Trust for minor children...any advice or critique?
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Trust for minor children...any advice or critique?
At some point this year I plan to schedule a meeting with our family attorney to take another look at our will and see if anything needs changing or updating.
The one area that has me most puzzled in terms is the trust we established for our 3 daughters in the event that both my wife and I pass. They are currently ages 6, 9, and 14. I'm wondering if anyone would recommend a different approach from what we have set up.
The way we have it set up, our entire estate goes into a single trust for their benefit. We have appointed two co-trustees to control the funds. My father and my brother in-law. I trust both of them to act only in our daughter's interest. My father is very savvy and currently employs a good advisor to manage his funds. My brother in law is single and runs the Latin American investment operations of a very large European banking conglomerate. I don't have any outside investment manager or company I would trust at the moment to manage the funds if not those two. Neither of them are going to do anything foolish and both are probably somewhat more conservative in their investment approaches than I am. Probably just dump everything into a couple of Vanguard funds. My father is here in the US so will it will be easier for him to handle American transactions. My brother in law is of course much much younger so will be around for the duration.
Our children's guardians are another family we are close to. They are friends but not family. Both are doctors and they have one child the same age as ours. We purposefully set it up so that our children's guardians do not also control their money. We have no immediate relatives who are set up to take our kids so we had to look outside the family. By putting my father and brother in law in charge of the trust it will enable both sides of our extended family to continue to play a role in their lives should we pass.
When the oldest daughter reaches age 18 the trust splits into 3 separate funds, one dedicated to each daughter. Our attorney advised this so that different amounts could be spent on each child and it would remain equitable. One might want to start a business, another might want to go to medical school. Or whatever. They would each be able to make a case for using a portion of their funds for whatever purpose after age 18 without it affecting the investments of their sisters. When each reaches age 30 they come into their money. We picked age 30 so they would really need to start their lives and make something of themselves and hopefully be somewhat mature before gaining a windfall.
All the other aspects of estate planning seem rather straightforward. But this is an area that really has me puzzled as to whether we have set things up appropriately or should be doing something different.
The one area that has me most puzzled in terms is the trust we established for our 3 daughters in the event that both my wife and I pass. They are currently ages 6, 9, and 14. I'm wondering if anyone would recommend a different approach from what we have set up.
The way we have it set up, our entire estate goes into a single trust for their benefit. We have appointed two co-trustees to control the funds. My father and my brother in-law. I trust both of them to act only in our daughter's interest. My father is very savvy and currently employs a good advisor to manage his funds. My brother in law is single and runs the Latin American investment operations of a very large European banking conglomerate. I don't have any outside investment manager or company I would trust at the moment to manage the funds if not those two. Neither of them are going to do anything foolish and both are probably somewhat more conservative in their investment approaches than I am. Probably just dump everything into a couple of Vanguard funds. My father is here in the US so will it will be easier for him to handle American transactions. My brother in law is of course much much younger so will be around for the duration.
Our children's guardians are another family we are close to. They are friends but not family. Both are doctors and they have one child the same age as ours. We purposefully set it up so that our children's guardians do not also control their money. We have no immediate relatives who are set up to take our kids so we had to look outside the family. By putting my father and brother in law in charge of the trust it will enable both sides of our extended family to continue to play a role in their lives should we pass.
When the oldest daughter reaches age 18 the trust splits into 3 separate funds, one dedicated to each daughter. Our attorney advised this so that different amounts could be spent on each child and it would remain equitable. One might want to start a business, another might want to go to medical school. Or whatever. They would each be able to make a case for using a portion of their funds for whatever purpose after age 18 without it affecting the investments of their sisters. When each reaches age 30 they come into their money. We picked age 30 so they would really need to start their lives and make something of themselves and hopefully be somewhat mature before gaining a windfall.
All the other aspects of estate planning seem rather straightforward. But this is an area that really has me puzzled as to whether we have set things up appropriately or should be doing something different.
Re: Trust for minor children...any advice or critique?
When the oldest is 18, the youngest will be 10. Is that the time for an equitable split? It's only 4 years from now. The odds are that even if you both die before the youngest is 30, it won't be in the next 4 years. Why not just create three trusts at your joint death?
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Re: Trust for minor children...any advice or critique?
My relatives set up their trust to pay out in 1/3 installments for each of their two children - age 25, 30 and 35. The trust is funded upon both parents passing on, not before. I assume the trust has made provisions to provide financial support to the selected and agreed upon guardians (you and selected guardians have had a thorough discussion regarding a)them taking the kids and b)how they will be compensated monetarily) for the duration through age of majority or 18, whichever your state of residence has.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: Trust for minor children...any advice or critique?
I disagree with splitting the trust so early. If you were living and had one very needy child, would you limit the benefits for that child to one third of your assets? I would keep the trust in one "pot" until the eldest reaches age 30 and at that time pay out 1/3 to that child, 1/2 when the second reaches 30 and the balance to the youngest at 30.
John
John
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Re: Trust for minor children...any advice or critique?
Well we set this up 6 years ago when the oldest was 8. Time passes quickly. This is the one area I really wanted to take a hard look at.sscritic wrote:When the oldest is 18, the youngest will be 10. Is that the time for an equitable split? It's only 4 years from now. The odds are that even if you both die before the youngest is 30, it won't be in the next 4 years. Why not just create three trusts at your joint death?
My basic thought was that while they were minors many of the expenses would be joint expenses and it would simplify management if there was just a single account to draw money out of. For example, if our guardians need to trade in their prius for a minivan to haul 4 kids instead of 1. Or have double the expense when they take the kids to Disneyworld for holidays.
