How did you set up your trust distributions?

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joo2lo
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How did you set up your trust distributions?

Post by joo2lo »

Hello all,

My wife and I are setting up a trust. It would be funded with $5 million in assets comprising from retirement accounts, brokerage accounts, life insurance, home equity, etc. Just wondering how you guys set up beneficiary distributions in your estate plan? We have 1 daughter who would be sole beneficiary at this time unless we have another child. Just looking for examples here. Will you guys rely on the HEMS standard (health, education, maintainance, support), discretionary distributions by your trustee, staggered distributions, or a mix of these things?

I was also pondering what if we set annual beneficiary distributions to 4% of assets in the trust, kind of like the 4% rule, so that funds could possibly last our beneficiaries entire lifetime and possibly carry on to future generations. Any thoughts?

Lastly, my sister would be the trustee if my wife and I both passed away. Was thinking of co-trusting Vanguard's Trust Company to help her manage the investments in our trust. Does anyone have experience using them?

Thanks for the replies in advance.
Scatterbrain
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Re: How did you set up your trust distributions?

Post by Scatterbrain »

Eager for replies to this as I’m looking to do the same
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FIREchief
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Re: How did you set up your trust distributions?

Post by FIREchief »

joo2lo wrote: Sat May 16, 2020 12:50 pm It would be funded with $5 million in assets comprising from retirement accounts, brokerage accounts, life insurance, home equity, etc.

We have 1 daughter who would be sole beneficiary at this time unless we have another child.

I was also pondering what if we set annual beneficiary distributions to 4% of assets in the trust, kind of like the 4% rule, so that funds could possibly last our beneficiaries entire lifetime and possibly carry on to future generations. Any thoughts?
Regardless of any advice you receive here, you need to find a really good estate attorney who fully understands the laws of your state. You didn't tell us your daughter's age (and, if she's a minor child, responsible young adult or spendthrift). All of those will drive the answers to your questions.

A few general comments:
a) If a significant portion of the future assets will be in qualified retirement accounts, than aggressive Roth conversions may be in order (to enable efficient use of a trust to provide long term asset protections to your heir)
b) Mandated annual distributions are rarely a good idea. Better to allow your heir to serve as their own sole or co-trustee at some point dependent upon their general maturity/responsibility and your state's asset protection laws.

You may wish to review this other current thread:

viewtopic.php?f=2&t=314739
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
Topic Author
joo2lo
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Re: How did you set up your trust distributions?

Post by joo2lo »

Our daughter is 18 months old. We have an estate attorney that we are using. Just wondering what other people here do with their estate plans for additional information.
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FIREchief
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Re: How did you set up your trust distributions?

Post by FIREchief »

joo2lo wrote: Sat May 16, 2020 1:19 pm We have an estate attorney that we are using.
What did your attorney suggest regarding the mandated annual distributions (or any mandatory distributions for that matter)?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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joo2lo
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Re: How did you set up your trust distributions?

Post by joo2lo »

I haven't brought up the thought with him yet.
gtg970g
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Re: How did you set up your trust distributions?

Post by gtg970g »

Our trust will remain pooled (a single trust for multiple beneficiaries) until the youngest hits age 25. At that point the single trust splits into a separate trust for each individual kid. The separate trusts will distribute half at age 27 and half at age 30 (I believe). The trust remains pooled so each beneficiary can get through their childhood and college years while recognizing each individual may have unique needs. Our estate attorney had this basic outline and we could of course make any changes we wanted and choose the ages and amount of distributions. The trustee maintains the ability to distribute funds before these ages for many circumstances which could require a large distribution. They (the trustee) also has the ability to dissolve the trusts and distribute funds should the balance decline below a certain level. We view the trust as a method to get the kids through childhood and college education and into early adulthood. Beyond that they are on their own. I would also add the this is a testamentary trust which would be establish upon both of our deaths so it is not currently funded.
oldfort
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Re: How did you set up your trust distributions?

