Trust for my kids (in the event of my death)

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dandan14
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Trust for my kids (in the event of my death)

Post by dandan14 » Sat Dec 16, 2017 8:02 pm

It has been about 10 years since we revised our wills. We just started working with an attorney to update them.

I've been thinking about setting up a trust that would last in perpetuity, funded by our assets and the payouts from life insurance (in the event my wife and I both die). This would give them a yearly payment each year for the rest of their lives.

Here is my current thinking:
Up to 3% of the account value at the beginning of the year can be used at the executor's discretion each year for the cost of raising the kids.
At age 21 of the oldest kid, the full account would be split by the number of kids, and 10% of the 3% would be under the control of my son/daughter, while 90% resided under the control of the executor. Their portion of control would increase by an additional 10% each year.
At age 30, they would be receiving the full yearly payout of 3% of their split of the original account.

Thoughts?

What happens at the death of our children? Does this keep going at 3% per year to their children? Should we just end it at some point and let them control their portion of the base account?


Dan

WannabeAgAlum
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Re: Trust for my kids (in the event of my death)

Post by WannabeAgAlum » Sat Dec 16, 2017 8:17 pm

Consider giving more flexibility for distributions. Once you're gone they can likely change trust terms if they really want to anyway. If worried about kids having too much control then allow them to be co-trustee with independent trustee and then they can be able trustee at designated age if they wish.

You may have a grandchild one day with significant needs that everyone might want to help using trust property.

Not sure if this is what you are thinking, but I'd shy away from any sort of mandatory distributions. For creditor protection purposes. Your attorney should know how to do this.

livesoft
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Re: Trust for my kids (in the event of my death)

Post by livesoft » Sat Dec 16, 2017 8:19 pm

We didn't want to control from the grave, so they just get it all. I don't care if they blow it.
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Lafder
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Re: Trust for my kids (in the event of my death)

Post by Lafder » Sat Dec 16, 2017 11:26 pm

How old are your kids now? How large is the estate with the current total plus life insurance if both parents pass?

Unless it is a very large estate and 3 percent more than covers even massive unexpected expenses of raising your kids to adults, I would not want to put a limit on the % that the guardians could use to raise the kids. If you do not trust them to manage money, how can you trust them with the kids?

Our will says something along the lines of the money including principle can be used to support living, educational, medical care along the way. An example the attorney gave was not to put a restriction on % or say it has to be spent equally between the kids in case one of them has special needs such as injured in the car accident parents died in (morbid I know) and the house needs to be remodeled to accommodate a wheelchair.

Regarding this " 10% of the 3% would be under the control of my son/daughter, while 90% resided under the control of the executor. Their portion of control would increase by an additional 10% each year.
At age 30, they would be receiving the full yearly payout of 3% of their split of the original account."

It is way too complicated. How much are you expecting the 3% a year to be that 10% of it would be meaningful?

If you want to just give out the 3% a year, make it that whole 3%. Is it 3% per child, or divided between how many children? If you give them 3% a year, what happens when they pass? You do not even trust them with full control at 50 or 60 years of age?

Why not make it ok to take more along the way for education or living or medical at the discretion of the trustee? What is the value of the $ if it can not be used for important things?

Most states do not allow a trust to go on in perpetuity to kids then grandkids then great grandkids etc etc etc.

I think we gave our kids total control at 25 or 30. As others have mentioned, if they blow it, it is on them.

I recently heard of a trust that only allows distributions for emergencies for adult children of the original trustees, then when they pass the remaining funds go to the church. I find this restriction of use for emergencies only to be odd and very controlling, and the definition of emergencies vague. But the parents in this case were making a statement they do not want their grown children homeless, but they do not want them recipients of a large trust that would change their life. This is a good example why everyone has different beliefs and trusts should be made accordingly.

I do not know how old your kids are, but now is a good time to teach them to be $$ responsible. Not by micromanaging trust distributions when they are adults. This is my opinion of course and you may choose to stick with your original plan :). A dollar amount of the estate would help give perspective as well as the kids approximate ages now. Do you already know who would raise the kids as long as they are minors?

lafder

Yukon
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Re: Trust for my kids (in the event of my death)

Post by Yukon » Sun Dec 17, 2017 6:48 am

dandan14 wrote:
Sat Dec 16, 2017 8:02 pm
I've been thinking about setting up a trust that would last in perpetuity, funded by our assets and the payouts from life insurance (in the event my wife and I both die). This would give them a yearly payment each year for the rest of their lives.
I am currently reviewing our estate plan and have considered this as an option. Our children are young enough where it's impossible to know how they'll handle money and financial investments. Plus, I subscribe to Bill Bernstein's theory that most people cannot do so without the "help" of an advisor. Giving heirs an annuity of sorts to provide a base income level is certainly tempting.
Here is my current thinking:
Up to 3% of the account value at the beginning of the year can be used at the executor's discretion each year for the cost of raising the kids.
Is this value 3% of this generous enough for the costs of raising kids?
At age 21 of the oldest kid, the full account would be split by the number of kids, and 10% of the 3% would be under the control of my son/daughter, while 90% resided under the control of the executor. Their portion of control would increase by an additional 10% each year.

