Trust Investments for young couple

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JDIstre
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Trust Investments for young couple

Post by JDIstre »

Being appointed Trustee of a 5 million Trust for a 30 year old couple with 2 kids. Neither have jobs now and have been living off 8,000/month from the Mother. What would be some suitable Investment vehicles for this Trust. (Each of the 2 kids will have their own larger Trusts when they get older). Would the Vanguard Life Strategy plans be appropriate?
mhalley
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Re: Trust Investments for young couple

Post by mhalley »

Depends on the location of the money. I don’t like blended funds in taxable accounts. The 3 fund portfolio works just as well for a 5k or a 5m portfolio. The appropriate aa is the question.
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Sandtrap
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Re: Trust Investments for young couple

Post by Sandtrap »

A lot depends on the provisions of the trust.

1. Will the 5 million be expected to continue the 8k/mo payments to the non working couple forever, or with adjustments forever, or up to the larger inheritance deadline./time frame?

2. Is the 5 million subjected to additional disbursements by the non working couple?
Provisions of trust states for what, how much, how often, up to amount, etc?
Purchasing a new home? Etc.

3. If there should be a health crisis or additional crisis, would the 5 million be expected to provide for the non working couple? In which case there would be large "lumpy" expenses beyond the 8k/mo.

4. Can the 8k/mo prior stipend from the parent be modified to a larger amount?

The 5 mil can be invested in a variety of ways that will continue the 8k/mo income stream as well as etc etc etc. And, some strategies will be better depending on #1-4.

So, it's not so simple an answer.

Seek legal counsel.

j :happy
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johnnyc321
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Re: Trust Investments for young couple

Post by johnnyc321 »

I would hire a fee only CFP. Too much liability and risk of being sued. Hiring a CFP, even if just to approve your investments, would be very helpful if you are ever sued.
Grt2bOutdoors
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Re: Trust Investments for young couple

Post by Grt2bOutdoors »

JDIstre wrote: Tue Feb 18, 2020 10:46 pm Being appointed Trustee of a 5 million Trust for a 30 year old couple with 2 kids. Neither have jobs now and have been living off 8,000/month from the Mother. What would be some suitable Investment vehicles for this Trust. (Each of the 2 kids will have their own larger Trusts when they get older). Would the Vanguard Life Strategy plans be appropriate?
Which fund were you thinking? There are what like 3 or 4 options within Lifestrategy?

A 2% withdrawal rate is pretty much guaranteeing the $5 million will grow in perpetuity for a long time. You could go 50/50 - US Total Bond Market and either Total Stock Market Index or 500 Index Fund, the dividends alone will pay out at least $96K annually, not including potential gains. A 2 fund keep it simple strategy or if you want to hold some international but my personal preference is not to go higher than 30% in international equities, then the 3 Fund approach works - 35% Total Stock Market or 500 Fund Index, 15% Total International Stock Index, 50% Total US Bond Market Index. You will likely get admiral level pricing, so that will cut the expenses down even more.

.04 for US Equity Indexes * 35%
.11 for Total International Stock Indexes * 15%
.05 for Total Bond Market Index * 50%

All in cost = .0556%, a heck of a lot cheaper than paying 13bps for a LifeStrategy plan where you aren't able to really capitalize on rebalancing opportunities and tax loss harvesting in an efficient manner.

You could pay for a fiduciary to look under the hood of such a plan, why not give Rick Ferri a call and see if he might meet your needs? With that sort of money and beneficiaries dependent on the distributions might be worth it to have an experienced individual with no self interest take a look at it before you implement it.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
rossington
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Re: Trust Investments for young couple

Post by rossington »

Is the trust not invested in anything now? Or is it?
(Don't get me wrong but It seems a bit odd that someone would appoint you as trustee of a 5M trust and you are asking very basic questions on a public forum about how to invest the assets.)
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
Topic Author
JDIstre
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Re: Trust Investments for young couple

Post by JDIstre »

It is all in cash. I have no experience with a Trust and they just know I'm not hurting for money and just trust me to a little research before throwing them in something imprudent. (Honestly, in the family there weren't a lot of good options. Least poisonous).
Grt2bOutdoors
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Re: Trust Investments for young couple

Post by Grt2bOutdoors »

JDIstre wrote: Wed Feb 19, 2020 3:04 pm It is all in cash. I have no experience with a Trust and they just know I'm not hurting for money and just trust me to a little research before throwing them in something imprudent. (Honestly, in the family there weren't a lot of good options. Least poisonous).
Run it by a fidiuciary, but an all index 3 fund portfolio is all you need. You don't need 1% investment management fees unless you believe it's too cumbersome in which case you could ask PAS at Vanguard to run it for you at 30bps instead of 100bps elsewhere. Though you may not like their suggestion to allocate 40% to international equities.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
JDIstre
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Re: Trust Investments for young couple

Post by JDIstre »

"Run it by a fidiuciary, but an all index 3 fund portfolio is all you need. You don't need 1% investment management fees unless you believe it's too cumbersome in which case you could ask PAS at Vanguard to run it for you at 30bps instead of 100bps elsewhere. Though you may not like their suggestion to allocate 40% to international equities."