Post by oldfort »

bsteiner is an attorney, who specializes in trusts and estates. I would recommend perusing some of his previous posts.
tealeaves
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Re: How did you set up your trust distributions?

Post by tealeaves »

We are stipulating 9% of the total value annually among three children after DW and I pass (so 3% annually per child); with a balanced portfolio we expect the payout to last at least 15 years.
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FIREchief
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Re: How did you set up your trust distributions?

Post by FIREchief »

tealeaves wrote: Sat May 16, 2020 4:09 pm We are stipulating 9% of the total value annually among three children after DW and I pass (so 3% annually per child); with a balanced portfolio we expect the payout to last at least 15 years.
If the trust pays out 9% annually, won't the payouts last indefinitely?
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
NewMoneyMustBeSmart
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Re: How did you set up your trust distributions?

Post by NewMoneyMustBeSmart »

gtg970g wrote: Sat May 16, 2020 2:09 pm Our trust will remain pooled (a single trust for multiple beneficiaries) until the youngest hits age 25. At that point the single trust splits into a separate trust for each individual kid.
Mine is similar. I echo the other comments to use a proper estate attorney. I can recommend one.

The following assumes we're dead. If we're not dead, it's just ours in the revocable/living trust.

When our youngest is 25 the trust splits into 3. When any child is 30 they become co-trustee; and at 35 they become trustee. Note that they assume the trust ; the trust doesn't distribute.

The trust is for the benefit of them and their heirs. In theory that adds a bit of asset protection.

The Trustee can vary these instructions in the best interest of the children, and forestall or delay the trustee transfer or change certain things e.g. if tax laws change or kids can't handle the money. Another trusted person serves as the trust protector. If the children disagree with the trustees actions they can appeal to the trust protector who can overrule.

Ultimately the general intention is that the trustee takes care of the kids as needed for HEMS until they are 35 when they run it.

Ours is a bit more complicated due to a blended family, but that's a bit too nuanced.
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Luckywon
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Re: How did you set up your trust distributions?

Post by Luckywon »

joo2lo wrote: Sat May 16, 2020 12:50 pm

Lastly, my sister would be the trustee if my wife and I both passed away. Was thinking of co-trusting Vanguard's Trust Company to help her manage the investments in our trust.
Consider designating your sister (or group of relatives) "trust protector" with power to appoint/remove a successor corporate trustee or any other individual successor trustee, including herself. The advantages of this I believe would be to provide a mechanism for addressing the following potential pitfalls:
-A corporate successor trustee you select now may not accept the role at they time they are needed, or may no longer be a good choice.
-A successor corporate trustee may not function in the way your would have wanted, or may resign.
-Your sister may not need the assistance of a corporate trustee either at the onset, or after a year or two. She could then remove other trustees. This will reduce expenses. Alternatively, she always has the option of appointing a co-trustee or successor trustee if she is unable or willing to perform alone.
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joo2lo
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Re: How did you set up your trust distributions?

Post by joo2lo »

gtg970g wrote: Sat May 16, 2020 2:09 pm Our trust will remain pooled (a single trust for multiple beneficiaries) until the youngest hits age 25. At that point the single trust splits into a separate trust for each individual kid. The separate trusts will distribute half at age 27 and half at age 30 (I believe). The trust remains pooled so each beneficiary can get through their childhood and college years while recognizing each individual may have unique needs. Our estate attorney had this basic outline and we could of course make any changes we wanted and choose the ages and amount of distributions. The trustee maintains the ability to distribute funds before these ages for many circumstances which could require a large distribution. They (the trustee) also has the ability to dissolve the trusts and distribute funds should the balance decline below a certain level. We view the trust as a method to get the kids through childhood and college education and into early adulthood. Beyond that they are on their own. I would also add the this is a testamentary trust which would be establish upon both of our deaths so it is not currently funded.
Thank you for sharing this. I imagine we will end up doing something like this with slight modifications (ie. Ages of distributions, amount, etc.)
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joo2lo
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Re: How did you set up your trust distributions?

