Trusts for adult Children

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Artisan
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Trusts for adult Children

Post by Artisan » Sat Jan 06, 2018 3:09 pm

I was reading another thread about trusts/trustees and it brought to mind this topic which has been on my mind.

Although we are still fairly young and in good health, we have prepared wills, POA, health care proxies, instructions, etc.

We have two adult children both in their early twenties. They are relatively mature and responsible but have little experience with investing or managing large sums of money. The oldest has been more receptive to investing education as she has read Bill Bernstein's IF You Can as well as his recommended reading list and a few other books on investing. She works, shares an apartment with a roommate and pays most of her bills (we pay her car insurance for her car that sits in our driveway), participates in her 401k, etc. The youngest is still in college and just finished If You Can (grudgingly).

Our siblings are co-executors of our will. Our estate would be equally divided among our 2 children.

As the size of our estate has grown, I have thought that perhaps it would be better to leave their inheritance in trust with our siblings as co-trustees.

I'm curious about others opinions on at what size of an estate does it make sense to leave it in a trust? 1 million, 3 million, 5 million?

And also opinions on what ages to relinquish control of the trust to our children.

I realize there is no right or wrong answer here and that no one knows our children as well as we do.

I'm just interested in other opinions and what other people have done in similar situations.

Thanks,

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Sandtrap
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Re: Trusts for adults Children

Post by Sandtrap » Sat Jan 06, 2018 3:17 pm

99% of my assets are in a credit-shelter/bypass trust.
Successor trustee and co-corporate successor trustee.
Trust protector.
3 beneficiaries.

IMHO, the greater the assets, the greater the need to seek legal counsel.

Books on Wills, Trusts, and Estates
Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others)
https://www.amazon.com/gp/product/08873 ... UTF8&psc=1

Wills, Trusts, and Estates
https://www.amazon.com/gp/product/14548 ... UTF8&psc=1

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FIREchief
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Re: Trusts for adults Children

Post by FIREchief » Sat Jan 06, 2018 3:54 pm

Artisan wrote:
Sat Jan 06, 2018 3:09 pm
IOur siblings are co-executors of our will. Our estate would be equally divided among our 2 children.

As the size of our estate has grown, I have thought that perhaps it would be better to leave their inheritance in trust with our siblings as co-trustees.
You'll need to decide why you might want a trust, such as:
a) to keep the beneficiaries from having full access to the trust funds until age xx
b) to allow the beneficiaries liberal access to the funds but to protect the funds from divorce and lawsuits
c) to preserve some of the assets for later generations
etc.
I'm curious about others opinions on at what size of an estate does it make sense to leave it in a trust? 1 million, 3 million, 5 million?
You'll receive different opinions on this. If the trust will only hold simple brokerage account funds and a beneficiary will serve as their own trustee, then you could consider a trust with any amount of funds (let's say $100,000 minimum just for sake of example). There is no cost other than establishing the trust and the beneficiary can easily complete the trust's tax documents. $100,000 may not sound like enough to some people, but in situations where the beneficiaries live paycheck to paycheck, and divorce or creditors are possible, protecting $100,000 for the future can be a game changer.
And also opinions on what ages to relinquish control of the trust to our children.
There are different levels of this. The most extreme is to allow the beneficiary to "cash out" the trust at age xx. A better approach is often to allow the beneficiary to act as sole trustee at a certain point, and draft the trust so that it allows "liberal" distributions, although still within the HEMS standard for asset protection purposes.
I realize there is no right or wrong answer here and that no one knows our children as well as we do.
This is true. I believe that it is often the case when meeting with an estate attorney for guidance, one of the first questions is "tell me about your children" (for good reason). 8-)

Good luck!
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sat Jan 06, 2018 4:05 pm

If you are into seven figures, in my opinion the protections from creditors are enough to warrant a trust. This has nothing to do with what kind of people your adult children are; it has to do with what kind of people other people's adult children are. Ironically the more responsible and successful your children are, the more likely they could end up a target of those who are not. Protect your legacy.

delamer
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Re: Trusts for adults Children

Post by delamer » Sat Jan 06, 2018 4:07 pm

Our assets will be split between our two children (about the same age as the OP’s) into two trusts, with a close friend of mine as trustee for each.

For many reasons, I would not leave an inheritance outright to two young adult. Divorce, creditors, inexperience managing money and investments, and unscrupulous friends/advisors are among the reasons.

DrGoogle2017
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Re: Trusts for adults Children

Post by DrGoogle2017 » Sat Jan 06, 2018 5:48 pm

I do not want to worry what happens after my husband and I expire. So I leave the money in a trust, I’ve told them to close out the trust, sell the houses if they don’t want it. And make sure they don’t commingle inheritance money with their spouses. Also get unmbrella insurance for protection. I’m hoping they will be much more wealthy than us eventually, inheritance will be nice to have but not necessary.

Even though we will not remarry, the attorney said the trust is to protect us against possible problem with future care takers, when we no longer able to think clearly in our old age. I only want to make sure the money will go to the right people, that’s all. No intent to control from the grave. My kids are 22, 27. They are smarter and more mature than their aunt, which is a possible trustee. Plus when I’m dead, I’m dead. At least I’m hoping that’s when my worry gets to end.

In the meantime, I’m trying to educate them as much as possible about money and investment starting with their retirement contribution and car insurance, as well as credit card habits and such. Sometimes they listen, sometimes they don’t. That’s reality at this age range.