When each kid becomes an adult and moves on the idea would be that they would each have a specific inheritance to tap into with the permission of the trustee and if one wanted to do something different from the typical route through college and professional school they could make that case without it affecting the others.
There may not be any real disadvantage at this point into just setting up 3 separate trusts. The chances of us both going in the next 4 years are pretty slim.
Re: Trust for minor children...any advice or critique?
I actually agree with John. When my children were young our will gave discretion to the guardians/trustees to spend as needed (equitable not being measured in dollars). I would use a single trust.
[I know I wrote about 3 trusts, but that was more about your timing of the split.]
[I know I wrote about 3 trusts, but that was more about your timing of the split.]
Re: Trust for minor children...any advice or critique?
I didn't want to control from my grave, so if I die last I set up guardians (my sister) and trustee (spouse's sister). Kids would get control of the money at age 25.
My spouse wanted to control from her grave, so if she dies last, she set up guardians (her sister) and trustee (my sister) with some tiered distribution to kids as they get older like 35.
Provision is made if we both die together close enough in time.
So make sure your documents account for these 3 death-order scenarios.
My spouse wanted to control from her grave, so if she dies last, she set up guardians (her sister) and trustee (my sister) with some tiered distribution to kids as they get older like 35.
Provision is made if we both die together close enough in time.
So make sure your documents account for these 3 death-order scenarios.
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Re: Trust for minor children...any advice or critique?
What do you guys think about the age of 30?
My idea is that by age 30 even the longest path through college and professional school should have mostly taken its course and most kids who are actually going to do something with their lives will have at least started on that path by 30. With the amount of insurance we have and our current net worth we are looking at the low 7 figures per child child right now and that's only likely to grow. I don't want to create aimless trust fund vagabonds who don't start productive lives. But at some point they will eventually grow up.
Before they reach the age of 30 I would expect them to be able to make any valid case for spending money at the approval of the trustee. So, college educations, down payment on a house, weddings, backpacking through Europe. Whatever. If they can convince my Dad or brother-in-law to cut the check then fine.
But based on who they are now, I could expect one daughter to want to do something like buy a ranch and raise horses here in Texas or down in Chile while the other might follow her mother's path through med school. So very different types of spending are possible once they reach their 20s.
My idea is that by age 30 even the longest path through college and professional school should have mostly taken its course and most kids who are actually going to do something with their lives will have at least started on that path by 30. With the amount of insurance we have and our current net worth we are looking at the low 7 figures per child child right now and that's only likely to grow. I don't want to create aimless trust fund vagabonds who don't start productive lives. But at some point they will eventually grow up.
Before they reach the age of 30 I would expect them to be able to make any valid case for spending money at the approval of the trustee. So, college educations, down payment on a house, weddings, backpacking through Europe. Whatever. If they can convince my Dad or brother-in-law to cut the check then fine.
But based on who they are now, I could expect one daughter to want to do something like buy a ranch and raise horses here in Texas or down in Chile while the other might follow her mother's path through med school. So very different types of spending are possible once they reach their 20s.
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Re: Trust for minor children...any advice or critique?
livesoft wrote:I didn't want to control from my grave, so if I die last I set up guardians (my sister) and trustee (spouse's sister). Kids would get control of the money at age 25.
My spouse wanted to control from her grave, so if she dies last, she set up guardians (her sister) and trustee (my sister) with some tiered distribution to kids as they get older like 35.
Provision is made if we both die together close enough in time.
So make sure your documents account for these 3 death-order scenarios.
That's very interesting. My wife and I are pretty much both on the same page. Or rather, I obsess about these things and she just trusts that it will work out fine. She doesn't have the time or energy to get down into the weeds with this stuff and basically just trusts me to do it. So we don't have any separate provisions based on order of death. If just one of us passes then clearly it would be time to start over with a new will I suspect because all the powers of attorney and living will stuff would be wrong.
I don't want to control them from the grave. But I also don't want early wealth to set them on the wrong path. It's hard to know where to draw the line.
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Re: Trust for minor children...any advice or critique?
Teach them while their young. Best advice I can give. Age 30 is a good number, some are not ready at any age.
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Re: Trust for minor children...any advice or critique?
I guess we are lucky. My kids know their aunts and uncles extremely well. There are cousins of similar ages as our kids, too. The adults are well-grounded in life and financially independent, so that they can guide my kids in any ways needed after we are dead. I really do trust them to be better than me in this regard if they are needed. Also my kids have shown no tendencies to "blow it". They might instead give it all away to charity. So you never know.
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Re: Trust for minor children...any advice or critique?
Yes, you don't understand the importance of family until you don' have it. My 3 girls are the only grandchildren of 2 aging sets of grandparents. I have two single brothers: one lives on a boat in Alaska and does construction. The other is an artist and musician in Seattle. Neither are remotely at a point in their lives when they could take on 3 girls. They wouldn't have the slightest idea what to do or even where to put the girls if they showed up. My wife has only one brother who I mentioned before. A single investment banker who lives in Santiago but is rarely home. He has the resources to give them a lavish life but it would be all maids and nannies and Catholic girls school with the children of the aristocracy in Santiago while he checks in from Paris or Buenos Aires. Not exactly what we have in mind either. My parents are spry now but will be pushing 90 by the time the youngest reaches 18. So we have ended up asking our oldest friends whom my wife went through residency with. They have a huge house in the Houston area and a daughter who is best friends with ours. They love our kids, and could take them in with the least disruption to their lives and our daughters. We couldn't figure out any other solution that made sense and just cross our fingers that it will never be necessary.livesoft wrote:I guess we are lucky. My kids know their aunts and uncles extremely well. There are cousins of similar ages as our kids, too. The adults are well-grounded in life and financially independent, so that they can guide my kids in any ways needed after we are dead. I really do trust them to be better than me in this regard if they are needed. Also my kids have shown no tendencies to "blow it". They might instead give it all away to charity. So you never know.