Post by joo2lo »

NewMoneyMustBeSmart wrote: Sat May 16, 2020 7:20 pm
gtg970g wrote: Sat May 16, 2020 2:09 pm Our trust will remain pooled (a single trust for multiple beneficiaries) until the youngest hits age 25. At that point the single trust splits into a separate trust for each individual kid.
When our youngest is 25 the trust splits into 3. When any child is 30 they become co-trustee; and at 35 they become trustee. Note that they assume the trust ; the trust doesn't distribute.
Just wondering what was your reasoning for making a child co-trustee when they reached 30; then at 35 becoming sole trustee? Was this so they get use to being a trustee of their trust with the guidance of the other co-trustee until they turned 35?
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joo2lo
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Re: How did you set up your trust distributions?

Post by joo2lo »

Also, do you guys pay a fee to your trustees? Was thinking my sister would deserve somthing for managing our estate on top of being our daughter's guardian.
NewMoneyMustBeSmart
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Re: How did you set up your trust distributions?

Post by NewMoneyMustBeSmart »

joo2lo wrote: Sat May 16, 2020 10:58 pm Just wondering what was your reasoning for making a child co-trustee when they reached 30; then at 35 becoming sole trustee? Was this so they get use to being a trustee of their trust with the guidance of the other co-trustee until they turned 35?
Correct.
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NewMoneyMustBeSmart
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Re: How did you set up your trust distributions?

Post by NewMoneyMustBeSmart »

joo2lo wrote: Sat May 16, 2020 11:02 pm Also, do you guys pay a fee to your trustees? Was thinking my sister would deserve somthing for managing our estate on top of being our daughter's guardian.
$10k/year or 0.1% of Estate, whichever is greater; trustee can waive in their sole election.

...which is quite low to wit:

https://www.barrons.com/articles/trust- ... 1425094199
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oldfort
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Re: How did you set up your trust distributions?

Post by oldfort »

There's a long thread about trusts here: viewtopic.php?f=2&t=314567.
bsteiner
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Re: How did you set up your trust distributions?

Post by bsteiner »

Almost all of our clients give the trustees complete discretion as to distributions. No one knows what the future will bring.

A few of our clients have named Vanguard as a trustee in their Wills. However, none of them has died yet. So we don't have any experience as to whether dealing with them will be similar to dealing with any other corporate trustee.

If anyone here has had any experience dealing with Vanguard as a trustee, I would appreciate it if they would let us know how they found it to be.
bluebolt
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Re: How did you set up your trust distributions?

Post by bluebolt »

bsteiner wrote: Sun May 17, 2020 7:12 am Almost all of our clients give the trustees complete discretion as to distributions. No one knows what the future will bring.

A few of our clients have named Vanguard as a trustee in their Wills. However, none of them has died yet. So we don't have any experience as to whether dealing with them will be similar to dealing with any other corporate trustee.

If anyone here has had any experience dealing with Vanguard as a trustee, I would appreciate it if they would let us know how they found it to be.
I was advised that one of the reasons to give the trustee discretion rather than a set schedule is that it may protect the assets more in case of divorce or other legal action if there's not a specific date and dollar amount/percentage.
StealthRabbit
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Re: How did you set up your trust distributions?

Post by StealthRabbit »

Discretionary distributions by trustee (while a minor)
Staggered age related distributions up to age 50 (with safety provisions for potential future 'Gold Digger' spouses)

At age 35. dependents become donor advisors to our family foundation (where most of the assets will land at that time, provided kids are not disabled and need the assets for subsistence). Kids will have to make it on their own from there.
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FIREchief
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Re: How did you set up your trust distributions?