Totrep
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Re: Trusts for adults Children

Post by Totrep » Sat Jan 06, 2018 10:18 pm

Personally, I would definitely use trusts if
- You or your beneficiaries have an estate tax problem
- A beneficiary has special needs or another issue necessitating additional control of the inheritance

Absent either of these conditions, I would not use trusts if each share of the estate were 6 figures or less. In between, you have a judgement call.
Artisan wrote:
Sat Jan 06, 2018 3:09 pm
I have thought that perhaps it would be better to leave their inheritance in trust with our siblings as co-trustees. [emphasis added]
Note that in general with trusts you face a tradeoff between flexibility and protection. If you are not careful here, I think you risk ending up with the additional complexity of a trust without achieving strong asset protection, and potentially generating family conflict to boot.

JBTX
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Re: Trusts for adults Children

Post by JBTX » Sat Jan 06, 2018 10:49 pm

When our children were very young, we drafted wills and trusts that would put moneys into trust until they reached 30 or 35, I forget exactly. In later years when we determined one was special needs, and the other one had her own impulsive issues that may very well be long term, we decided to change the language such that the money stays in the trust indefinitely but allows for distributions with consultation of a trusted relative as trustee(as well as provision for special needs trust for the special needs child).

Ultimately, given who they are, it is hard for me to see leaving potentially 7 figures to either one of them without some strings attached, and I don't see that changing any time soon, if ever.

Dinosaur Dad
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Re: Trusts for adults Children

Post by Dinosaur Dad » Sat Jan 06, 2018 11:08 pm

Right now our will leaves everything to a trust, managed by my brother-in-law, who we consider to be trustworthy and knowledgeable. He would have the ability to move the assets to our son at his discretion (no set timetable).

Lately, quite frankly, I've been having second thoughts - specifically about trust tax rates, which are astronomical. It would pain this Boglehead to lose all that.

OTOH, I don't think my son (age 23) would be able to handle a large ($5 million plus) estate right now. So what we may do is change the will so that there's a clearer, more specific path e.g. x% at age 30, y% at age 40. The tax bite will still be bad, but that seems to be the right compromise.
"Take calculated risks - that is quite different from being rash." | General George S. Patton

DrGoogle2017
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Re: Trusts for adults Children

Post by DrGoogle2017 » Sat Jan 06, 2018 11:21 pm

I don’t put everything in a trust, just real estate. I don’t put liquid assets in my trust, that’s why we have beneficiaries for. Real Estate have TOD( in California), but there is issue with that regarding caretakers. I believe the attorney explained to me, but I don’t remember the exact reason. Not sure it was just specifically the caretakers.
I’ve also asked my kids not to make any rash decision, do some research on what to do with the money first, especially with the retirement accounts, make sure they retitle them correctly. I’ve been testing them the difference between Roth and Traditional IRA. Just don’t want to pay all these taxes ahead and then they end up doing something stupid.
Last edited by DrGoogle2017 on Sat Jan 06, 2018 11:24 pm, edited 3 times in total.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sat Jan 06, 2018 11:22 pm

Dinosaur Dad wrote:
Sat Jan 06, 2018 11:08 pm
Right now our will leaves everything to a trust, managed by my brother-in-law, who we consider to be trustworthy and knowledgeable. He would have the ability to move the assets to our son at his discretion (no set timetable).

Lately, quite frankly, I've been having second thoughts - specifically about trust tax rates, which are astronomical. It would pain this Boglehead to lose all that.

OTOH, I don't think my son (age 23) would be able to handle a large ($5 million plus) estate right now. So what we may do is change the will so that there's a clearer, more specific path e.g. x% at age 30, y% at age 40. The tax bite will still be bad, but that seems to be the right compromise.
Isn't it the case that if the trust distributes the income as it is generated, it will be taxed at the recipient's tax rates, not trust rates?

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FIREchief
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Re: Trusts for adults Children

Post by FIREchief » Sun Jan 07, 2018 12:11 am

Totrep wrote:
Sat Jan 06, 2018 10:18 pm
Absent either of these conditions, I would not use trusts if each share of the estate were 6 figures or less. In between, you have a judgement call.
Hypothetically, two children, 1.8M estate. If left in trust, each share would contain $900,000 and provide protection from divorce and creditors. Trust might cost $3000 to set up. Beneficiaries of each share could serve as their own trustee. You don't think this would be worth the effort??
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

WannabeAgAlum
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Re: Trusts for adults Children

Post by WannabeAgAlum » Sun Jan 07, 2018 12:30 am

To help you see the benefits of leaving $ in trust, go through this hypothetical. You will inherit $1 million (or insert applicable amount). How do you want it? The most tempting and flexible answer might seem to be "in my personal bank account, please!" But that is not very flexible when considering spouses who may divorce and other lurking creditors from employment, the highways, etc.

What if there was an option to get the sum in a protected state, where you could manage the investments and distributions even to yourself without having to ask permission (except when creditors are at the doorstep, in which case a trusted friend or advisor steps in). If you're over the exemptions limits, then you'll appreciate that the trust assets are also out of your estate.

Oh, and if you want to get it outright, there are ways to end the trust and get it outright anyway.

So by mandating that the assets go outright, you've really limited your childrens' options to only that. If in trust, there are many more options, including getting it outright.

So, let me ask again:. How do you want your $1 million?

Wannabe

Finridge
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Re: Trusts for adults Children

Post by Finridge » Sun Jan 07, 2018 1:14 am

For those of you who are using trusts that are not revocable (living) trusts, or that will remain in trusts after you and our spouse pass away, how do you address the tax consequences?

