Trust fund recipients, experiences?

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Trust fund recipients, experiences?

Postby livesoft » Fri Aug 30, 2013 5:17 pm

Setting up trust funds for heirs is the being discussed in a few other threads, but ...

What about recipients of such beasts? Are there some things that you wish were different with the trust you have inherited?

(I am not and will not be the recipient of a trust fund. Perhaps that's something I need to set up for my heirs, but I do not wish to dictate from the grave either.)

I have read that some folks do not like the fees associated with the investments held in the trust or perhaps conflicts with a trustee department.

Is anyone brave enough to comment in this thread? Thanks!
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Trust fund recipients, experiences?

Postby bsteiner » Fri Aug 30, 2013 7:23 pm

If the beneficiary is capable, and the only reasons to provide for the beneficiary are to keep the inheritance out of the beneficiary's estate and to protect it against potential creditors and spouses, then you would make the trust as flexible as possible, and give the beneficiary as much control as possible. In these cases, we typically give the trustees discretion to distribute the income and principal to the beneficiary and his/her issue, or to accumulate the income. Upon reaching a specified age, we give the beneficiary the right to become a trustee, the power to remove and replace his/her co-trustee (provided the replacement is not a close relative or subordinate employee). We also give the beneficiary the power to appoint (give or leave) the trust assets to anyone he/she wants (except himself/herself), either during lifetime after a specified age, and by Will. (Eric uses a slight variation of this format, which works equally well in keeping the trust assets out of the child's estate.)

Depending on the particular situation, sometimes there's a reason to give the beneficiary a lesser degree of control, or no control at all. Since it's hard to predict the future, we still want these trusts to be as flexible as possible. We almost always give the trustees complete discretion to distribute the income to the beneficiary and his/her issue, or to accumulate the income. We sometimes give someone the power to remove and replace the trustees, or the beneficiary the power to remove and replace the trustees provided the replacement is a bank or trust company.

There are other variations from case to case. The key is to provide flexibility. The most common errors are requiring that the income be distributed (except in a marital trust where the spouse must be entitled to the income), limiting the ability to distribute principal, not giving the beneficiary a power of appointment (unless there's some reason not to give the beneficiary that power in a particular case), and requiring that the trust end at a specified age.

A trust can invest in the same investments that anyone else can, so the investment fees need not be higher or lower than if the beneficiary owned the assets outright.

While most people select individual trustees, sometimes it makes sense to have a bank or trust company as a trustee. They'll charge about 1% per year, perhaps a little more on smaller trusts and less on larger trusts. If they invest in their own mutual funds, they'll usually credit their management fee at the fund level against their trustee's commissions (fees).

If you're leaving each child a few hundred thousand dollars or more, I would suggest you provide for each child in a separate trust rather than outright, for the reasons set forth in the first paragraph. If, but for these protections, you would have provided for your children outright, then you would probably let each child control his/her trust, as set forth in the first paragraph. In that case, you wouldn't be dictating from the grave. If it turns out that it's not worth the effort to administer the trusts, the trustees can always terminate the trusts and distribute the trust assets to the beneficiaries. However, if you leave the money to your children outright, but it turns out that it would have been better to have provided for them in trust, it's too late. You can take the money out of a trust, but you can't put it back in.

It's like toothpaste. You can take the toothpaste out of the tube, but you can't put it back in the tube. When you buy a tube of toothpaste, you don't immediately take all the toothpaste out of the tube. You leave it in the tube, and take it out as you need it.
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Re: Trust fund recipients, experiences?

Postby livesoft » Sun Sep 01, 2013 11:46 am

Thanks, bsteiner, for the reprise of your thoughts from the other threads. Many things to think about in there.

But I am mildly surprised that some recipients have not commented. Oh, well.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Trust fund recipients, experiences?

Postby Grt2bOutdoors » Sun Sep 01, 2013 2:59 pm

livesoft wrote:Thanks, bsteiner, for the reprise of your thoughts from the other threads. Many things to think about in there.

But I am mildly surprised that some recipients have not commented. Oh, well.