At age 30, they would be receiving the full yearly payout of 3% of their split of the original account.
I vote to remove the clause from age 21-30. Feels overly complex and if the goal is to withdraw 3% forever then letting them blow it is fine. I'd probably shift the age of full yearly payout as a compromise to 25.
What happens at the death of our children? Does this keep going at 3% per year to their children? Should we just end it at some point and let them control their portion of the base account?
My assumption is that it gets ridiculously more complicated. You could always consider a higher payout rate to avoid complete perpetuity and it's potential complications. I'm considering 3.33% now when children are young which can easily be updated to 5% or 10% or 100% when I'm more comfortable with understanding each child's ability to handle an inheritance. We are considering bsteiner's suggestion on setting up separate trusts for each heir and allowing them to take control at a certain age, etc.
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Determined
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Re: Trust for my kids (in the event of my death)

Post by Determined » Sun Dec 17, 2017 7:05 am

I set up a minor's protection trust for my three children, 22, 20, and 12. The lawyer recommended that the youngest must turn 25 before they get control. My brother would be trustee and also guardian of my youngest.

Edit. The guardianship is only my wish. His Dad is still around but arguably not fit to parent.
Last edited by Determined on Sun Dec 17, 2017 7:28 am, edited 2 times in total.

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Re: Trust for my kids (in the event of my death)

Post by Grt2bOutdoors » Sun Dec 17, 2017 7:08 am

You must have a very large estate if only providing for a 3% ish withdrawal rate. IMO, would not write such a restrictive document, would be controlling from grave for a future you will have no knowledge of (you are dead). What accommodations, if any, will your trust permit. Other poster makes valid point, trusts can be broken in some situations.
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dodecahedron
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Re: Trust for my kids (in the event of my death)

Post by dodecahedron » Sun Dec 17, 2017 7:20 am

Lafder wrote:
Sat Dec 16, 2017 11:26 pm
If you do not trust them to manage money, how can you trust them with the kids?
Back when our children were young enough to require a guardian, our attorney advised that we should name two different people in our estate plans: a guardian to care for the children and a trustee to manage the trust with the assets for their support.

The theory was that the person with the best ability to take physical care of the children might not be the best person to manage their financial resources. Also, naming a guardian for your children in your will is not necessarily binding on a judge, who may rule in favor of someone else if s/he deems it in the best interest of your children. It is far less common for a judge to overrule your choice of a trustee to manage their financial resources.

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StevieG72
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Re: Trust for my kids (in the event of my death)

Post by StevieG72 » Sun Dec 17, 2017 7:35 am

Beyond the Grave is a pretty good read. It has some interesting examples where the best laid plans when horribly wrong. It will give you things to think about and consider for your own estate plan.

I do not want to be too controlling, however I also do not want my kiddos entire inheritance to be squandered away by bad decisions or lost in the coin toss of marriage / divorce.
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dandan14
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Re: Trust for my kids (in the event of my death)

Post by dandan14 » Sun Dec 17, 2017 9:22 am

StevieG72 wrote:
Sun Dec 17, 2017 7:35 am
Beyond the Grave is a pretty good read. It has some interesting examples where the best laid plans when horribly wrong. It will give you things to think about and consider for your own estate plan.

I do not want to be too controlling, however I also do not want my kiddos entire inheritance to be squandered away by bad decisions or lost in the coin toss of marriage / divorce.
Nice -- I just checked it out via my library/hoopla account. I'll take a look!

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dandan14
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Re: Trust for my kids (in the event of my death)

Post by dandan14 » Sun Dec 17, 2017 9:24 am

WannabeAgAlum wrote:
Sat Dec 16, 2017 8:17 pm
If worried about kids having too much control then allow them to be co-trustee with independent trustee and then they can be able trustee at designated age if they wish.
...
Not sure if this is what you are thinking, but I'd shy away from any sort of mandatory distributions. For creditor protection purposes. Your attorney should know how to do this.
Co-trustee is an interesting idea. I'll ask the attorney about that. Thanks.
The creditor protection point is also a really good one. I'd hate for a mandatory distribution to get immediately eaten up by some sort of lawsuit or creditor.