Looking at the tax brackets for a trust, I'm disturbed to see that any income over $12,500 will be in the 39.6% tax bracket (the highest tax bracket). https://www.edwardjones.com/images/OPR-9806A-A.pdf

Is there any work-around for this? Any way to get the protection of a trust without these onerous tax rates?

Katietsu
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Re: Trusts for adults Children

Post by Katietsu » Sun Jan 07, 2018 1:29 am

Finridge wrote:
Sun Jan 07, 2018 1:14 am
For those of you who are using trusts that are not revocable (living) trusts, or that will remain in trusts after you and our spouse pass away, how do you address the tax consequences?

Looking at the tax brackets for a trust, I'm disturbed to see that any income over $12,500 will be in the 39.6% tax bracket (the highest tax bracket). https://www.edwardjones.com/images/OPR-9806A-A.pdf

Is there any work-around for this? Any way to get the protection of a trust without these onerous tax rates?
I have the same thought as letsgobobby, as long as the income is distributed to the beneficiary, shouldn’t it flow through on a K-1 to be taxed at the beneficiary’s rate?

Dinosaur Dad
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Re: Trusts for adults Children

Post by Dinosaur Dad » Sun Jan 07, 2018 7:22 am

letsgobobby wrote:
Sat Jan 06, 2018 11:22 pm
Dinosaur Dad wrote:
Sat Jan 06, 2018 11:08 pm
Right now our will leaves everything to a trust, managed by my brother-in-law, who we consider to be trustworthy and knowledgeable. He would have the ability to move the assets to our son at his discretion (no set timetable).

Lately, quite frankly, I've been having second thoughts - specifically about trust tax rates, which are astronomical. It would pain this Boglehead to lose all that.

OTOH, I don't think my son (age 23) would be able to handle a large ($5 million plus) estate right now. So what we may do is change the will so that there's a clearer, more specific path e.g. x% at age 30, y% at age 40. The tax bite will still be bad, but that seems to be the right compromise.
Isn't it the case that if the trust distributes the income as it is generated, it will be taxed at the recipient's tax rates, not trust rates?
Well yes that's my understanding too. And I suppose you can just ensure that you're taking long term capital gains on the principle. But this is something I need to learn more about...I haven't done my homework on this fully yet.
"Take calculated risks - that is quite different from being rash." | General George S. Patton

Prudence
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Re: Trusts for adults Children

Post by Prudence » Sun Jan 07, 2018 9:19 am

We have a married daughter and she has two kids. Several months ago, I told my daughter that she may be inheriting a significant sum so could she please set up a will and/or trusts to protect the interest of the kids (so that if there is a divorce, the funds will go to the kids assuming that would be her desire). She reacted positively to the suggestion, but, I know that she is extremely busy with career etc. and her husband handles the finances, so I don't think she will actually have the time or attention to do anything about this. I am wondering if we might put our inheritance into a trust for my daughter with her as the trustee? After we are gone, maybe she would then be free to dissolve the trust at any time and use the funds as she sees fit? My idea is the trust would just cause her to stop and think about what steps to take (e.g. commingle the funds with the husband or not). Does this make any sense? Are there better approaches to address this situation?

Totrep
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Re: Trusts for adults Children

Post by Totrep » Sun Jan 07, 2018 10:34 am

FIREchief wrote:
Sun Jan 07, 2018 12:11 am
Hypothetically, two children, 1.8M estate. If left in trust, each share would contain $900,000 and provide protection from divorce and creditors. Trust might cost $3000 to set up. Beneficiaries of each share could serve as their own trustee. You don't think this would be worth the effort??
Personally, no. Our estate is somewhat larger than this and our current plans do not involve trusts. I'm not concerned about the initial cost. Instead, it's my understanding that if the beneficiary is also being a trustee, you may (depending on your state) need a co-trustee and/or restrictions on the distributions to achieve meaningful asset protection. [Edited following comments below]

For large enough estates, I think it makes sense to use a trust and have a corporate co-trustee: the additional costs and complexity will be worth the protection. For any estate, I would be wary of using a relative as co-trustee.
WannabeAgAlum wrote:
Sun Jan 07, 2018 12:30 am
So, let me ask again:. How do you want your $1 million?
Perhaps the OP should have their adult children read the thread and answer themselves! My answer would be that outright is fine. It will go right into my taxable account and I'll bump up my umbrella insurance. In a few years it will be hopelessly commingled with my wife's assets and I'm fine with that. But I should point out that I'm much closer in age to the OP's children than to the OP. Perhaps future Totrep will look back upon this post and feel very differently. If so I guess he will set up some trusts :)
Last edited by Totrep on Sun Jan 07, 2018 11:00 pm, edited 1 time in total.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sun Jan 07, 2018 10:38 am

I received a large inheritance this year and am very grateful that most of it is in a trust. The trust is very flexible. Outright would have created substantial problems not least massively increasing our estate tax liability.

NotWhoYouThink
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Re: Trusts for adults Children

Post by NotWhoYouThink » Sun Jan 07, 2018 10:56 am

We have set up the kind of trusts that the trust fans around here recommend against - Aunt Tillie is the trustee for the kids' trusts until they turn 30, when the money becomes theirs free of trust. We actually expect to live until they are in their 50s at least, but could get hit by a snow plow tomorrow. But if they get our money in their 30s and blow it, that's on them.

