How to save inheritance from grandfather for 18 & 20 year old sons

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Red Headed Mommy
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How to save inheritance from grandfather for 18 & 20 year old sons

Post by Red Headed Mommy »

My father in law recently passed away. I believe my sons ages 18 and 20 will each be receiving an inheritance of approximately $50,000. I think this will be a nice nest egg for a future down payment on a house. I understand that if I put the money in an UTMA account, they would have access at 21 years old-- I would prefer them to be older before they have access.

I am trying to get ideas on how to set up this money for them. Any suggestions other than separate trusts for them?

I would love to avoid the cost of setting up the trust and doing annual tax returns, but will if that is the optimal solution.

Suggestions?
chevca
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by chevca »

Well, they're adults, so...

I think your intentions are good, but I don't know that you get to set this money up for them. Have they asked for help with this?
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unclescrooge
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by unclescrooge »

Red Headed Mommy wrote: Tue Oct 24, 2017 11:07 am My father in law recently passed away. I believe my sons ages 18 and 20 will each be receiving an inheritance of approximately $50,000. I think this will be a nice nest egg for a future down payment on a house. I understand that if I put the money in an UTMA account, they would have access at 21 years old-- I would prefer them to be older before they have access.

I am trying to get ideas on how to set up this money for them. Any suggestions other than separate trusts for them?

I would love to avoid the cost of setting up the trust and doing annual tax returns, but will if that is the optimal solution.

Suggestions?
Does a trust require an annual tax return if it had no income?

If so, then just buy Berkshire Hathaway and forget about it.
Dottie57
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Dottie57 »

chevca wrote: Tue Oct 24, 2017 11:09 am Well, they're adults, so...

I think your intentions are good, but I don't know that you get to set this money up for them. Have they asked for help with this?
+1

They are legally adults. You are walking on the edge if you don't tell them (are you executor?). It would have caused a lot of trouble between me and my parents if this info was hidden.
Grt2bOutdoors
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Grt2bOutdoors »

Well, if the children were named in the wills as beneficiaries and were under the age of 21 or age of majority in your state, then the proceeds should flow directly into a trust for benefit of child with a named custodian (depends how grandfather set it up). At least theoretically that is how its supposed to work. Does 18 year old have intentions of attending college? What about the 20 year old? The money is their's but usually the child will listen to gentle coaching by parents ~ something along the lines of grandfather worked a long time to save this money for you and the best gift you can give him to show your gratitude is to use it towards education, a down payment on first home or to save for your own retirement so you can be on solid financial footing as your grandfather was. Also, it's important that immediate family and sons do not spill the beans to their friends/cousins/colleagues over inheritance, lest they be expected to pay for meals, drinks, loans and whatever else young adults do today. Be especially wary around current/potential "friends". This kind of honey can attract the wrong type of flies. Finally, avoid meeting with financial advisers at your local bank, insurance company or the guy at the gym.

You may want to let them read this: https://www.etf.com/docs/IfYouCan.pdf
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Red Headed Mommy
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Red Headed Mommy »

Well---it gets a little more complicated (and I was trying to keep it simple :shock: )

2 quirks in this deal:

1. Technically, there is a portion of the inheritance that passes to my husband--that passed away 3 months ago. I think the money from a small life insurance policy and cash will technically go into a family trust which our sons are beneficiaries when I die, but I wanted to be able to give it to them earlier but not have to be concerned with gift tax issues in the future. This portion should be around $28,000--so I could gift them $14,000 each in 2017 to represent this part of the inheritance.

2. A portion of this inheritance will be based on the sale of my father-in-laws home. My father-in-law's will was written before my husband and I got married--a very simple "I leave everything to my 4 sons to share and share alike.") Legally, "share and share alike" is split between the LIVING children with no rights going to his children.

We are a very close family, and my brother-in-laws want my husband's "share" to go to our sons. (We know it is not legally their share, but the brothers see each of my father in law's sons being entitled to 25%).

My boys are amazing and actually incredibly financially minded for their young age (they both have Roth IRAs already :wink: ). The oldest son is in college in a business honors program, and the younger is applying to college right now for a degree in business...