Re: Trust for minor children...any advice or critique?
This is a topic that I've been thinking about and needing to deal with. Thanks for the ideas. My daughter is less than a year old, but if her mom and I died tomorrow then she would be set up with over $2MM on her 18th birthday. It is the rare person that this money wouldn't be a curse to. So on that note, I need to get a trust set up, preferably in an inexpensive manner. Suggestions welcome...
As a person in my early 30's, I think 30 is a great age to distribute the money and I intend to set mine up the same. I feel the time from college until age 30 is needed to let the real world sink in. Affluence during this time would not have helped me personally, and that's all I have to go off of.
I also like your thoughts regarding trustees from each side of the family. In our case I would probably set it up with wife's sister as guardian and my brother as trustee. Is that crazy talk?
As a person in my early 30's, I think 30 is a great age to distribute the money and I intend to set mine up the same. I feel the time from college until age 30 is needed to let the real world sink in. Affluence during this time would not have helped me personally, and that's all I have to go off of.
I also like your thoughts regarding trustees from each side of the family. In our case I would probably set it up with wife's sister as guardian and my brother as trustee. Is that crazy talk?
Re: Trust for minor children...any advice or critique?
Who are you leaving your estate to in the meantime? My understanding is that the money becomes hers when you die. She would already have the $2 million at age one. Now if you are suggesting that you are going to instruct her guardians to keep the truth from her, then why not keep the truth from her until she is 25 or 36? It's been done before.Hub wrote:This is a topic that I've been thinking about and needing to deal with. Thanks for the ideas. My daughter is less than a year old, but if her mom and I died tomorrow then she would be set up with over $2MM on her 18th birthday.
P.S. This is not my recommendation. I like the truth. I would instruct the guardians not to spring the knowledge of the $2 million on her the day before her 18th birthday. If you do set up a trust, I would advise that the trustee not hide this from her until age 30 or whenever the trust will make disbursements. If she is going to be relatively rich, then she should learn about it in time to prepare for her responsibilities.
Re: Trust for minor children...any advice or critique?
I was just saying that if I fail to set up a trust and she gets everything when she turns 18 that I would not view that as a good idea. I wasn't assuming any surprises under any circumstances, just that I need to set up a trust to which the estate would go. This would dissolve and go to her freely at age 30.
Re: Trust for minor children...any advice or critique?
Think about why it is a bad idea. If it is a bad idea because she won't study in school, won't the same thought cross her mind if she knows she will get money five or ten years in the future? Is it actually having control of the money or the knowledge that she will have the money that might be a problem? If she is not going to study because of money, current or future, than that's the problem, not actually having the money. You are probably right that there would be a bigger problem if she were to get it at 18 rather than at 30, but if she knows at 18 that she will get it at 30, some part of the problem will still exist.Hub wrote:I was just saying that if I fail to set up a trust and she gets everything when she turns 18 that I would not view that as a good idea. I wasn't assuming any surprises under any circumstances, just that I need to set up a trust to which the estate would go. This would dissolve and go to her freely at age 30.
Re: Trust for minor children...any advice or critique?
Not crazy talk, but be sure to talk to everybody ahead of time and get their thoughts and permission. In our case, all the respective families know each other, too. That way, they will not be dealing with strangers.Hub wrote:I also like your thoughts regarding trustees from each side of the family. In our case I would probably set it up with wife's sister as guardian and my brother as trustee. Is that crazy talk?
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Re: Trust for minor children...any advice or critique?
Personally I think college and the first years after are great times for young people to experience life on a limited budget. No one died in college because they had to eat ramen or because they had to live with a futon on the floor in their first apartment. Those were actually good times for most of us who went through them. I remember my first studio apartment fondly and cooking with utensils I salvaged at the local Good Will store. The futon on the floor and the bookshelves made with cement construction blocks and pine boards. Doing laundry at the local laundry mat. Of course I seemed to have enough money for a massive record collection.sscritic wrote:Think about why it is a bad idea. If it is a bad idea because she won't study in school, won't the same thought cross her mind if she knows she will get money five or ten years in the future? Is it actually having control of the money or the knowledge that she will have the money that might be a problem? If she is not going to study because of money, current or future, than that's the problem, not actually having the money. You are probably right that there would be a bigger problem if she were to get it at 18 rather than at 30, but if she knows at 18 that she will get it at 30, some part of the problem will still exist.Hub wrote:I was just saying that if I fail to set up a trust and she gets everything when she turns 18 that I would not view that as a good idea. I wasn't assuming any surprises under any circumstances, just that I need to set up a trust to which the estate would go. This would dissolve and go to her freely at age 30.
I want my kids to be secure and not wind up in poverty. But I don't want my 18 year old arriving at her college campus in new Mercedes convertible, wearing designer clothes, and living in some penthouse apartment with maid service and posse of moochers hanging around her offering drugs and other ways to spend her money. That is why I want a trusted adult in the family to be controlling the purse strings through college and early adulthood. It's for her own good.
The fact that the money is hanging out there 12 years in the future cannot be avoided. But to an 18 year old, age 30 sounds like a lifetime away.
Re: Trust for minor children...any advice or critique?
We choose a sister (the accountant) from one side for the money and a sister (with comparably aged children) from the other for the bodies. However, only one of us died, not both, so neither was ever called upon.