Post by FIREchief »

bsteiner wrote: Sun May 17, 2020 7:12 am Almost all of our clients give the trustees complete discretion as to distributions. No one knows what the future will bring.
Thanks for posting that (again) Bruce. It is outstanding advice, and I continue to be baffled by the number of forum members who either miss it or just choose to disregard it. Based upon the number of posts from folks who are using these age based distributions, it suggests to me that there are a lot of lawyers out there who are failing to provide their clients with good advice in this area.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
bsteiner
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Re: How did you set up your trust distributions?

Post by bsteiner »

FIREchief wrote: Sun May 17, 2020 12:25 pm
bsteiner wrote: Sun May 17, 2020 7:12 am Almost all of our clients give the trustees complete discretion as to distributions. No one knows what the future will bring.
Thanks for posting that (again) Bruce. It is outstanding advice, and I continue to be baffled by the number of forum members who either miss it or just choose to disregard it. Based upon the number of posts from folks who are using these age based distributions, it suggests to me that there are a lot of lawyers out there who are failing to provide their clients with good advice in this area.
You are correct. We see this more often than we should.

However, between 1979 and 1995, the Internal Revenue Service took the position (in Revenue Ruling 79-353) that if you created a trust and retained the power to remove and replace the trustees, the trust assets would be included in your estate. Most lawyers believed that the IRS would likely apply this to a beneficiary who had this power. So we had to choose between providing for beneficiaries outright (or outright at specified age) or in trusts that they couldn't control.

In 1995, after losing a couple of court cases (Vak and Wall), the IRS issued Revenue Ruling 95-58. That ruling said that if you create a trust, you may retain the power to remove and replace the trustees, provided the replacement trustee isn't a close relative or subordinate employee, without the trust being included in your estate. To be safe, when we give a beneficiary this power, we limit it so that the replacement trustee can't be a close relative or subordinate employee.

The power to remove and replace the trustees gives the beneficiary effective control over his/her trust. If I'm co-trustee of your trust with you, I'll probably be guided by your wishes (except if you want me to do something improper I'll let you remove me rather than doing it).

That lets us avoid the pre-1995 situation of having to choose between providing for beneficiaries outright or in trusts that they can't control.

Also, we're much more conscious of asset protection now than we were before 1995.

However, some lawyers may not be aware of the 1995 ruling.
oldfort
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Re: How did you set up your trust distributions?

Post by oldfort »

FIREchief wrote: Sun May 17, 2020 12:25 pm
bsteiner wrote: Sun May 17, 2020 7:12 am Almost all of our clients give the trustees complete discretion as to distributions. No one knows what the future will bring.
Thanks for posting that (again) Bruce. It is outstanding advice, and I continue to be baffled by the number of forum members who either miss it or just choose to disregard it. Based upon the number of posts from folks who are using these age based distributions, it suggests to me that there are a lot of lawyers out there who are failing to provide their clients with good advice in this area.
At a high level, many of us believe 7-figure+ lawsuit verdicts against individuals are incredibly rare and most creditor risks can be managed adequately through insurance, prenups, proper corporate structures, not commingling inherited and marital property, and responsible spending. Further, many of us don't attach a great deal of importance to trying to protect heirs from the consequences of every stupid decision they might make in life. Money is fungible. To the extent creditors can collect on a verdict from non-trust assets and garnishing wages, the net economic result, with respect to creditors, is the same whether the trust exists or not.
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Re: How did you set up your trust distributions?

Post by J295 »

When our children were young, we provided that if there was no surviving spouse assets would be placed in trust for the three children. A single trust with each child having a separate share. All income would be distributed annually, and principal could be a invaded per an ascertainable standard. Then when the youngest child reached ages 30, 35, and 40, the principal of each share would be distributed to each beneficiary in increments.

Fast forward… Our children are 30, 32, and 34 now and all independent and doing well financially, so our plans now provided in the event of distribution they will each receive 1/3 outright. That is to say, no trust anymore.