I don't have a problem saying "Hey-let's save this for later from Grandad"--as you stated above--his dad DID work incredibly hard to save this money--My brother-in-laws were the ones asking me how to set this up...
NotWhoYouThink
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by NotWhoYouThink »

I am sorry for so much loss in your family.

Some of this depends on the timing of the deaths, and your state laws. Is there a lawyer working with the executor of your FIL's estate? If your BILs decide to give money to your sons out of generosity, not because the will and the law require it, then those would be gifts. They could structure it any way they want. They could give it now or wait a few years. Now is probably better, before they change their minds.

At that age, I would have passed the money to my kids and let them spend it at their discretion.
chevca
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by chevca »

Ah, yes, it does get more complicated. Sorry about the earlier post. The simple version came across differently.

I think getting an attorney involved is your best bet here. If everything was written before you married, I don't know that you are in line to get anything. The "living children" does not include you, IMO. You're the widow of a child that passed away. Sorry for your loss(es) BTW.

If the living children are wanting some to go to your kids, it should be fairly easy to set up for an attorney. I'd say this is not something to try and save money on by not hiring an attorney. My take on it anyway.
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Nate79
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Nate79 »

I don't think it is up to you what to do.
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Red Headed Mommy
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Red Headed Mommy »

You are correct--it isn't up to me--it is up to the brothers. They, however, have asked me to look into options to carry out their wishes. They would prefer the boys to wait to have access to the funds.

I have handled all of my father-in-laws financial affairs for the past 10 or more years (my father in law was 97 when he passed away). One of my brother in laws is an attorney (litigator, not estate attorney) and he will handle all of the legal paperwork for the sale of the house. They are not planning to hire an estate attorney.

I can ask the estate attorney I am working with on my husband's estate, but I wondered if folks on the forum had some suggestions to achieve their wishes.
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Dottie57 »

Red Headed Mommy wrote: Tue Oct 24, 2017 11:43 am Well---it gets a little more complicated (and I was trying to keep it simple :shock: )

2 quirks in this deal:

1. Technically, there is a portion of the inheritance that passes to my husband--that passed away 3 months ago. I think the money from a small life insurance policy and cash will technically go into a family trust which our sons are beneficiaries when I die, but I wanted to be able to give it to them earlier but not have to be concerned with gift tax issues in the future. This portion should be around $28,000--so I could gift them $14,000 each in 2017 to represent this part of the inheritance.

2. A portion of this inheritance will be based on the sale of my father-in-laws home. My father-in-law's will was written before my husband and I got married--a very simple "I leave everything to my 4 sons to share and share alike.") Legally, "share and share alike" is split between the LIVING children with no rights going to his children.

We are a very close family, and my brother-in-laws want my husband's "share" to go to our sons. (We know it is not legally their share, but the brothers see each of my father in law's sons being entitled to 25%).

My boys are amazing and actually incredibly financially minded for their young age (they both have Roth IRAs already :wink: ). The oldest son is in college in a business honors program, and the younger is applying to college right now for a degree in business...

I don't have a problem saying "Hey-let's save this for later from Grandad"--as you stated above--his dad DID work incredibly hard to save this money--My brother-in-laws were the ones asking me how to set this up...
Just a note. You have great brother in laws! And the situation is much clearer now.
chevca
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by chevca »

I would bet most here will advise to go to an attorney about this rather than take suggestions from random folks on the internet.
NotWhoYouThink
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by NotWhoYouThink »

Just to clear up some confusion in the timeline, did your father-in-law pass away after your husband passed away?

This part is also confusing to me
1. Technically, there is a portion of the inheritance that passes to my husband--that passed away 3 months ago. I think the money from a small life insurance policy and cash will technically go into a family trust which our sons are beneficiaries when I die, but I wanted to be able to give it to them earlier but not have to be concerned with gift tax issues in the future. This portion should be around $28,000--so I could gift them $14,000 each in 2017 to represent this part of the inheritance.
Why would the insurance money go into this "family" trust? Whose family? You and your husband, or your FIL and his sons. This is probably clear to you, but maybe not so much to others.
vested1
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by vested1 »

You may be treading dangerous ground. Your capitalization of "LIVING" sons coveys a lot, in that many if not most bequests leave out the daughter-in-law or son-in-law if the beneficiary dies before the one giving the bequest. If you hire a lawyer in an attempt to limit your son's access to their inheritance, the other three brothers who are still alive may decide that your sons get nothing, which would be their right.