Perhaps there are no trustafarians perusing or posting on the forum? Maybe they are hard at work spending their largesse - it is Labor Day weekend and you know how hard it can be for many here to part with their hard earned dollars. :D
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Re: Trust fund recipients, experiences?

Postby prudent » Sun Sep 01, 2013 4:23 pm

I am the trustee (but not a beneficiary) of a trust set up by a family member for his children. He decided to distribute the trust over a 10 year period in substantially equal yearly payments to each child. First, none of them care one iota about the management fees. I would prefer not to pay someone to run it and do it myself, but the liability for me personally is too great. And secondly there was no interest in having a corporate trustee. He wanted someone from the family. All the beneficiaries are well into adulthood with families, and nobody needed to have extra strings attached to the distributions.

I have learned of a couple nitpicks that the children have. Although there have been no real conflicts about the distribution rules, some would have liked to have more of it sooner rather than have it distributed over 10 years. The trust has a provision that a beneficiary can request a distribution earlier than the due date (but only up to the amount expected to be disbursed on the next distribution date) - kind of like an advance on next July's allowance, but what they would like is to have half now and the rest over 5 years. The other issue was that the funds are given equally to each child, as a couple of the children feel they should have gotten a larger share for helping their father grow his business that became the source of the trust money.

But what to me was the key to avoiding any real trouble was that the father and his attorney sat down with the children and talked about what he planned to do when setting up the trust and why he wanted to do it that way. The children's concerns were addressed right there, and since the father made clear why he was doing it a certain way, nobody expects any real grief going forward. They respect what the father wanted to do.

Just want to add a shoutout to bsteiner for his ongoing and valuable contributions to threads like this.
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Re: Trust fund recipients, experiences?

Postby wintermute » Sun Sep 01, 2013 4:52 pm

Choose trustees wisely.

In at least some states, a trust lawyer is the trustee's lawyer, not the trust's lawyer and not the beneficiary's. This means if the lawyer catches the trustee stealing, the lawyer cannot tell anyone. Even worse, if the trustee is accused of stealing, the trust will be paying the trustee's legal fees. It's important beneficiaries keep a close eye on their trust. If any unexpected withdrawals occur, they will need to hire a separate attorney and go to court to have another trustee appointed. Family members do steal from each other. Trustee bonds will only cover the stolen money - not legal fees, travel costs, etc.
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Re: Trust fund recipients, experiences?

Postby Retread » Mon Sep 02, 2013 6:27 am

Much of my career in bank trust departments was spent dealing with trust beneficiaries. Some loved having the trust arrangement and others hated it. Depends on the terms of the trust, the skills of the trustee and the nature of the beneficiary.
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Re: Trust fund recipients, experiences?

Postby Jay69 » Tue Sep 03, 2013 2:24 pm

prudent wrote:But what to me was the key to avoiding any real trouble was that the father and his attorney sat down with the children and talked about what he planned to do when setting up the trust and why he wanted to do it that way. The children's concerns were addressed right there, and since the father made clear why he was doing it a certain way, nobody expects any real grief going forward. They respect what the father wanted to do.
Just want to add a shoutout to bsteiner for his ongoing and valuable contributions to threads like this.


My wife will be one beneficiary out of three. Dealing with the POW and taking care of her mother affairs do date I can not stress how important the above is. We are very glad her parents sat us down 10-15 years ago and went over the whole deal. You can write all you want on paper and you should but hearing it from the horses mouth goes a long ways.

Not a huge deal but as a beneficiary my wife and our 2 kids would get separate quarterly statements (a good 20-30 pages each, way more information then one would need). This went on for a good 10 years until we were able to make the change to just one statement (I guess its required) per year. Now we can get them electronic style.
"Out of clutter, find simplicity” Albert Einstein
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Re: Trust fund recipients, experiences?

Postby letsgobobby » Tue Sep 03, 2013 2:51 pm

My sister and I are set up to be beneficiaries of my parents' estate, which is in trust. Basically we get the income, but both have to agree to remove principal. My understanding is this serves as protection from creditors and spouses, although as I type this I ask what good is it if the creditor can't get the principal but is entitled to all the income? It still means I can't benefit. Anyway...