Also, we are big believers in a corporate trustee for a trust for children. Consider that the trust will typically only come in to play when the children are relatively young, and both mom and dad have passed away. A traumatic situation for sure. We wanted friends and family members to be able to support our children emotionally and otherwise (and depending upon children’s ages one of them even serving as a guardian), and not be in the position of having to serve as trustee as well (a task for which they are likely not qualified). To us it was worth the corporate trustee fee.
MarkerFM
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Re: How did you set up your trust distributions?

Post by MarkerFM »

J295 wrote: Sun May 17, 2020 3:36 pm When our children were young, we provided that if there was no surviving spouse assets would be placed in trust for the three children. A single trust with each child having a separate share. All income would be distributed annually, and principal could be a invaded per an ascertainable standard. Then when the youngest child reached ages 30, 35, and 40, the principal of each share would be distributed to each beneficiary in increments.

Fast forward… Our children are 30, 32, and 34 now and all independent and doing well financially, so our plans now provided in the event of distribution they will each receive 1/3 outright. That is to say, no trust anymore.

Also, we are big believers in a corporate trustee for a trust for children. Consider that the trust will typically only come in to play when the children are relatively young, and both mom and dad have passed away. A traumatic situation for sure. We wanted friends and family members to be able to support our children emotionally and otherwise (and depending upon children’s ages one of them even serving as a guardian), and not be in the position of having to serve as trustee as well (a task for which they are likely not qualified). To us it was worth the corporate trustee fee.
We did something similar when our kids were young, except for the life of me I can't remember when the single trust split into two (two kids). They were to be provided with education expenses and any health care needs, and 1/3 at 30, 35, and 40.

Fast forward, kids are late 20's. Both healthy, independent, and financially fine. Estate value grew tremendously. We decided to not give principal grants outright, and instead have a formula where they are distributed income (and principal if necessary) at the rate of the S & P 500 dividend for the previous year, subject to a 1 1/2% floor and a 3% cap. This will be a lot of money, and will preserve the trusts for at least a few generations. The trustees have HEMS authority, but there is an accompanying letter that provides them with our guidance on how to distribute.

Our estate attorney spent some time explaining the concept of timed distributions versus timed control. In other words, instead of letting them take chunks out at intervals, give them increasing control of the trusts at intervals. We did not choose either route really, maybe someday we will change if we live longer and as they mature.

Separate gift trusts are smaller but not insignificant and have outright principal distribution options at intervals. Kind of a modified hybrid approach.
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Re: How did you set up your trust distributions?

Post by bsteiner »

oldfort wrote: Sun May 17, 2020 1:32 pm
FIREchief wrote: Sun May 17, 2020 12:25 pm
bsteiner wrote: Sun May 17, 2020 7:12 am Almost all of our clients give the trustees complete discretion as to distributions. No one knows what the future will bring.
Thanks for posting that (again) Bruce. It is outstanding advice, and I continue to be baffled by the number of forum members who either miss it or just choose to disregard it. Based upon the number of posts from folks who are using these age based distributions, it suggests to me that there are a lot of lawyers out there who are failing to provide their clients with good advice in this area.
At a high level, many of us believe 7-figure+ lawsuit verdicts against individuals are incredibly rare and most creditor risks can be managed adequately through insurance, prenups, proper corporate structures, not commingling inherited and marital property, and responsible spending. Further, many of us don't attach a great deal of importance to trying to protect heirs from the consequences of every stupid decision they might make in life. Money is fungible. To the extent creditors can collect on a verdict from non-trust assets and garnishing wages, the net economic result, with respect to creditors, is the same whether the trust exists or not.
You are correct that Insurance will cover most claims.

The principal claim that insurance won't cover is spouses. In about 3/4 of the estates, inheritances aren't subject to equitable distribution (division) upon divorce. However, in about 1/4 of the states, inheritances are in the pot upon divorce. It's also sometimes difficult to trace the inherited assets. Many clients prefer providing for their children in trust to asking their children to get prenuptial agreements.