Re: Trust for minor children...any advice or critique?
She can experience life on a limited budget working at McDonald's and hanging out with her slacker friends. She doesn't need to go to college for that, especially when she knows that millions are on her doorstep. Many kids go to college because they have been convinced that it will matter later in life (a lifetime away), but she might think she doesn't have to do the college thing as she is already set for life (she thinks).texasdiver wrote: Personally I think college and the first years after are great times for young people to experience life on a limited budget.
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The fact that the money is hanging out there 12 years in the future cannot be avoided. But to an 18 year old, age 30 sounds like a lifetime away.
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Re: Trust for minor children...any advice or critique?
I would be interested in hearing someone who knows this weigh in. But my understanding is that if you do nothing then the estate would go to your 1 year old daughter immediately but that her guardians would have control over it until age 18. This may not be a good scenario for several reasons. First, the person(s) you may chose for guardians may not be the person you wish to trust to manage the estate. That is most definitely my situation. It's not that we don't trust them. But a large estate could be a tempting source of cash for all kinds of spending that might be only vaguely related to our daughters. Why create that situation? Better I think for them to have to request and justify any spending they want to do. Second, guardianship may pass to different people you didn't have in mind. And third, of course, is the age 18 issue. I think it would be a rare child who could manage a large estate at age 18 without any adult supervision. There are plenty of rich kids out there in this world. But most of them have controlling and ambitious parents who are making sure they get into the right schools, internships, jobs etc. So it's not exactly the same thing.sscritic wrote:Who are you leaving your estate to in the meantime? My understanding is that the money becomes hers when you die. She would already have the $2 million at age one.Hub wrote:This is a topic that I've been thinking about and needing to deal with. Thanks for the ideas. My daughter is less than a year old, but if her mom and I died tomorrow then she would be set up with over $2MM on her 18th birthday.
Re: Trust for minor children...any advice or critique?
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Re: Trust for minor children...any advice or critique?
I will only comment on one part: I think the equal split is a good idea. Treating your children differently, regardless of their "need" is an easy and common way to create sibling jealousy/strife. One's a screw up and one's successful? They get the same amount. One has high medical bills and the other is healthy? They get the same amount. They can, and hopefully will help each if needed, but you see time and again that when siblings are treated differently with money, it almost always causes problems.
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Re: Trust for minor children...any advice or critique?
I guess you can't control everything. If she wants to work at McDonalds for 12 years waiting for her inheritance not much I can do from the grave to stop her. But I expect I'll have enough family and friends around to kick her in the butt and make sure she takes advantage of the paid-for college education. I think the more likely scenario is that my kids could wind up on the 7-year plan in college and not getting their butts in gear to pick a major and graduate because it is a pretty comfortable and safe place to spend time when you don't necessarily have another home to go back to.sscritic wrote:She can experience life on a limited budget working at McDonald's and hanging out with her slacker friends. She doesn't need to go to college for that, especially when she knows that millions are on her doorstep. Many kids go to college because they have been convinced that it will matter later in life (a lifetime away), but she might think she doesn't have to do the college thing as she is already set for life (she thinks).texasdiver wrote: Personally I think college and the first years after are great times for young people to experience life on a limited budget.
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The fact that the money is hanging out there 12 years in the future cannot be avoided. But to an 18 year old, age 30 sounds like a lifetime away.
Re: Trust for minor children...any advice or critique?
Which is why the guardians of the person are so important. Of course, you aren't dying tomorrow, so you will have the opportunity and responsibility of shaping your daughters. My wife died when my children were 14 and 18, so most of the work of character building had already been done. My son still had four years to go before reaching 18, and he had me and his older sister as models. All has turned out well, and money had almost nothing to do with it.texasdiver wrote: I guess you can't control everything.
Re: Trust for minor children...any advice or critique?
texasdiver, what sort of compensation do you have written into the trust for the trustees? Just wondering what is normal and considering comparing that cost to hiring a trust department to be the trustee.
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Re: Trust for minor children...any advice or critique?
No compensation at all. They are my father and brother-in-law. If we were to both pass now the estate with all the life insurance, retirement accounts, etc. would probably be over $3 million. I would expect my father to locate a good financial manager to invest the money properly and we have a good estate attorney who would make sure it is done correctly. He has a guy he likes who has him in a pretty appropriate portfolio of index funds and REITs. One of his personal friends. The role of the trustees would not be to manage the investments. They would just have that done professionally. The role of the trustees would be to make decisions about how the funds would be disbursed and then pass those decisions on to the financial manager.Hub wrote:texasdiver, what sort of compensation do you have written into the trust for the trustees? Just wondering what is normal and considering comparing that cost to hiring a trust department to be the trustee.
My father has all of his and my wife's retirement accounts set up to be managed by their financial planner who I think charges the standard 1% fee or something less. They live on their SS and pensions and so don't actually touch this money except to take the required minimum withdrawals and move those into a taxable account. When they need extra cash for a trip or big ticket purchase my Dad calls his guy who moves money into his checking account. He likes this system because while they are both currently completely able to manage their affairs now, some day they may not be. He's just getting a head start and has built in this level of protection so he doesn't do something stupid down the road. I talk to him about doing it himself but he is more comfortable setting things up so that he has to go through a 3rd party to do any significant spending or investment changes. I think he has watched other family members decline and then make poor decisions or get defrauded. I can't argue. And I trust him to be able to find a good financial planner to manage the trust.