You say that your sons are financially responsible. I would thank the surviving brothers for their generosity, then sit down with your sons, counseling them to be prudent with the money and perhaps suggesting that they invest it with a mind toward using it for a down payment on a home somewhere down the road.
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Longdog »

I think what will happen (or at least one way to handle it) is that your brother-in-laws will get the inheritance, and then gift what would have been your husband’s share to your two children. So, legally it’s more of a gift than an inheritance because your brother-in-laws are decent, honorable, and thoughtful people. If your sons are responsible (it sounds like they are) I’m not sure why the monies would need to go into trusts, as opposed to normal taxable accounts.
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Red Headed Mommy
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Red Headed Mommy »

I am sorry vested1--somehow I have been unclear. In no way do I want to limit my son's access to this inheritance! This inheritance is the result of hard work on the part of my father-in-law (and his wife that preceded him in death) and they raised four amazing sons!!! As a daughter-in-law, I don't want anything...The 3 living sons are very generously giving up part of their legal inheritance to their deceased brother's children (our 2 sons)...I am grateful and honored they want it to go to our sons as a part of their heritage.

The ONLY reason that I am looking into this is at my brothers-in-laws request. They have children similar ages, and I believe in their cases, they wouldn't want their children to have access to the money at 21 years old. (For my sons--I perfectly fine with it! Both my husband and I are/were "financial type" people, so our boys have had "money lessons" all their lives! They would follow whatever financial counsel I give them. They already do...)
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Red Headed Mommy
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Re: How to save inheritance from grandfather for 18 & 20 year old sons

Post by Red Headed Mommy »

Timeline:
    My husband passed away in July 2017. My husband's assets pass to our family trust (my husband and mine).
      My father-in-law (his dad) passed away in October 2017.
        Father-in-law has a small life insurance policy that will pass outside his will. My husband was listed as a 25% beneficiary. I am guessing that these insurance proceeds will pass to our family trust.
        SimonJester
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by SimonJester »

        Hmmm could the bother-in-laws setup a trust for each of your sons stipulating a payout at a certain age?

        Explain to your bother-in-laws your concerns about 18 and 20 years old boys blowing all the money right away without anything to show.

        I would however let them have some money to blow now and then perhaps split the rest into two or thee age based payments...
        "They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin
        NotWhoYouThink
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by NotWhoYouThink »

        You should check on where the life insurance proceeds will go. It may go to the BILs, or it may go to your sons. It depends on exactly how the beneficiaries were listed and the terms of the policy.

        You can ask your BILs to set up a trust for your sons, if you think that will make them more comfortable with the gift. It's an expensive way to keep a small amount of money out of their control for a short time, but it's better than nothing, if that would be the alternative. Maybe they would let you be the trustee.
        Hug401k
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by Hug401k »

        Is there a reason the estate can't just be split differently than the will directs if all parties agree to it? Since your sons are adults it might be easier just to give it to them directly. Then suggest they keep it for a downpayment on a house and not a new iPhone.

        Son 1: 25%
        Son 2: 25%
        Son 3: 25%
        Grandson 1: 12.5%
        Grandson 2: 12.5%

        Good luck, you sound like a great family. I'm sorry for your losses.
        aristotelian
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by aristotelian »

        $14K is the exact number you are allowed to gift tax free without having to file any IRS paperwork. I would just tell the brothers to cut a check up whatever they are willing to give up to that amount.
        DrGoogle2017
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by DrGoogle2017 »

        I would give them a small amount for play money, maybe $5k each and the rest contribute to Roth IRA yearly.
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by Ace1 »

        RHM
        Much sympathy for your losses. It is a lot to deal with.