DrGoogle2017
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Re: Trusts for adults Children

Post by DrGoogle2017 » Sun Jan 07, 2018 11:33 am

NotWhoYouThink wrote:
Sun Jan 07, 2018 10:56 am
We have set up the kind of trusts that the trust fans around here recommend against - Aunt Tillie is the trustee for the kids' trusts until they turn 30, when the money becomes theirs free of trust. We actually expect to live until they are in their 50s at least, but could get hit by a snow plow tomorrow. But if they get our money in their 30s and blow it, that's on them.
I also plan to revise the trust or look at it every 10 year whether everything still makes sense or not. My kids are in early adult phase, single, so very simple. In 10 years, maybe not.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sun Jan 07, 2018 12:10 pm

For those who are comfortable with their kids “Blowing it”, especially after their own deaths, are you equally comfortable with the prospects of:

- their inheritance being seized in a lawsuit, through divorce, or by theft/fraud?
- your heirs actively destroying their lives by the use of your assets, ie through addiction of one form or another?

Artisan
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Re: Trusts for adults Children

Post by Artisan » Sun Jan 07, 2018 1:03 pm

Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?

delamer
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Re: Trusts for adults Children

Post by delamer » Sun Jan 07, 2018 1:23 pm

Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.

NotWhoYouThink
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Re: Trusts for adults Children

Post by NotWhoYouThink » Sun Jan 07, 2018 1:51 pm

letsgobobby wrote:
Sun Jan 07, 2018 12:10 pm
For those who are comfortable with their kids “Blowing it”, especially after their own deaths, are you equally comfortable with the prospects of:

- their inheritance being seized in a lawsuit, through divorce, or by theft/fraud?
- your heirs actively destroying their lives by the use of your assets, ie through addiction of one form or another?
Life is full of risks and tradeoffs. My kids are responsible young adults, so the worry about money destroying them is small, but Aunt Tillie will be there for them for a few more years.

If they lose a lawsuit or lose money in divorce, that is their fault. Married the wrong person, hired the wrong lawyer, or actually committed acts that should result in them losing. I can't protect them forever, and won't try to. I could lose the money the same way before they ever see it, in fact. Maybe my umbrella insurance will protect me, maybe not.

Keeping money in the trust does have higher tax and administrative costs, especially if a corporate trustee is named. People on this board post endlessly about saving money on investment costs and taxes, why take action guaranteed to increase both?

Finally, Aunt Tillie was only recently named as trustee, before that it was Uncle Fred. Uncle Fred is an educated man who had a decent career, but he recently has turned out to be unreliable and his judgement is deeply flawed. We suspect there are medical reasons for that, but the judgement issues turned up before that was obvious. If he had actually become trustee it would have been a real problem.

We talk about only buying insurance for risks you can't afford to take. Putting money in a trust for adult kids is insurance. It's a risk I choose to take rather than paying to insure against, because they can make their own money, anything their parents leave to them is just a bonus. If something specific crops up in their lives that increases the probability or consequence of an adverse event we can revisit the current arrangement.

Leaving a financial legacy is not all that important to me. It's the memories and upbringing that was important, and they won't lose that in a court case.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sun Jan 07, 2018 1:53 pm

People lose lawsuits when they haven't made egregious mistakes. I think you're being extremely cavalier, but it is your right/money. I'm glad my parents weren't so cavalier.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sun Jan 07, 2018 1:56 pm

delamer wrote:
Sun Jan 07, 2018 1:23 pm
Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.
I have the same understanding and make the same disclaimer.

Grt2bOutdoors
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Re: Trusts for adults Children

Post by Grt2bOutdoors » Sun Jan 07, 2018 1:57 pm

Prudence wrote:
Sun Jan 07, 2018 9:19 am
We have a married daughter and she has two kids. Several months ago, I told my daughter that she may be inheriting a significant sum so could she please set up a will and/or trusts to protect the interest of the kids (so that if there is a divorce, the funds will go to the kids assuming that would be her desire). She reacted positively to the suggestion, but, I know that she is extremely busy with career etc. and her husband handles the finances, so I don't think she will actually have the time or attention to do anything about this. I am wondering if we might put our inheritance into a trust for my daughter with her as the trustee? After we are gone, maybe she would then be free to dissolve the trust at any time and use the funds as she sees fit? My idea is the trust would just cause her to stop and think about what steps to take (e.g. commingle the funds with the husband or not). Does this make any sense? Are there better approaches to address this situation?
I'm not an attorney, however I believe you as the benefactor can arrange your trust anyway you see fit, including who receives the inheritance and under what circumstance. Your daughter does not need to be establishing a will/trust based on your assets, only her own. If you want your grandkids to receive an inheritance from you, you can stipulate that in your will/trust.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

NotWhoYouThink
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Re: Trusts for adults Children

Post by NotWhoYouThink » Sun Jan 07, 2018 2:12 pm

I know a lot of high net worth people, none of whom have been the targets of frivolous or malicious lawsuits.

I know a lot of people who have divorced, or gotten cancer, or had heart attacks, or have been injured in accidents, or lost money in bad business deals or lost their homes to forclosure. I know one family who had money invested at Stanford Financial Group, and many who invest with Wells Fargo and Edward Jones. But no debilitating lawsuit victims. The risk seems small to me.

delamer
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Re: Trusts for adults Children

Post by delamer » Sun Jan 07, 2018 2:18 pm

NotWhoYouThink wrote:
Sun Jan 07, 2018 2:12 pm
I know a lot of high net worth people, none of whom have been the targets of frivolous or malicious lawsuits.

I know a lot of people who have divorced, or gotten cancer, or had heart attacks, or have been injured in accidents, or lost money in bad business deals or lost their homes to forclosure. I know one family who had money invested at Stanford Financial Group, and many who invest with Wells Fargo and Edward Jones. But no debilitating lawsuit victims. The risk seems small to me.
There are lots of events with very small probabilities but catastrophic outcomes should they occur.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Sun Jan 07, 2018 2:35 pm

NotWhoYouThink wrote:
Sun Jan 07, 2018 2:12 pm
I know a lot of high net worth people, none of whom have been the targets of frivolous or malicious lawsuits.