I have 35% International in my own Retirement portfolio and am comfortable, but I basically just stick to the 3-fund portfolio that many on here use, just wanted to make sure it was appropriate for a Trust. As mentioned above, I read a lot about how 2% withdrawal rate would be wise to continue to build. Wondering if this is fairly standard among Trusts for younger couples. Thanks for the help and comments. I did plan on reaching out to a fiduciary just to cover my legal basis, and a lawyer. Is there any other professional I should consider consulting?
BillWalters
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Re: Trust Investments for young couple

Post by BillWalters »

Why aren’t they working? Where did the wealth come from?
bsteiner
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Re: Trust Investments for young couple

Post by bsteiner »

Grt2bOutdoors wrote: Tue Feb 18, 2020 11:32 pm ...
A 2% withdrawal rate is pretty much guaranteeing the $5 million will grow in perpetuity for a long time. You could go 50/50 - US Total Bond Market and either Total Stock Market Index or 500 Index Fund, the dividends alone will pay out at least $96K annually, not including potential gains. ...
With a 2% distribution requirement and young beneficiaries and more money becoming available in the future a trustee would probably be less conservative than 50/50.

If you want, you could hire Vanguard for 0.3% (less on amounts over $5 million) to manage it for you.
mailmel1
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Re: Trust Investments for young couple

Post by mailmel1 »

I would recommend reading 2 books that are great reads and would help you manage this money well!
First: The Simple Path to Wealth by JL Collins. After that read you can comfortably invest yourself. Second: The Boglehead guide to Investing (More in depth, but overall in agreement with the first book) - really makes you knowledgeable on what you are doing.
Melanie, New to investing smartly
Grt2bOutdoors
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Re: Trust Investments for young couple

Post by Grt2bOutdoors »

bsteiner wrote: Thu Feb 20, 2020 11:10 am
Grt2bOutdoors wrote: Tue Feb 18, 2020 11:32 pm ...
A 2% withdrawal rate is pretty much guaranteeing the $5 million will grow in perpetuity for a long time. You could go 50/50 - US Total Bond Market and either Total Stock Market Index or 500 Index Fund, the dividends alone will pay out at least $96K annually, not including potential gains. ...
With a 2% distribution requirement and young beneficiaries and more money becoming available in the future a trustee would probably be less conservative than 50/50.

If you want, you could hire Vanguard for 0.3% (less on amounts over $5 million) to manage it for you.
Excellent advice Bruce! I agree with you and suggested the OP consider using Vanguard to manage it for him if he was so inclined in an earlier post.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
JDIstre
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Re: Trust Investments for young couple

Post by JDIstre »

The wealth is from the Grandfather who started 2 successful companies. I'm not sure why they are not working now but their aspirations seem to be yoga instructor and photographer so their future income is in doubt (at least in my opinion). Also another wrinkle is their mother will have 30 million or more beyond the 23 mil exemption to get rid of. The mother thinks the estate lawyer they're talking to is shady. I did some research and ran across a paper called "Multi-generational Wealth Management: Getting a Legacy Up" by Bernstein Global Wealth Management and it seemed to be a much more tax efficient way of transferring their wealth than the straight 10 year GRAT their lawyer is proposing. Also what is the likelihood of a 60/40 portfolio (with the CAPE so high) outperforming the IRS 7520 table (or whatever the industry lingo is) over the next 10 year horizon? Is anyone here familiar with that paper or have any opinions on that particular piece. Thanks in advance. This is a lot to wrap your head around for an outsider lol. I did refer the mother to Vanguard but she is resistant to a large company and doesn't trust the guy she is working with. Excuse the basic questions. I'm trying to learn a little about this so I can at least tell them if they're being taken advantage of.
BillWalters
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Re: Trust Investments for young couple

Post by BillWalters »

This is an amount of money where the family needs, and can easily afford, top notch counsel. At this level of wealth, tax considerations are immense. The investment decisions pale in comparison to the importance of estate tax avoidance and tax planning.
IHateCasinos
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Re: Trust Investments for young couple

Post by IHateCasinos »

BillWalters wrote: Fri Feb 21, 2020 10:44 pm This is an amount of money where the family needs, and can easily afford, top notch counsel. At this level of wealth, tax considerations are immense. The investment decisions pale in comparison to the importance of estate tax avoidance and tax planning.
+1
OP, I appreciate why they might have non-corporate Trustees appointed (ie yourself), but to be honest, you might be in that role for your trustworthyness and knowledge of the family and its dynamics. and THAT is the important part imo. !!
BUT I dont think you were selected for your investment prowness, you should appoint Vanguard PAS or similar. and just directing them into sticking to our BH favourites : Low cost,broad based, index funds.

