust. As indicated, this type of trust cannot be changed, amended or terminated by the grantor or anyone else once created. (I agree - there's probaby no such word as "can't" with the help of a good lawyer and lots of $$$).

Those of us with trusts or thinking about establishing trusts will likely be dealing with the revocable type and will surely still have questions about real estate as a trust "funding" asset. Maybe we're/I'm getting tripped up in legaleze. If your home is used to fund the trust and all the papers and deeds now have "Trustee(s)" after your name, like any other asset it can be sold. Should you buy another house (or stocks, bonds, etc) you would simply make that purchase using the name of the trust.

Spanky67 - in dealing with a fixed entity... wouldn't insurance be subject to the same pitfalls with Joint Tenancy with Rights of Survivorship or Tenants in Common where you might also be dealing with an unknown number of owners in the event of a death distributing portions to more beneficiaries?

Boy, now you're trying to get me to remember law classes in college 20 years ago (holy sh!t I gettin' old!).

Honestly in 18+ years of owning my own agency I have not come across either of those situations. That doesn't mean I don't have some one on the books with that very situation, just that no one's brought it up. The thought that people fear what they don't understand immediately comes to mind. What I mean is, if I brought that up to an underwriter they'd probably not have the slightest idea what either of those are and as such deny coverage on the spot.

Generally speaking, the insurance industry loves black and white. The square peg never fits in the round hole with us. Why you might ask? Plenty of round pegs...no need to fight with the square ones.

When a joint tenants situation comes up does the title need to be changed? With trusts they do...as far as I know...and that's the only reason I even get involved. I see more older clients taking properties out of their names and putting it in their kids names but keeping life tenancy. From what I've been told, with enough prior planning it allows the true owner to avoid losing their house to a catastrophic illness.

When you attend one of Playboys top 5 party schools in the late 80's, you tend to miss most of what happens in those 9a.m. law classes:o)

spanky67 -- OT, but...WHY would an older person give his home to his kid(s) and keep life tenancy? Won't the kid(s) be stuck with the original value on the home when Pop dies? Talking some big capital gains if the house isn't re-valued at Pop's date of death.

Go Badgers! (just a guess)

chisue - that same question popped into my head too.

Wonder how common Life Tenancy deals are today? I can kind of see them to keep a large farm in the family - all the while the grantor having full use of the property and any income it generates for his/her lifetime. Can also see it in the case where large estates or holdings are to be passed to charitable institutions or universities upon the death of the life tenant. At that point, the "remaindemen" assume any taxes and what not, but are free to sell or use the property as they see fit.

I don't see the average person's need to do this - putting a house in their beneficiaries' names. It seems more usual that both home owners or a survivor would occupy the residence until such time as that was no longer physically (or otherwise) possible. At that point the house would be dealt with and the proceeds used for any alternate living situation required.

Sparksals - could you not just become a citizen,which would take care of the problem? Your eligible after 5 years on a green card obtained on your own or 3 years on a green card obtained through marriage to a US citizen.

ddart - becoming a citizen would take care of the problem. With all due respect, I am Canadian and happy being just that.

For me, it is the issue with the US citizenship oath that requires me to verbally renounce allegiance and loyalty to my home country and only be loyal to the US. I just could not ever say I'm not Canadian anymore. Canada allows dual, the US only views you as American.

For me, it would be very disrespectful to the privilege of becoming a US citizen if I didn't intend to honour the oath and I can't bring myself to do it soley for financial reasons. If that makes any sense.

sparksal,

I am not a tax lawyer but in a similar situation as you are so I read up on the rules and here is how I understand them - no guarantees:

As long as you are a permanent resident, the gift tax and estate tax rules are the same as between non-spouses. So even if you were not married, you can exchange gifts of $11k a year and in addition also a lifetime max. of $1M. without having to pay any additional tax.

Furthermore, you can exchange gifts of $117k/year (indexed for inflation), if you are married.

Also, owning your property in joint tenancy doesn't require gift tax unless you decide to sell and split the proceeds (but this still only requires the "donor" to pay tax, if the gift actually exceeds the $1M lifetime exemption.

Also, see http://www.rcjlaw.com/transfer.htm

In a nutshell: Unless you are very well off, you won't be hit by the tax man, even if you are "only" a permanent resident.

I have 3 passports! The US has no problems with dual (or more) citizenship. If anything the US is too easy when it comes to the subject of citizenship, immigration or documentation, but that is another, very lengthy, topic.

jrldh - we're not talking about gifts here. We're talking about the amount I can inherit from my husband should he pre-decease me and that I not eligible for the same tax exemptions for USC married couples. Thanks for the website. I will have to check it out, although it does seem a bit out of date since the nontaxable gift amount for 2007 is $12K, not 11K.

chispa - you're right that the US doesn't have a problem with dual or tri or whatever extra citizenships. However, it is the US citizenship oath that is morally something I am unable to take and honour due to the verbal renunciation of loyalty and allegiance to my home country.

My husband is a border patrol Agent, so I know what you're getting at. At the same time, the legal immigration process is not easy and it costs alot of money. I have a huge problem with those who try to circumvent the system and aren't punished when we did things by the letter of the law.

Oh it makes perfect sense and I hear where you coming from. Also Canadian but have US citizenship for the purpose of protecting myself in the event that husband goes first. I love the States, see myself being here forever, but I fought the citizenship route due to having to "renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty of whom or which I have heretofore been a subject or citizen".