My brother in law is a wealthy investment banker in Chile. He manages all the Latin American investments for a big French bank and insurance conglomerate so basically he is supervising teams of investment bankers located in all the major capitals of Latin America as they invest hundreds of millions of insurance premiums in things like real estate, bonds, stocks, etc. He is the type who will put any financial planner they choose here in the US under the microscope (and probably a colonoscopy scope) to make sure everything is being done properly and who will pour over account statements with a fine tooth comb.
We have not gotten into any sort of details about how the two trustees are supposed to work together. We assume they can work that out by consensus. Their basic jobs will be to make sure the estate is invested appropriately and to approve all disbursements of funds. Both are financially secure and would have no possible incentive to try to tap into the trust for their own uses. Our girls are the only grandchildren of my parents and the only family my brother-in-law has.
Re: Trust for minor children...any advice or critique?
I would expect my father to locate a good financial manager to invest the money properly...
We are updating our will too. Very similar to discussions here. Looks like we will set up trust(s) to only fund when we both die. One sister will manage the disbursements; the other guardianship of our youngest (12yo); the 19yo will continue in College. I like Age 30 to dissolve the trust. We would also leave clear instructions that the funds should be paid for almost anything that helps the kids...including travel related stuff for the sister controlling the funds to go see the youngest.
Basically we totally trust them with ANY spending and life decisions. We are lucky on that. BUT I do not want them burdened actually managing the assets. It would be a significant sum. Also don’t forget if both of us die; depending on how we meet our maker, it's not unusual that some legal settlement would add to it-- even after Lawyer fees (grin)...
My relatives uses full service firms --- one of my hometown Financial Salespeople(erm…"Advisor") I grew up around was a C- student, decent fellow, great guy for parties...left College to sell Buicks(cars), then went to sell financial products...that is typical of these folks--it's all about the SELL. I do NOT want them using a non-fiduciary "Financial Advisor". So, I think we will include language using/requiring Vanguard’s Trust Services to administer and manage the trust's assets.
Any thoughts on Vanguard Trust Services? They seem to have documents to pass to your will-drafting lawyer to do just ths type of thing.
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Re: Trust for minor children...any advice or critique?
We did a single testamentary trust for our kids who are 2 and 5. They each get 1/3 of the trust when they turn 25 (or graduate college, whichever is first), 31 (or get married), and 35. Three chances to get it right.
My sister (a frugal MD married to a frugal CPA/MBA) is the trustee. Our in-laws are the guardians. We split those roles for reasons others have identified upthread.
My sister (a frugal MD married to a frugal CPA/MBA) is the trustee. Our in-laws are the guardians. We split those roles for reasons others have identified upthread.
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Re: Trust for minor children...any advice or critique?
Just off the top of my head:
I assume you think that it is your responsiblity to prepare your child for adulthood. If you divide the trust the way you are suggesting now (when your oldest child reaches 18) you are basically requiring your two younger children to pay for their childhood expenses with their inheritance (in that the oldest will have had that time period paid for out of the joint money, but they will not).
I would consider something like splitting the trust in half. 1/2 of the money is kept for use by the guardians as your children grow. The other half is divided into threes when your oldest hits 18 (or 21, or 25 or whatever age you consider your children to be responsible for their own financial decisions) and is dispersed on the timeline you prefer. The other half is kept in trust until the youngest hits whatever age you have decided upon and is then divided into three and dispersed.
We do not have the assets that you do, so it is, in many ways, a more important decision than yours. What we did not want to run into is our younger child running out of money before being ready for adulthood (so, lets say we died when our oldest was graduating from high school--- she would get 1/2 the money simply to get through college while our younger child would have four years of high school to get through with that money AND THEN the costs of college ahead).
There are a lot of ways of looking at this issue, you just have to do what seems right to you.
I assume you think that it is your responsiblity to prepare your child for adulthood. If you divide the trust the way you are suggesting now (when your oldest child reaches 18) you are basically requiring your two younger children to pay for their childhood expenses with their inheritance (in that the oldest will have had that time period paid for out of the joint money, but they will not).
I would consider something like splitting the trust in half. 1/2 of the money is kept for use by the guardians as your children grow. The other half is divided into threes when your oldest hits 18 (or 21, or 25 or whatever age you consider your children to be responsible for their own financial decisions) and is dispersed on the timeline you prefer. The other half is kept in trust until the youngest hits whatever age you have decided upon and is then divided into three and dispersed.
We do not have the assets that you do, so it is, in many ways, a more important decision than yours. What we did not want to run into is our younger child running out of money before being ready for adulthood (so, lets say we died when our oldest was graduating from high school--- she would get 1/2 the money simply to get through college while our younger child would have four years of high school to get through with that money AND THEN the costs of college ahead).
There are a lot of ways of looking at this issue, you just have to do what seems right to you.
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Re: Trust for minor children...any advice or critique?
I just looked at Vanguard Trust Services. It seems very reasonable and I really can't think of any reason to just go ahead and specify this in the will when I get around to doing updates. Most of our funds are already with Vanguard. They will operate as:
investment manager for trustee
co-trustee
sole trustee
or successor trustee
Their fees are:
I would also be interested in hearing if anyone has any good or bad experience with Vanguard Trust Services. But I can't think of a firm I would trust more to manage their estate in an appropriate manner.
investment manager for trustee
co-trustee
sole trustee
or successor trustee
Their fees are:
This seems to be the better solution then to expect my father or brother to search out some firm while dealing with the rest of our estate and children. If we pick a firm in advance we can probably streamline the process. We would specify Vanguard as the investment manager for the trustees and then successor co-trustee or sole-trustee if that should become necessary.(Minimum assets: $500,000)**
First $1 million 0.70%
Next $1 million 0.35%
More than $2 million 0.20%
Minimum annual fee: $4,500
Investment manager for trustee No additional fee
Co-trustee $2,500 annually per trust registration†
Sole trustee $2,500 annually per trust registration†
Successor trustee No fee until we assume the trustee responsibilities. Upon that day, the fee schedule in effect at the time will apply.