Pls understand, I dont mean offend you, but we each have our roles and yours is to make the trustee decisions, not the investment ones.
Now, thats very close to the question of "but what should I do as trustee do in this case?" Help them to meet the advisors, learn from them, and eventually you can make a decision on the right tax,trust and investment advisors to appoint. only fee based. you can only eat the elephant in very small bites. its a LOT to take in, that probably why mom has difficulty trusting the lawyer/big firms / small firms etc.

mom has trouble trusting the lawyers? yip, thats good. only the paranoid survive. go and meet quite a few, but you will need a full service firm to do tax and trust, and in the right state. and multi state etc. shortly, You and the mom/spouse will probably find comfort in using 2 firms. that keeps them both in line. one in the trust's state and one in the state she/the kids live in. The $7k-15k that each will cost is not important. it will take 3-6 months. Its an iterative process. one bite at a time. I have the learned experience.

Also, with >25m in inheritances, a clinical psychologist working in family business/HNW will be very helpful in getting everyone onto a good path and finding out why they do or or resist the things they do. I have seen excellent success in those interactions, to develop or settle the family Dynamics at an early stage, before "money makes funny" and relations go south.

I would like to see them all learn about money, but each might have to learn own way. ie some are readers (BH book list) , others can volunteer to help the under privileged (must be say 4 weeks plus. not one night at a food bank), others might join a charity group and learn about giving(eg interview grant requestees and make decisions on what to fund, how much , what worked , what to avoid etc)


Of Investment advisors (fee only) there are lots. Tax attorneys a plenty, but trusted friends who know the family and its dynamics? not a lot.
So be the TRUSTee, not the investment advisor.

enjoy the experience/the journey.

M.
bsteiner
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Re: Trust Investments for young couple

Post by bsteiner »

JDIstre wrote: Fri Feb 21, 2020 10:30 pm The wealth is from the Grandfather who started 2 successful companies. I'm not sure why they are not working now but their aspirations seem to be yoga instructor and photographer so their future income is in doubt (at least in my opinion). Also another wrinkle is their mother will have 30 million or more beyond the 23 mil exemption to get rid of. The mother thinks the estate lawyer they're talking to is shady. I did some research and ran across a paper called "Multi-generational Wealth Management: Getting a Legacy Up" by Bernstein Global Wealth Management and it seemed to be a much more tax efficient way of transferring their wealth than the straight 10 year GRAT their lawyer is proposing. Also what is the likelihood of a 60/40 portfolio (with the CAPE so high) outperforming the IRS 7520 table (or whatever the industry lingo is) over the next 10 year horizon? Is anyone here familiar with that paper or have any opinions on that particular piece. Thanks in advance. This is a lot to wrap your head around for an outsider lol. I did refer the mother to Vanguard but she is resistant to a large company and doesn't trust the guy she is working with. Excuse the basic questions. I'm trying to learn a little about this so I can at least tell them if they're being taken advantage of.
Here's the Bernstein paper: https://www.alliancebernstein.com/Resea ... igenBB.pdf.

In a GRAT, you transfer assets to a trust and you retain an annuity interest having a value equal to the amount of the transfer. For example, you put $100 into the trust and you get $51 or $52 a year for 2 years. At the end of 2 years, whatever is left in the trust, if anything, passes to (in further trust for) the next generation, free of estate and gift tax. After the annuity term ends, the trust continues as a grantor trust for income tax purposes, so the grantor's payment of the income taxes shifts additional wealth.

They are correct that a series of 2-year GRATs is generally preferable to a 10-year GRAT. A GRAT is heads you win, tails you break even (minus the transaction costs). If you do a series of GRATs, some will be successful (will earn more than the required interest rate (presently 2.2%).

The attraction of the GRAT is that if it doesn't earn more than 2.2% a year, you haven't lost anything. The annuity payments exhaust the trust and you get your contribution back.

There isn't much additional cost to creating GRATs after the first one since you would clone them, just changing the required annuity payments based on current interest rates. However, there's some effort to maintaining them since you have to keep track of them, make the contributions and distributions, and report them on the gift tax returns both in the year of the transfer and when the annuity ends (to allocate or not allocate GST exemption).

The other thing to consider is giving away their ~$23 million estate and gift tax exclusions before they revert to pre-2018 law in 2026 (or sooner, depending on what Congress may do between now and then).

Of course, with "only" ~$53 million, there's a limit on how much they can give away.
Wricha
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Re: Trust Investments for young couple

Post by Wricha »

Unless you are professional multi generational wealth advisor with years of experience I think you are out of your league (and taking on unnecessary aggravation). You are not only dealing with finances you are dealing with the emotional baggage of a tour group. Maybe accompany wife to meet with said professional.
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