I know a lot of people who have divorced, or gotten cancer, or had heart attacks, or have been injured in accidents, or lost money in bad business deals or lost their homes to forclosure. I know one family who had money invested at Stanford Financial Group, and many who invest with Wells Fargo and Edward Jones. But no debilitating lawsuit victims. The risk seems small to me.
We are a family of docs so my perspective and experience is different than yours.

Artisan
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Re: Trusts for adults Children

Post by Artisan » Sun Jan 07, 2018 2:38 pm

letsgobobby wrote:
Sun Jan 07, 2018 1:56 pm
delamer wrote:
Sun Jan 07, 2018 1:23 pm
Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.
I have the same understanding and make the same disclaimer.
Thanks both for the same disclaimed information :)

Artisan
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Re: Trusts for adults Children

Post by Artisan » Sun Jan 07, 2018 2:44 pm

delamer wrote:
Sun Jan 07, 2018 1:23 pm
Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.
Let me see if I am understanding correctly.

So any distribution to the kids is taxed at the kids rate.
If a stock or bond funds pays dividends and that is reinvested in the trust, those are taxed at the trust's rates?
What about capital gains , either distributed to the kids or retained by the trust?

delamer
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Re: Trusts for adults Children

Post by delamer » Sun Jan 07, 2018 2:50 pm

Artisan wrote:
Sun Jan 07, 2018 2:44 pm
delamer wrote:
Sun Jan 07, 2018 1:23 pm
Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.
Let me see if I am understanding correctly.

So any distribution to the kids is taxed at the kids rate.
If a stock or bond funds pays dividends and that is reinvested in the trust, those are taxed at the trust's rates?
What about capital gains , either distributed to the kids or retained by the trust?

I don’t know, but I found this: http://www.lindsayandbrownell.com/estat ... gains.aspx

Even if it costs you $1,000, it would be money well-spent to meet with an estate attorney to get your questions answered. Obviously, s/he is going to recommend setting up the trusts but I am sure you are capable of saying no if you decide the cost/disadvantages outweigh the advantages.

Remember that even if your kids are responsible and capable of handling and investing the inheritance themselves, there are plenty of bad or just stupid actors out there that can jeopardize your kids’ money.

Artisan
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Re: Trusts for adults Children

Post by Artisan » Sun Jan 07, 2018 3:29 pm

delamer wrote:
Sun Jan 07, 2018 2:50 pm
Artisan wrote:
Sun Jan 07, 2018 2:44 pm
delamer wrote:
Sun Jan 07, 2018 1:23 pm
Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.
Let me see if I am understanding correctly.

So any distribution to the kids is taxed at the kids rate.
If a stock or bond funds pays dividends and that is reinvested in the trust, those are taxed at the trust's rates?
What about capital gains , either distributed to the kids or retained by the trust?

I don’t know, but I found this: http://www.lindsayandbrownell.com/estat ... gains.aspx

Even if it costs you $1,000, it would be money well-spent to meet with an estate attorney to get your questions answered. Obviously, s/he is going to recommend setting up the trusts but I am sure you are capable of saying no if you decide the cost/disadvantages outweigh the advantages.

Remember that even if your kids are responsible and capable of handling and investing the inheritance themselves, there are plenty of bad or just stupid actors out there that can jeopardize your kids’ money.
Thanks. We will definitely meet with an estate attorney at some point in the near future. I'm just trying to wrap my brain around the topic as best I can prior. The bad actors are what I am most concerned about. Trying to educate our kids as best we can I think is the best defense. Trusts might be an additional important defense as well.

delamer
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Re: Trusts for adults Children

Post by delamer » Sun Jan 07, 2018 3:53 pm

Artisan wrote:
Sun Jan 07, 2018 3:29 pm
delamer wrote:
Sun Jan 07, 2018 2:50 pm
Artisan wrote:
Sun Jan 07, 2018 2:44 pm
delamer wrote:
Sun Jan 07, 2018 1:23 pm
Artisan wrote:
Sun Jan 07, 2018 1:03 pm
Thanks everyone for all the responses so far. A lot to think about for sure.

Something that peaked my interest in this thread was the tax treatment.

One poster mentioned that anything above $12,500 gets taxed at the maximum tax rate. Another said it is taxed at the trustees income tax rate.

I don't think either one of our children would be ever be close to maximum income tax rates. IS that the price one pays for the protection of a trust?
Prefacing this with the statement that I am not a lawyer or a CPA.

For the trusts set up under our will to hold our kids’ inheritances, income thrown off by the assets that is distributed to the kids will be taxed at each kid’s personal rate. Income that is not distributed — that is retained by the trust — is taxed at the much higher trust rates.
Let me see if I am understanding correctly.

So any distribution to the kids is taxed at the kids rate.
If a stock or bond funds pays dividends and that is reinvested in the trust, those are taxed at the trust's rates?
What about capital gains , either distributed to the kids or retained by the trust?

I don’t know, but I found this: http://www.lindsayandbrownell.com/estat ... gains.aspx

Even if it costs you $1,000, it would be money well-spent to meet with an estate attorney to get your questions answered. Obviously, s/he is going to recommend setting up the trusts but I am sure you are capable of saying no if you decide the cost/disadvantages outweigh the advantages.