We also have trusts for our kids per our wills. So immediately one big difference between my situation and my parents' is this: they know my sister and I are financially independent and capable of being good stewards of any funds. We don't yet know that about our kids, and won't for several decades. So naturally we want to protect our kids from themselves and others to a higher degree. But as Mr. Steiner points out, this higher level of control comes at a cost: inflexibility, corporate trustee expenses, etc. So hard to predict the future.

If there is any desire for a trust to last many years (decades) or more than one generation, a corporate trustee almost seems unavoidable.
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Re: Trust fund recipients, experiences?

Postby frugaltype » Tue Sep 03, 2013 3:21 pm

Jay69 wrote: Not a huge deal but as a beneficiary my wife and our 2 kids would get separate quarterly statements (a good 20-30 pages each, way more information then one would need). This went on for a good 10 years until we were able to make the change to just one statement (I guess its required) per year. Now we can get them electronic style.


I replaced a trustee who made a mess of things. While I was trustee for the remaining life of the trust, I sent the beneficiaries copies of everything I did, with supporting documents. I let them swim in paper, because I didn't want any possibility of doubts arising.
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Re: Trust fund recipients, experiences?

Postby Meg77 » Tue Sep 03, 2013 4:03 pm

I'm the beneficiary of a trust. My grandparents formed it for me a few years after I was born, with the goal in mind to provide funds for my education - and to pass down as much of their assets while shielding them from gift and estate taxes as possible. I am the oldest grandchild they have, but as my siblings and cousins were born they formed a separate trust for each of them too. For about 15 years (maybe a few more), they each contributed the maximum annual gift exclusion allowed (so $20K-$26K into each trust each year). Each of their 4 children and their children's spouses also got the gift, but in cash rather than via a trust. When the recession hit they quit giving (most of the cousins were college age or older by then anyway). Later they gave a big chunk of their estate directly to their kids and announced they planned to spend as much of the rest as they could before they die (they are both still living).

I never knew about this fund until I was looking at colleges when I turned 18. Turns out my parents dipped into it a little bit here and there for summer camps and various special education trips (my cousins' parents used their funds for private school in high school, to buy first cars, and more items too). I can't remember how much was in there when I set off to college, but I think it was about $350K. I found out that the relevant terms of the trust are as follows: a) I get control when I turn 35 of anything that is leftover; b) my uncle is the trustee; c) all the funds had been invested in the Vanguard Total Stock Market Index.

So since I was the oldest I was sort of the guinnea pig. I submitted a formal written budget to my uncle (with my mother and grandfather copied) requesting permission to have a $400 a month allowance and justifying all the expenses. He kind of laughed and agreed immediately (not even sure he read the budget), and over the years I realized how easily I could request money and spend it. I would just email my grandfather's secretary directly and ask for $1000 for sorority dues or a spring break trip, etc. I worked part time and saved everything, maxing out a Roth IRA from the time I was 18 while also living the good life in college. But I was conscious even then of how easily I could fund and hide a drug addiction or any other use of the money which wouldn't have been so beneficial. Of course my uncle could have paid more attention and only approved draws for tuition, and maybe he would have if I were known to be less responsible.

When I graduated I asked for and received $25K to put down on the purchase of a small condo, but I committed without being asked to refrain from any other trust draws once I got my degree. Instead of going to grad school (which I could have easily still afforded), but instead I took out money for the down payments on a few rental properties over the next 5 years. I also submitted and was granted requests regarding changes to the asset allocation of the funds, which I appreciated. None of my other siblings took as active an interest in their trusts. They probably don't even know the balances. Though a couple have accessed funds to buy homes or cars or to go to grad school.

I'm pushing 30 now so I have 5 more years to go before I officially have control of the funds. But a few years ago for simplicity they amended the trustees so now my mom is trustee (and my uncle is trustee for my cousins) so we don't have to go to extended family with requests. Pretty much all requests are granted if the parents say OK anyway. And we are all in our 20s now and nobody ended up a drug addict or spendthrift so the controls are not considered hugely necessary anymore. I have just under $100K left in there now and do not plan to take out any more.
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