I would also be interested in hearing if anyone has any good or bad experience with Vanguard Trust Services. But I can't think of a firm I would trust more to manage their estate in an appropriate manner.
Re: Trust for minor children...any advice or critique?
Have you thought about the next generation? At 14, a girl is on the cusp of her child bearing years. If the trust is to last until she is 30, it is likely that there will be children. Here are two cases to consider: you and your wife die before she does, but she dies before age 30 with living children of her own; she dies before you with living children.
My children are over 30, both with living children, so my trust has a as-needed-trust provision in the case that one of my children dies before I do. The money would go in trust for the children (not the son or daughter-in-law) until age 25. There is a single trust for any undistributed amount, but shares are to be accounted for separately (so split, but not split).
Who knows what will actually happen. I will be gone, and what the trustee does, the trustee does.
My children are over 30, both with living children, so my trust has a as-needed-trust provision in the case that one of my children dies before I do. The money would go in trust for the children (not the son or daughter-in-law) until age 25. There is a single trust for any undistributed amount, but shares are to be accounted for separately (so split, but not split).
As I understand this, if my daughter dies before me and my son is still alive, the trust is split in half, and half is distributed to my son, while the other half is retained as a single trust with three shares, one for each of my daughter's children. As each reaches 25, they will get their share, unless they die before age 25 leaving children of their own. [There is an anti-perpetuity clause.]The Trustee shall divide the Trust Estate into as many shares as there are named beneficiaries of Trustor then living and/or deceased leaving issue then living. There need be no physical segregation of division of the various trusts except as segregation or division might be required by the termination of any of the trusts, but the Trustee shall keep separate accounts for the different undivided interests.
Who knows what will actually happen. I will be gone, and what the trustee does, the trustee does.
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Re: Trust for minor children...any advice or critique?
You do raise an issue but I don't think it will really apply in our case. We don't really have enormous assets but my wife is a young doctor so we have a LOT of term life on her because it is super cheap and she is our meal ticket. Over half the estate would be the term life policies we have on her. But as the years go by the rest of our assets are growing. The guardians we have chosen are also physicians and I don't anticipate that they would really make much of a dent in the trust at all. Perhaps a reasonable monthly stipend and maybe some extra to cover the additional travel costs when they go on vacation. The kids might need/want cars in HS but that's about it. I don't see them burning through the inheritance and that is why we have other family in charge of the money in the first place. With any reasonable rate of return their inheritance will be growing faster than they spend it anyway during childhood.StillTired wrote:Just off the top of my head:
I assume you think that it is your responsiblity to prepare your child for adulthood. If you divide the trust the way you are suggesting now (when your oldest child reaches 18) you are basically requiring your two younger children to pay for their childhood expenses with their inheritance (in that the oldest will have had that time period paid for out of the joint money, but they will not).
I would consider something like splitting the trust in half. 1/2 of the money is kept for use by the guardians as your children grow. The other half is divided into threes when your oldest hits 18 (or 21, or 25 or whatever age you consider your children to be responsible for their own financial decisions) and is dispersed on the timeline you prefer. The other half is kept in trust until the youngest hits whatever age you have decided upon and is then divided into three and dispersed.
We do not have the assets that you do, so it is, in many ways, a more important decision than yours. What we did not want to run into is our younger child running out of money before being ready for adulthood (so, lets say we died when our oldest was graduating from high school--- she would get 1/2 the money simply to get through college while our younger child would have four years of high school to get through with that money AND THEN the costs of college ahead).
There are a lot of ways of looking at this issue, you just have to do what seems right to you.
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- Location: Vancouver WA
Re: Trust for minor children...any advice or critique?
Wow, this gets complicated fast. No, I haven't given thought to any future grandchildren. Should our family expand in any way before my wife or I die I would certainly need to make updates to the will and trust as necessary. If any of my kids have their own children before age 30 (or after) then it is just going to have to be their obligation to plan for these sorts of issues. I guess there are certain complicated scenarios where the future grandchildren could be disadvantaged. If, for example I have a daughter who marries, has children, divorces, and then remarries and dies before age 30. Then you have the husband, ex-husband, and minor children all in the mix when it comes to inheriting the trust. I guess this is a good question to ask my attorney. This is the sort of thing he specializes in so might as well let him earn his pay.sscritic wrote:Have you thought about the next generation? At 14, a girl is on the cusp of her child bearing years. If the trust is to last until she is 30, it is likely that there will be children. Here are two cases to consider: you and your wife die before she does, but she dies before age 30 with living children of her own; she dies before you with living children.
My children are over 30, both with living children, so my trust has a as-needed-trust provision in the case that one of my children dies before I do. The money would go in trust for the children (not the son or daughter-in-law) until age 25. There is a single trust for any undistributed amount, but shares are to be accounted for separately (so split, but not split).As I understand this, if my daughter dies before me and my son is still alive, the trust is split in half, and half is distributed to my son, while the other half is retained as a single trust with three shares, one for each of my daughter's children. As each reaches 25, they will get their share, unless they die before age 25 leaving children of their own. [There is an anti-perpetuity clause.]The Trustee shall divide the Trust Estate into as many shares as there are named beneficiaries of Trustor then living and/or deceased leaving issue then living. There need be no physical segregation of division of the various trusts except as segregation or division might be required by the termination of any of the trusts, but the Trustee shall keep separate accounts for the different undivided interests.