Remember that even if your kids are responsible and capable of handling and investing the inheritance themselves, there are plenty of bad or just stupid actors out there that can jeopardize your kids’ money.
Thanks. We will definitely meet with an estate attorney at some point in the near future. I'm just trying to wrap my brain around the topic as best I can prior. The bad actors are what I am most concerned about. Trying to educate our kids as best we can I think is the best defense. Trusts might be an additional important defense as well.
I agree that educating your children is important. But I know that I made some dumb choices (both financially and personally) when I was young, and the additional defense of the trust can limit the damage of such a choice.

And, of course, your current will is not the end-all at least while you are still alive and competent. In another 10 years (or maybe less), I expect that we will end up making changes to ours. For instance, my husband’s parents are the primary beneficiaries if our kids do not survive us. And I doubt either if my in-laws will be alive in 10 years.

Good luck.

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FIREchief
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Re: Trusts for adults Children

Post by FIREchief » Sun Jan 07, 2018 10:11 pm

Totrep wrote:
Sun Jan 07, 2018 10:34 am
FIREchief wrote:
Sun Jan 07, 2018 12:11 am
Hypothetically, two children, 1.8M estate. If left in trust, each share would contain $900,000 and provide protection from divorce and creditors. Trust might cost $3000 to set up. Beneficiaries of each share could serve as their own trustee. You don't think this would be worth the effort??
Personally, no. Our estate is somewhat larger than this and our current plans do not involve trusts. I'm not concerned about the initial cost. Instead, it's my understanding that in order to achieve meaningful asset protection with the beneficiary also being a trustee, you at least need a co-trustee and some restrictions on the distributions (though the beneficiary can have the power to replace the co-trustee). For large enough estates, I think it makes sense to use a trust and have a corporate co-trustee: the additional costs and complexity will be worth the protection. For any estate, I would be wary of using a relative as co-trustee.
If you lived in my state (or many others), your understanding would be wrong. In my state, an adult child who is beneficiary of a trust can serve as their own sole trustee with no loss of asset protections. They can further be allowed free distribution of the trust funds, but the HEMS standard is necessary to keep it out of their estates. I strongly suggest that you check your state's laws before simply writing off trusts as too expensive/too complicated. If your estate is truly larger than 1.8M, then I would hope that protecting those assets for your intended heirs (and not a divorcing spouse, frivolous lawsuit, etc. would be a meaningful objective). Didn't you work very hard to accumulate those funds? :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

DrGoogle2017
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Re: Trusts for adults Children

Post by DrGoogle2017 » Sun Jan 07, 2018 11:21 pm

Sorry I can’t resist, but nobody divorces in my family yet, no body made dumb choices either, at least the ones that are NOT recoverable.
But I’ve been dumb in my youth and I’m still here( borrowing from Barbara Streisand).
I think fear is what lawyers use to sell the trust, apologizing to all lawyers out there. It’s true I didn’t inherit $5 million at age 35, so it’s all theroretically speaking. But nobody was involved in a lawsuit either. Take that. Maybe I’ve been blessed.
Last edited by DrGoogle2017 on Sun Jan 07, 2018 11:35 pm, edited 1 time in total.

Totrep
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Re: Trusts for adults Children

Post by Totrep » Sun Jan 07, 2018 11:30 pm

FIREchief wrote:
Sun Jan 07, 2018 10:11 pm
If you lived in my state (or many others), your understanding would be wrong. In my state, an adult child who is beneficiary of a trust can serve as their own sole trustee with no loss of asset protections. They can further be allowed free distribution of the trust funds, but the HEMS standard is necessary to keep it out of their estates. I strongly suggest that you check your state's laws before simply writing off trusts as too expensive/too complicated.
There appears to be significantly more state-to-state variation than I had realized. I've revised my comment above to reflect this. Unfortunately in my state, as best I can tell, asset protection is lost in the situation you describe (beneficiary as sole trustee, free distribution of funds).
FIREchief wrote:
Sun Jan 07, 2018 10:11 pm
I would hope that protecting those assets for your intended heirs (and not a divorcing spouse, frivolous lawsuit, etc. would be a meaningful objective).
Asset protection is absolutely a meaningful objective. It needs to be balanced against others, including simplicity and independence for beneficiaries. Far from writing off trusts, I'm trying to learn as much about them as possible. Mainly, it seems, by reading estate-planning threads on this site late at night :shock:

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FIREchief
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Re: Trusts for adults Children

Post by FIREchief » Sun Jan 07, 2018 11:37 pm

Totrep wrote:
Sun Jan 07, 2018 11:30 pm
Far from writing off trusts, I'm trying to learn as much about them as possible. Mainly, it seems, by reading estate-planning threads on this site late at night :shock:
Good for you!!! :sharebeer You're on the right path brother! We'll get you there. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

daveydoo
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Re: Trusts for adults Children

Post by daveydoo » Sun Jan 07, 2018 11:53 pm

So you see no issues with two 20-somethings inheriting a seven-figure estate before they have even launched their own careers? That's baffling to me. That kind of cash would throw an adult nearing retirement for a loop -- let alone a veritable kid. I trust my kids to exercise good judgment, but you can't give them a six-pack and the keys to the Lambo and say "now use good judgment!"

I would have a relative or trusted friend serve as trustee with graded relinquishment of the assets (small percent at age 25, half of the balance at age 35, all the rest at age 45, for example). Smaller estate, but that's what we plan to do if spouse and I die prematurely. It sounds like your kids are on a good path -- the money could do more harm than good if they see it too early, imo.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

HIinvestor
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Re: Trusts for adults Children

Post by HIinvestor » Mon Jan 08, 2018 12:22 am

As soon as the dust settles and CPAs and attorneys are pretty good about the latest tax laws that passed in 2017, we will be sitting down with our CPA and estate attorney to figure out what makes sense for our kids and our situation.