There's also the issue of surviving spouses if a child outlives his/her spouse and remarries and then dies. The child can deal with that by a prenuptial agreement with his/her new spouse. But having his/her inheritance in trust may avoid having to raise the issue of a prenuptial agreement.

When the IRS issued Revenue Ruling 95-58, which by corollary (since the ruling dealt with grantors rather than beneficiaries) allows a beneficiary to remove and replace trustees (provide the replacement trustee isn't a close relative or subordinate employee), the estate tax exclusion amount was only $600,000. While it subsequently went up dramatically, we had a number of years when it was relatively modest, and keeping children's inheritances out of their estates for estate tax purposes was often important. It's scheduled to revert to pre-2018 law in 2026, which will make more estates subject to estate tax once again.

For people with smaller estates, Medicaid protection may be a consideration. If a child might want Medicaid, assets in trust will generally be protected, whereas assets owned outright generally won't be protected.

Finally, if the inheritance is in trust, if the trust no longer makes sense, the trustees can always terminate the trust and distribute the trust assets to the. Or the trustees can direct the executors not to set up the trust and to distribute the assets to the beneficiary outright. But you can't go the other way. If the inheritance is outright, you can't put it into a trust and accomplish all of the above protections. A nationally prominent trusts and estates lawyer, now retired, said that it's like toothpaste. You can always take the toothpaste (money) out of the tube (trust), but once you take it out, you can't put it back in.
senex
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Re: How did you set up your trust distributions?

Post by senex »

bsteiner wrote: Sun May 17, 2020 6:23 pm When the IRS issued Revenue Ruling 95-58, which by corollary (since the ruling dealt with grantors rather than beneficiaries) allows a beneficiary to remove and replace trustees (provide the replacement trustee isn't a close relative or subordinate employee), the estate tax exclusion amount was only $600,000. While it subsequently went up dramatically, we had a number of years when it was relatively modest, and keeping children's inheritances out of their estates for estate tax purposes was often important. It's scheduled to revert to pre-2018 law in 2026, which will make more estates subject to estate tax once again.
Mr. Steiner, thank you for sharing your extensive knowledge.

In the past, my attorney recommended different things than you typically describe, and thanks to your posts & elaborations, I'm understanding both parties' reasoning better, and I'm better able to address future decisions. Thank you.
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Nestegg_User
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Re: How did you set up your trust distributions?

Post by Nestegg_User »

MarkerFM wrote: Sun May 17, 2020 5:16 pm
J295 wrote: Sun May 17, 2020 3:36 pm When our children were young, we provided that if there was no surviving spouse assets would be placed in trust for the three children. A single trust with each child having a separate share. All income would be distributed annually, and principal could be a invaded per an ascertainable standard. Then when the youngest child reached ages 30, 35, and 40, the principal of each share would be distributed to each beneficiary in increments.

Fast forward… Our children are 30, 32, and 34 now and all independent and doing well financially, so our plans now provided in the event of distribution they will each receive 1/3 outright. That is to say, no trust anymore.

Also, we are big believers in a corporate trustee for a trust for children. Consider that the trust will typically only come in to play when the children are relatively young, and both mom and dad have passed away. A traumatic situation for sure. We wanted friends and family members to be able to support our children emotionally and otherwise (and depending upon children’s ages one of them even serving as a guardian), and not be in the position of having to serve as trustee as well (a task for which they are likely not qualified). To us it was worth the corporate trustee fee.
We did something similar when our kids were young, except for the life of me I can't remember when the single trust split into two (two kids). They were to be provided with education expenses and any health care needs, and 1/3 at 30, 35, and 40.

Fast forward, kids are late 20's. Both healthy, independent, and financially fine. Estate value grew tremendously. We decided to not give principal grants outright, and instead have a formula where they are distributed income (and principal if necessary) at the rate of the S & P 500 dividend for the previous year, subject to a 1 1/2% floor and a 3% cap. This will be a lot of money, and will preserve the trusts for at least a few generations. The trustees have HEMS authority, but there is an accompanying letter that provides them with our guidance on how to distribute.