Like it or not the citizenship route is the best way to go to avoid problems. Second best is the qualified domestic trust. The trust can be done post mortum actually. We looked into this trust, but if I remember correctly the big factor was that IÂd pay estate taxes on any disbursement of the principle unless I could prove hardship. No putting off the estate tax until I died if I cut into the principle. I just didnÂt want to let the IRS interpret "hardship". There were also a lot of loopholes and situations put forth by our CPA, which I cant remember that made the citizenship route the way to go.

I took the easiest and best way out. Decided since we see ourselves here permanently, no longer vote in Canada or pay taxes there and live under the laws and constitution of the US and abide and support them I could take the oath with its nasty part and mean it. Not likely the US and Canada are going to war against each other and I will have to go back on my oath. And actually if I had to go back on the allegiance part of the oath, I would just move back home.

You can always say your Canadian. You just donÂt say it to US Customs.

Linked is an article on Trust and Estate Planning Considerations When Advising Canadians Living in the US

Here is a link that might be useful: expat canadians in us estate and tax planning

Sorry, spent the weekend prepping a my kids bathroom for tile.

Unfortunately, I'm mostly an end user in the life tenancy deals I've come across. What has been intimated to me is that people do it to avoid losing their biggest asset in the event of catastophic illness. I get the impression that these people aren't thinking of the tax ramifications upon death, only of losing their house to the hospital.

I may be in CT, but my base of clients comes from a lower income area whithin the state. You'd be stunned at the number of people who pay their premiums in person, in CASH! I had one client who paid in cash he kept hidden in his house.

You can have all the citizenships you like, so long as you were BORN in the USA. If you're coming from somewhere else and want dual citizenship, it's an issue.

ddart - thank you so much for your info. I am aware of the QDOT, but did not know the limitations. Are you saying that if you survived your husband, that you couldn't touch any of the principal funds in it unless there is hardship? When can the funds be touched? That doesn't make sense to me and it sounds like that type of trust is useless.

Another problem I have had is finding someone who is knowledgeable about these unique estate issues. I really appreciate the link you provided as I have searched hi and lo online for this kind of thing and not found anything of help. I obviously used the wrong search words.

Where in Canada are you from and where are you now (if that's not too personal)? I'm from Calgary and now live in AZ, but we're moving to MN this year for dh's job.

If you have any more helpful links for this subject, I would really appreciate it!

housenewbie - It is an issue, but not illegal and not impossible. In the case of a Canadian taking US citizenship, since Canada allows dual, in the eyes of the Canadian govt, I am still and always will be Canadian unless I formally renounce my Canadian citizenship. If I took US citizenship, the US govt would view me as only American, but it is not an issue that Canada allows the duality. The verbal renunciation of the US citizenship oath holds no legal weight in terms of losing my Canadian citizenship.

There are also countries that absolutely do not allow dual. Depending on the country of origin, one can lose their home citizenship for taking the citizenship of another country.

Technically, there are no legal ramifications of a Canadian taking US citizenship on either side. For me, it's the verbage of the US oath that I just can't bring myself to do, although, I may change my mind in the future, but that is extremely unlikely.

From Ontario, living in North Carolina

From what I understood (we looked into it about 5 years ago), ANYTIME you dig into the principle you will have to pay estate tax on it unless you could prove hardship and the IRS is very strict to qualify a person for hardship. Hardship is the immediate and substantial financial need for the health, education, maintenance, or support of the surviving spouse or any person that the surviving spouse is legally obligated to support. ItÂs not like the trust will be your personal account that you can withdraw from as you see fit. You will have immediate estate tax issues if you do. It sucks.

You can take disbursements of income generated from the trust though and will only pay income tax on it.

So far as IÂm, aware only a trust with QDoT requirements will give a non citizen the ability to qualify for the "full" marital deduction initially after the death of the US spouse.

ItÂs tough finding someone who is really up on this stuff. We talked to a CPA and two tax lawyers and they all said get your citizenship because itÂs extremely complicated otherwise. The more they talked and spouted off section B , paragraph C , blah blah, blah, you shall, failure to, disqualification, prior to, complexity, ramifications, etc, the more I knew that citizenship was the way to go.

I really know how you feel about the citizenship thing , but it will be in your best interest to do it.

ddart - thank you so much for all your info. I knew it was complicated, but didn't realize it was SO complicated! lol

So, essentially, the Qdot is a tradeoff in order to get the unlimited marital deduction, but the kicker is you can't touch the principal in the trust unless the IRS deems to be hardship. Do I have that right?

One other concern I had about taking out USC if it were for the financial reasons, is having to declare world income for life. We plan to retire to Canada, or at least summerbird there.

I'd only live in the states for about 20 years, so to have an obligation to Uncle Sam for life doesn't sit well with me. However, I think that's another complicated issue on top of one that is dizzying enough already.

It's such a tough decision and I can see exactly where you are coming from.

I think the info you have would be extremely beneficial to some of the message boards to which I belong that deal with Canadians living in the States. This topic comes up alot and no one really has the first hand experience like you do in terms of actually finding someone who knows something about it. There is a Financial planning place in Phoenix that deals with Canadian expats and these very issues, but their prices are beyond the realm of many everyday people and they are geared more to wealthy business people.

I would really like it if I could send you an invite to a couple of the boards. Your knowledge would be extremely helpful in explaining how all this works.

Would you be willing to email me privately so I can email you an invite? You can email me through my profile.