Out “kids” are 28 and 30. So far, both seem very responsible with their finances. If things proceed as expected, we should be leaving them with significant assets. There are no marriages or grandkids in the immediate horizon.

Our estate attorney and CPA seem to have experienced many different situations and have judgment and recommendations we agree with.

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FIREchief
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Re: Trusts for adults Children

Post by FIREchief » Mon Jan 08, 2018 1:08 am

daveydoo wrote:
Sun Jan 07, 2018 11:53 pm
I would have a relative or trusted friend serve as trustee with graded relinquishment of the assets (small percent at age 25, half of the balance at age 35, all the rest at age 45, for example).
Just a suggestion. Rather than emptying the trust at those ages, might be better to allow the child beneficiary to take over as sole trustee at one of those ages. This is where a competent estate planning attorney can really help. If your child is in the middle of a lawsuit or divorce at age 35 or 45, it would greatly benefit them to NOT have ready access to the balance of a trust.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

curmudgeon
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Re: Trusts for adults Children

Post by curmudgeon » Mon Jan 08, 2018 2:16 am

It is important to think about the long term effects and maintainability of this stuff. 20 years from now there may have been significant changes to tax and estate law that make your current arrangements counter-productive. The trustees you name now may die or become incapable. The kids you are worried about now may actually need to be managing your financial affairs for you.

There are certainly a wide range of scenarios to consider. In my own case, my kids are on paths for solid financial futures of their own. I don't see a need to lock down a potential inheritance. I don't really have a "multi-generational" mindset, where I'm planning to fund the great grandchildren's college or anything like that.

There are definitely a lot of possible scenarios where you might want a trust or similar vehicle. Blended families, remarriage, spendthrift kids, missing generation, etc. Barring unusual circumstances, I don't think I'd string an inheritance out past age 30.

We will probably try to keep our estate from growing too large by making gifts during our lifetimes. There are a couple of moderate-sized inheritances we may receive in the next 10 years, and we will likely pass those through in some form or another (maybe just gifting over 5 years) to our kids rather than add them to our own holdings.

I don't have a well thought out reason for this, but in my mind, if I am leaving each of my kids $1M (in current dollars), I'd prefer it was just a simple inheritance. If it was $5M each, I would be doing a lot of planning. In between, I'm not so sure.

WannabeAgAlum
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Re: Trusts for adults Children

Post by WannabeAgAlum » Mon Jan 08, 2018 3:07 am

curmudgeon wrote:
Mon Jan 08, 2018 2:16 am
It is important to think about the long term effects and maintainability of this stuff. 20 years from now there may have been significant changes to tax and estate law that make your current arrangements counter-productive. The trustees you name now may die or become incapable. The kids you are worried about now may actually need to be managing your financial affairs for you.

There are certainly a wide range of scenarios to consider. In my own case, my kids are on paths for solid financial futures of their own. I don't see a need to lock down a potential inheritance. I don't really have a "multi-generational" mindset, where I'm planning to fund the great grandchildren's college or anything like that.

There are definitely a lot of possible scenarios where you might want a trust or similar vehicle. Blended families, remarriage, spendthrift kids, missing generation, etc. Barring unusual circumstances, I don't think I'd string an inheritance out past age 30.

We will probably try to keep our estate from growing too large by making gifts during our lifetimes. There are a couple of moderate-sized inheritances we may receive in the next 10 years, and we will likely pass those through in some form or another (maybe just gifting over 5 years) to our kids rather than add them to our own holdings.

I don't have a well thought out reason for this, but in my mind, if I am leaving each of my kids $1M (in current dollars), I'd prefer it was just a simple inheritance. If it was $5M each, I would be doing a lot of planning. In between, I'm not so sure.
I can appreciate simplicity. In my mind, however, giving a large amount outright "locks down" the beneficiary to just one option: having the $ in his or her personal name. Leaving the $ in a flexible trust gives many more options, including the option of going simple and ending the trust. Why not give your kids these flexible options? If it is because you are comfortable with the creditor risks, want kids to avoid the additional costs including extra tax returns for the kids' trusts (which can be cut short by having them take steps to end the trust early), and/or want to avoid the additional time and expense you would spend with an attorney, then it is perfectly reasonable to leave the $ outright and limit your kids' options. Of course the size of each share and the habits of kids also come into play.

Wannabe

delamer
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Re: Trusts for adults Children

Post by delamer » Mon Jan 08, 2018 12:57 pm

DrGoogle2017 wrote:
Sun Jan 07, 2018 11:21 pm
Sorry I can’t resist, but nobody divorces in my family yet, no body made dumb choices either, at least the ones that are NOT recoverable.
But I’ve been dumb in my youth and I’m still here( borrowing from Barbara Streisand).
I think fear is what lawyers use to sell the trust, apologizing to all lawyers out there. It’s true I didn’t inherit $5 million at age 35, so it’s all theroretically speaking. But nobody was involved in a lawsuit either. Take that. Maybe I’ve been blessed.
To each her/his own. Do you not wear a seatbelt nor buy a car with up-to-date safety features because no one in your family has ever been injured in a car accident?