Who knows what will actually happen. I will be gone, and what the trustee does, the trustee does.
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Re: Trust for minor children...any advice or critique?
it's worth talking about in advance. My dad recently agreed to execute an estate for a high school friend before he died. It ended up requiring multiple cross-country trips and quite a bit of time to execute, and there was no ongoing trust. The cost in terms of my dad's time (he is a physician) was not insignificant.texasdiver wrote:You do raise an issue but I don't think it will really apply in our case. We don't really have enormous assets but my wife is a young doctor so we have a LOT of term life on her because it is super cheap and she is our meal ticket. Over half the estate would be the term life policies we have on her. But as the years go by the rest of our assets are growing. The guardians we have chosen are also physicians and I don't anticipate that they would really make much of a dent in the trust at all. Perhaps a reasonable monthly stipend and maybe some extra to cover the additional travel costs when they go on vacation. The kids might need/want cars in HS but that's about it. I don't see them burning through the inheritance and that is why we have other family in charge of the money in the first place. With any reasonable rate of return their inheritance will be growing faster than they spend it anyway during childhood.StillTired wrote:Just off the top of my head:
I assume you think that it is your responsiblity to prepare your child for adulthood. If you divide the trust the way you are suggesting now (when your oldest child reaches 18) you are basically requiring your two younger children to pay for their childhood expenses with their inheritance (in that the oldest will have had that time period paid for out of the joint money, but they will not).
I would consider something like splitting the trust in half. 1/2 of the money is kept for use by the guardians as your children grow. The other half is divided into threes when your oldest hits 18 (or 21, or 25 or whatever age you consider your children to be responsible for their own financial decisions) and is dispersed on the timeline you prefer. The other half is kept in trust until the youngest hits whatever age you have decided upon and is then divided into three and dispersed.
We do not have the assets that you do, so it is, in many ways, a more important decision than yours. What we did not want to run into is our younger child running out of money before being ready for adulthood (so, lets say we died when our oldest was graduating from high school--- she would get 1/2 the money simply to get through college while our younger child would have four years of high school to get through with that money AND THEN the costs of college ahead).
There are a lot of ways of looking at this issue, you just have to do what seems right to you.
Re: Trust for minor children...any advice or critique?
No. You shouldn't have those not your direct descendants involved. Your money should go to your issue and the issue of your issue (if you want it that way). Now if your children live past the distribution (say at age 30), then they are likely to leave "their" money to their spouses and there is nothing you can do about it. Before 30, it is up to you (and your lawyer).texasdiver wrote: I guess there are certain complicated scenarios where the future grandchildren could be disadvantaged. If, for example I have a daughter who marries, has children, divorces, and then remarries and dies before age 30. Then you have the husband, ex-husband, and minor children all in the mix when it comes to inheriting the trust.
Re: Trust for minor children...any advice or critique?
At one point in my career I did a fair amount of estate planning. While there are many possible variations, here are some things to consider regarding the issues you raise:
Number of Trusts created upon death -- Set this up as one trust with three separate shares (one for each child) created upon second death. The record keeping and accounting are straightforward for an experienced accountant and it is an equitable way to treat your children.
Distributions -- throughout the term of the trust distribute principal and interest to each child as necessary for their health, education, maintenance and support (called ascertainable standards). When a beneficiary reaches age 25 distribute all income to that child annually. Distribute the balance of the trust in three instalments, as each child reaches ages 30, 35, and 40. All of this gives the children learning opportunities without having them squander a single lump sum distribution.
Guardians -- name only a single person (and a back up). If you state two persons as guardians and don't provide more detail, who is to be the guardian if they are divorced? How about if one of them is deceased, then since you have named two is there any guardian named?
Trustee -- consider a corporate trustee (bank) or at least a corporate back up. Being a trustee is a substantial responsibility and there are risks of family problems when individuals serve as trustees (imagine 2008-2009 and one family member from one side saying to the children why in the world did Uncle Joe do that with your money?). This is not a reflection on the abilities of the persons you have selected (who can always consult on behalf of the beneficiaries with the corporate trustee), it is just a realistic understanding that these situations can be ticklish and difficulties can arise in even the best families (so do what you can to minimize these risks).
I hope this helps.
Number of Trusts created upon death -- Set this up as one trust with three separate shares (one for each child) created upon second death. The record keeping and accounting are straightforward for an experienced accountant and it is an equitable way to treat your children.
Distributions -- throughout the term of the trust distribute principal and interest to each child as necessary for their health, education, maintenance and support (called ascertainable standards). When a beneficiary reaches age 25 distribute all income to that child annually. Distribute the balance of the trust in three instalments, as each child reaches ages 30, 35, and 40. All of this gives the children learning opportunities without having them squander a single lump sum distribution.
Guardians -- name only a single person (and a back up). If you state two persons as guardians and don't provide more detail, who is to be the guardian if they are divorced? How about if one of them is deceased, then since you have named two is there any guardian named?
Trustee -- consider a corporate trustee (bank) or at least a corporate back up. Being a trustee is a substantial responsibility and there are risks of family problems when individuals serve as trustees (imagine 2008-2009 and one family member from one side saying to the children why in the world did Uncle Joe do that with your money?). This is not a reflection on the abilities of the persons you have selected (who can always consult on behalf of the beneficiaries with the corporate trustee), it is just a realistic understanding that these situations can be ticklish and difficulties can arise in even the best families (so do what you can to minimize these risks).