        We can only speculate on how the life insurance may be distributed.
        There is a chance your husbands share might go to his beneficiaries ( you / your sons), in which case you could
        direct the funds to your family trust or any other investment account you manage with your sons.
        My guess is the insurance proceeds will only go to surviving beneficiaries, your 3 BIL’s.
        The BIL’s can then gift your sons the funds they want to share with them ... technically not an inheritance, but the intent.
        They can then each write 2 gift checks to each son ( a total of 6 checks) one dated Dec 2017 and one dated Jan 2018 in amounts less than the gift allowance, $14k in 2017, $15k 2018.
        Now there will be options in how and where your sons can deposit or invest the funds, your family trust, their own ira’s, etc, etc.
        Best of luck to you.
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        sergeant
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by sergeant »

        How about they just gift you the money and you give it to your boys when you think it is the appropriate time. How about your BIL's gift it to their kids when it is the appropriate time. This isn't that complicated.
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by sco »

        If the total amount is really 50k ish,

        It seems the simpliest way is to have the Brothers gift it to you (on your childs behalf), or just directly to the children.

        Each brother can gift 14k a year with no paperwork, if I recall. Between 2017 and 2018 this should be plenty of room to move the money.


        A lawyer isn't a bad idea here, and be careful to not cause family issues. It sounds like unfortunately they aren't really entitled to anything, but the brothers are attempting to do what they feel is right. Good for them.
        chevca
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by chevca »

        I agree. Now that this has become untangled and as long as the BILs are willing, gifting the boys the money is probably the easiest way. That would keep it very simple.

        If the BILs are married, can't they gift up to $28k a year as a couple?
        sco
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by sco »

        chevca wrote: Wed Oct 25, 2017 11:02 am I agree. Now that this has become untangled and as long as the BILs are willing, gifting the boys the money is probably the easiest way. That would keep it very simple.

        If the BILs are married, can't they gift up to $28k a year as a couple?
        Pretty much. Technically the spouse gifts 14k and the brother gifts 14k.. Either way it seems this is well above what is required.
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        celia
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by celia »

        Red Headed Mommy wrote: Tue Oct 24, 2017 11:43 am 1. Technically, there is a portion of the inheritance that passes to my husband--that passed away 3 months ago. I think the money from a small life insurance policy and cash will technically go into a family trust which our sons are beneficiaries when I die, but I wanted to be able to give it to them earlier but not have to be concerned with gift tax issues in the future. This portion should be around $28,000--so I could gift them $14,000 each in 2017 to represent this part of the inheritance.

        2. A portion of this inheritance will be based on the sale of my father-in-laws home. My father-in-law's will was written before my husband and I got married--a very simple "I leave everything to my 4 sons to share and share alike.") Legally, "share and share alike" is split between the LIVING children with no rights going to his children.

        We are a very close family, and my brother-in-laws want my husband's "share" to go to our sons. (We know it is not legally their share, but the brothers see each of my father in law's sons being entitled to 25%).
        ...
        --My brother-in-laws were the ones asking me how to set this up...
        This is a little clearer than the original post, but they contradict each other. It appears your sons ARE NOT receiving an inheritance. They are receiving a "gift" from each of their uncles. Each uncle is entitled to give an unlimited number of people $14K per year without any tax consequence.

        Your original post sounded like you wanted to "hide" it from your sons since it would be a lot of money for them. Now, you want to give it to them outright. So that part is not clear to me at all.

        What hasn't been mentioned yet, is how the college expenses for your sons are being paid. If they are receiving any financial aid from the college, the college will expect this money to be spent on college. After all, they may now be able to pay for it themselves.

        I am guessing that maybe their uncles are really asking how to gift the money so that it doesn't impact their financial aid. If that is correct, the uncles could hold onto the gifts until after your sons have graduated. They could then graduate and still have money coming to them instead of using the money now to pay for college while losing out on financial aid and have nothing left when they graduate.
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        oldcomputerguy
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        Re: How to save inheritance from grandfather for 18 & 20 year old sons

        Post by oldcomputerguy »

        I agree with others here that you likely should get an attorney involved. That being said, if the brothers-in-law are the actual beneficiaries, and they are on board, would a possible solution be simply to let them inherit per the will with the understanding that they would then in turn (when appropriate and desired) gift the money to the two sons?

        Just a thought.
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