DrGoogle2017
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Re: Trusts for adults Children

Post by DrGoogle2017 » Mon Jan 08, 2018 1:02 pm

delamer wrote:
Mon Jan 08, 2018 12:57 pm
DrGoogle2017 wrote:
Sun Jan 07, 2018 11:21 pm
Sorry I can’t resist, but nobody divorces in my family yet, no body made dumb choices either, at least the ones that are NOT recoverable.
But I’ve been dumb in my youth and I’m still here( borrowing from Barbara Streisand).
I think fear is what lawyers use to sell the trust, apologizing to all lawyers out there. It’s true I didn’t inherit $5 million at age 35, so it’s all theroretically speaking. But nobody was involved in a lawsuit either. Take that. Maybe I’ve been blessed.
To each her/his own. Do you not wear a seatbelt nor buy a car with up-to-date safety features because no one in your family has ever been injured in a car accident?
I don’t think it’s the same analogy. If you drive everyday, the odds are higher. How often do you do anything to get sued, unless you are in a profession like medicine, there is almost near zero chance. But this is why I get umbrella insurance, it costs me less than $1000 for $5 million insurance. Trust can be cumbersome and it won’t prevent them from doing stupid things either. My goal for the trust is to make sure they inherit what they suppose to inherit. I think we have to let go as parents once the kids reach a certain age, they maybe smarter than us. We as parents are getting dumber. And who knows if they will get married or not. My cousin’s son has a living situation with somebody, has 2 kids from that living situation, one is old enough for college. But the parents are not married. I don’t want to waste my life and time worry about things that might or might not happen. I need to focus on living my life. I’ve done my job as a parent.
Last edited by DrGoogle2017 on Mon Jan 08, 2018 2:38 pm, edited 6 times in total.

delamer
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Re: Trusts for adults Children

Post by delamer » Mon Jan 08, 2018 1:11 pm

DrGoogle2017 wrote:
Mon Jan 08, 2018 1:02 pm
delamer wrote:
Mon Jan 08, 2018 12:57 pm
DrGoogle2017 wrote:
Sun Jan 07, 2018 11:21 pm
Sorry I can’t resist, but nobody divorces in my family yet, no body made dumb choices either, at least the ones that are NOT recoverable.
But I’ve been dumb in my youth and I’m still here( borrowing from Barbara Streisand).
I think fear is what lawyers use to sell the trust, apologizing to all lawyers out there. It’s true I didn’t inherit $5 million at age 35, so it’s all theroretically speaking. But nobody was involved in a lawsuit either. Take that. Maybe I’ve been blessed.
To each her/his own. Do you not wear a seatbelt nor buy a car with up-to-date safety features because no one in your family has ever been injured in a car accident?
I don’t think it’s the same analogy. If you drive everyday, the odds are higher. How often do you do anything to get sued, unless you are in a profession like medicine, there is almost near zero chance. But this is why I get umbrella insurance. Trust can be cumbersome and it won’t prevent them from doing stupid things either. My goal for the trust is to make sure they inherit what they suppose to inherit. I think we have to let go as parents once the kids reach a certain age, they maybe smarter than us. We as parents are getting dumber.
Part of my point is that you don’t have control over bad actors.

You wear the seat belt because someone else might run a red light, even if you are the world’s best driver.

I see trusts in the same way.

NotWhoYouThink
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Re: Trusts for adults Children

Post by NotWhoYouThink » Mon Jan 08, 2018 1:24 pm

I'm sort of ok with my kids getting a 7 figure inheritance at age 30. Not completely ok, because it will only happen if both their parents die, which would be a bad thing. But if it does happen, that kind of money at age 30 isn't going to ruin either of them. And if they have to pay estate tax, well, somebody has to fund all the government programs.

The reduced cost and administrative burden of leaving the money to them free and clear appeals to me more than the protection from unlikely events and the costs associated with that protection.

I wear seat belts, and have medical and home and auto liability (all with high deductibles) and umbrella insurance. If I were in the medical field I would almost certainly carry malpractice insurance. I use strong passwords and lock my home and car doors. We have no home burglar alarm and keep all jewelry, car titles and other valuables in the house, no safe deposit box. Some costs I'm willing to pay for safety and insurance, some I am not. You can make different choices, I just like to post on these threads to make the point that some of us look at the available options and choose the one that is not a lifelong trust imposed on our offspring.

letsgobobby
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Re: Trusts for adults Children

Post by letsgobobby » Mon Jan 08, 2018 1:29 pm

NotWhoYouThink wrote:
Mon Jan 08, 2018 1:24 pm
I'm sort of ok with my kids getting a 7 figure inheritance at age 30. Not completely ok, because it will only happen if both their parents die, which would be a bad thing. But if it does happen, that kind of money at age 30 isn't going to ruin either of them. And if they have to pay estate tax, well, somebody has to fund all the government programs.

The reduced cost and administrative burden of leaving the money to them free and clear appeals to me more than the protection from unlikely events and the costs associated with that protection.

I wear seat belts, and have medical and home and auto liability (all with high deductibles) and umbrella insurance. If I were in the medical field I would almost certainly carry malpractice insurance. I use strong passwords and lock my home and car doors. We have no home burglar alarm and keep all jewelry, car titles and other valuables in the house, no safe deposit box. Some costs I'm willing to pay for safety and insurance, some I am not. You can make different choices, I just like to post on these threads to make the point that some of us look at the available options and choose the one that is not a lifelong trust imposed on our offspring.
These are all fair points - however, re: the last (underlined) portion, keep in mind that a flexible trust does NOT “impose a lifelong trust on your offspring.” A flexible trust would allow the trustee to terminate the trust if it were in the beneficiary’s best interests. Thus a trust can preserve choice.

For example in our case, I don’t want the trust to be that flexible because my children are very young. However, as they reach (hopefully) maturity, I can amend the trust to increase the flexibility and eventually, my children would be given full responsibility for the trust as trustee.

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