MikeG62
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Re: Trust for my kids (in the event of my death)

Post by MikeG62 » Sun Dec 17, 2017 11:21 am

dandan14 wrote:
Sun Dec 17, 2017 9:24 am
WannabeAgAlum wrote:
Sat Dec 16, 2017 8:17 pm
If worried about kids having too much control then allow them to be co-trustee with independent trustee and then they can be able trustee at designated age if they wish.
...
Not sure if this is what you are thinking, but I'd shy away from any sort of mandatory distributions. For creditor protection purposes. Your attorney should know how to do this.
Co-trustee is an interesting idea. I'll ask the attorney about that. Thanks.
The creditor protection point is also a really good one. I'd hate for a mandatory distribution to get immediately eaten up by some sort of lawsuit or creditor.
OP,

While IANAL, I would suggest you google and read about beneficiary controlled asset protection trusts. Then ask your attorney about them.

In a nut shell, they generally provide strong asset protection while at the same time allowing for reasonable distributions to beneficiaries.

I am not of the view of others here who could not care less what about what happens to their estate once they are gone. I worked really hard for what I have and would hate to see it blown because my kids made some really dumb decisions, or got into financial trouble and had creditor issues or got involved in a nasty divorce. Some amount of direction I think is wise as even a young me in my 20's would have made decisions that the current me would not agree with.

FWIW, I second the recommendation about reading Beyond The Grave. I read it a long time ago (probably over 15 years now) and have recommended it to others.
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dandan14
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Re: Trust for my kids (in the event of my death)

Post by dandan14 » Sun Dec 17, 2017 5:08 pm

MikeG62 wrote:
Sun Dec 17, 2017 11:21 am
dandan14 wrote:
Sun Dec 17, 2017 9:24 am
WannabeAgAlum wrote:
Sat Dec 16, 2017 8:17 pm
If worried about kids having too much control then allow them to be co-trustee with independent trustee and then they can be able trustee at designated age if they wish.
...
Not sure if this is what you are thinking, but I'd shy away from any sort of mandatory distributions. For creditor protection purposes. Your attorney should know how to do this.
Co-trustee is an interesting idea. I'll ask the attorney about that. Thanks.
The creditor protection point is also a really good one. I'd hate for a mandatory distribution to get immediately eaten up by some sort of lawsuit or creditor.
OP,

While IANAL, I would suggest you google and read about beneficiary controlled asset protection trusts. Then ask your attorney about them.

In a nut shell, they generally provide strong asset protection while at the same time allowing for reasonable distributions to beneficiaries.

I am not of the view of others here who could not care less what about what happens to their estate once they are gone. I worked really hard for what I have and would hate to see it blown because my kids made some really dumb decisions, or got into financial trouble and had creditor issues or got involved in a nasty divorce. Some amount of direction I think is wise as even a young me in my 20's would have made decisions that the current me would not agree with.

FWIW, I second the recommendation about reading Beyond The Grave. I read it a long time ago (probably over 15 years now) and have recommended it to others.
Started reading it today -- looks really good!

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Watty
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Re: Trust for my kids (in the event of my death)

Post by Watty » Sun Dec 17, 2017 5:34 pm

Any money in inherited IRA's with an RMD could likely make your 3% distribution rules impossible.

If the amounts are large enough then you might allow them to buy a house that will still be owned by the trust. I would think that would help protect the money if they got divorced after receiving the inheritance.

Be sure to carefully consider what the cost will be of administering the trust after the kids are grown up. Paying that for the next 80 years might not be worth the cost.

letsgobobby
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Re: Trust for my kids (in the event of my death)

Post by letsgobobby » Sun Dec 17, 2017 7:56 pm

Your plan seems very inflexible. I'd suggest a rethink.

Luckywon
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Re: Trust for my kids (in the event of my death)

Post by Luckywon » Sun Dec 17, 2017 8:33 pm

Whatever arrangement you decide on, consider the possibility that any individual trustee may prove to be prone to not putting your childrens' interests first, or incapable of doing it in a reasonable way, or someone who does not get along with a beneficiary. This happens often and may be a risk greater than the risk your children will blow the inheritance themselves.

Also get a sense of the costs of maintaining trusts long term. Trustee fees. Legal and accounting. Paying for lawsuits.

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