I hope this helps.
Re: Trust for minor children...any advice or critique?
The other thing you may want to think about is that you could decide to not give them all the money at once. You could for example, give them 20% at 26, 20% at 28, and 60% at age 30. Theoretically, if they weren't super responsible, they wouldn't blow the whole sum on bad decisions. They'd get another chance in 2 years.
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Re: Trust for minor children...any advice or critique?
Well, my thoughts are that any one of them can come forward to their uncle the trustee with a proposal to withdraw a significant portion of their trust at any time up until age 30 so I don't feel the need to do the 20% at age 26, 20% at age 28 etc.dandan14 wrote:The other thing you may want to think about is that you could decide to not give them all the money at once. You could for example, give them 20% at 26, 20% at 28, and 60% at age 30. Theoretically, if they weren't super responsible, they wouldn't blow the whole sum on bad decisions. They'd get another chance in 2 years.
If one is getting married and wants $20 grand for the wedding
If one is buying a house and needs the 20% down payment
If one wants to buy a horse ranch or open a business and needs a big sum
All they need to do is ask their uncle the trustee and he makes the final call.
On the other hand, if one is living with an abusive boyfriend/husband who wants to get his hands on the cash they have to do the same thing and their uncle can put the brakes on it, at least until age 30.
The money should be available for legitimate reasons from age 18 onwards. Their uncle just gets to take a second look and a chance to talk about their plans before cutting the check. Or veto them if he feels it appropriate.
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Re: Trust for minor children...any advice or critique?
Very helpful information for when I schedule a meeting with or estate attorney to take a second look at all of this. As for distributions. I will give some thought to what you propose. I have not seen anyone propose stretching it out to age 40. I think we are fine on the Guardians and have it set up as you suggest. Regarding the trustee. I can see the wisdom of involving a corporate trustee. I think I will make the change and specify Vanguard as the trust advisor/manager and as successor trustee. That way there will be no issues of family or acquaintances of family trying to gain management control (and management fees) over the trust. Or investing it in someone's pet project. They will be stuck with Vanguard.J295 wrote:At one point in my career I did a fair amount of estate planning. While there are many possible variations, here are some things to consider regarding the issues you raise:
Number of Trusts created upon death -- Set this up as one trust with three separate shares (one for each child) created upon second death. The record keeping and accounting are straightforward for an experienced accountant and it is an equitable way to treat your children.
Distributions -- throughout the term of the trust distribute principal and interest to each child as necessary for their health, education, maintenance and support (called ascertainable standards). When a beneficiary reaches age 25 distribute all income to that child annually. Distribute the balance of the trust in three instalments, as each child reaches ages 30, 35, and 40. All of this gives the children learning opportunities without having them squander a single lump sum distribution.
Guardians -- name only a single person (and a back up). If you state two persons as guardians and don't provide more detail, who is to be the guardian if they are divorced? How about if one of them is deceased, then since you have named two is there any guardian named?
Trustee -- consider a corporate trustee (bank) or at least a corporate back up. Being a trustee is a substantial responsibility and there are risks of family problems when individuals serve as trustees (imagine 2008-2009 and one family member from one side saying to the children why in the world did Uncle Joe do that with your money?). This is not a reflection on the abilities of the persons you have selected (who can always consult on behalf of the beneficiaries with the corporate trustee), it is just a realistic understanding that these situations can be ticklish and difficulties can arise in even the best families (so do what you can to minimize these risks).
I hope this helps.
Re: Trust for minor children...any advice or critique?
Hi Texasdiver, I recently read several NOLO books about trusts. They are really great books - easy to read, thoughtful, thorough.
NOLO clearly says do NOT name co-trustees (and recommends nominated co-trustees resign from the responsibility).
-they are usually required (by your trust) to act unanimously, meaning two signatures on every form, and potential delays or arguments if they don't agree, or one is unavailable.
-they are legally liable for the other's actions. would you sign up for that?
-the co-trustee who ends up doing most of the work may be forced (by your trust) to share the trustee fee with the inactive co-trustee, creating friction.
Instead, name a successor trustee and a backup successor trustee. (Remember that you/your wife are the original trustees, hence the person who takes over after both of you pass is the "successor trustee.")
NOLO "The Trustee's Legal Companion" p. 13-14. I got it from my library, but here's the amazon link:
http://www.amazon.com/Trustees-Legal-Co ... +companion
The other NOLO books I like:
http://www.amazon.com/Estate-Planning-B ... s+clifford
http://www.amazon.com/Plan-Estate-Denis ... our+estate
http://www.amazon.com/Executors-Guide-S ... tors+guide
NOLO clearly says do NOT name co-trustees (and recommends nominated co-trustees resign from the responsibility).
-they are usually required (by your trust) to act unanimously, meaning two signatures on every form, and potential delays or arguments if they don't agree, or one is unavailable.
-they are legally liable for the other's actions. would you sign up for that?
-the co-trustee who ends up doing most of the work may be forced (by your trust) to share the trustee fee with the inactive co-trustee, creating friction.
Instead, name a successor trustee and a backup successor trustee. (Remember that you/your wife are the original trustees, hence the person who takes over after both of you pass is the "successor trustee.")
NOLO "The Trustee's Legal Companion" p. 13-14. I got it from my library, but here's the amazon link:
http://www.amazon.com/Trustees-Legal-Co ... +companion
The other NOLO books I like:
http://www.amazon.com/Estate-Planning-B ... s+clifford
http://www.amazon.com/Plan-Estate-Denis ... our+estate
http://www.amazon.com/Executors-Guide-S ... tors+guide