Our estate attorney spent some time explaining the concept of timed distributions versus timed control. In other words, instead of letting them take chunks out at intervals, give them increasing control of the trusts at intervals. We did not choose either route really, maybe someday we will change if we live longer and as they mature.

Separate gift trusts are smaller but not insignificant and have outright principal distribution options at intervals. Kind of a modified hybrid approach.
doesn't that fail the test of perpetual trust that the recent changes tried to prevent?

{In our case, we allowed the trustees to have discretion and have separate trust established for those under age of maturity that provided for HEMS. }
tealeaves
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Re: How did you set up your trust distributions?

Post by tealeaves »

FIREchief wrote: Sat May 16, 2020 6:29 pm
tealeaves wrote: Sat May 16, 2020 4:09 pm We are stipulating 9% of the total value annually among three children after DW and I pass (so 3% annually per child); with a balanced portfolio we expect the payout to last at least 15 years.
If the trust pays out 9% annually, won't the payouts last indefinitely?
I neglected to mention that when the balance reaches a certain threshold the remaining $$ are paid out in full.
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Re: How did you set up your trust distributions?

Post by RadAudit »

I know this probably doesn't fit any of your current concerns; but, since you asked ...

After the first child married, we set up a trust - primarily because we didn't like her choice in a spouse - to distribute the estate after our demise equally among our children and after that equally along bloodlines. (It's always nice that you have a little money of your own.) The kids are 35 and 40. So their saving and spending habits are pretty much established. The estate is small so it won't last long no matter what we do. Doubt if any of it'll get to the grandkids.

YMMV
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mak1277
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Re: How did you set up your trust distributions?

Post by mak1277 »

No specified annual distributions for ours, trustee has discretion. Our child will become the sole trustee at age 30. No annual fee for the trustee. But we did specify a lump sum payment to the person we named as our child's guardian should that be necessary before the child is 18.
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joo2lo
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Re: How did you set up your trust distributions?

Post by joo2lo »

Haven't ran this by our lawyer yet but was wondering if you guys could clarify... What would be the difference between assigning a trust company as co-trustee with our trustee (sister) vs. having our trustee hire a trust company to assist her?
MarkerFM
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Re: How did you set up your trust distributions?

Post by MarkerFM »

Nestegg_User wrote: Mon May 18, 2020 1:27 pm
MarkerFM wrote: Sun May 17, 2020 5:16 pm
J295 wrote: Sun May 17, 2020 3:36 pm When our children were young, we provided that if there was no surviving spouse assets would be placed in trust for the three children. A single trust with each child having a separate share. All income would be distributed annually, and principal could be a invaded per an ascertainable standard. Then when the youngest child reached ages 30, 35, and 40, the principal of each share would be distributed to each beneficiary in increments.

Fast forward… Our children are 30, 32, and 34 now and all independent and doing well financially, so our plans now provided in the event of distribution they will each receive 1/3 outright. That is to say, no trust anymore.

Also, we are big believers in a corporate trustee for a trust for children. Consider that the trust will typically only come in to play when the children are relatively young, and both mom and dad have passed away. A traumatic situation for sure. We wanted friends and family members to be able to support our children emotionally and otherwise (and depending upon children’s ages one of them even serving as a guardian), and not be in the position of having to serve as trustee as well (a task for which they are likely not qualified). To us it was worth the corporate trustee fee.
We did something similar when our kids were young, except for the life of me I can't remember when the single trust split into two (two kids). They were to be provided with education expenses and any health care needs, and 1/3 at 30, 35, and 40.

Fast forward, kids are late 20's. Both healthy, independent, and financially fine. Estate value grew tremendously. We decided to not give principal grants outright, and instead have a formula where they are distributed income (and principal if necessary) at the rate of the S & P 500 dividend for the previous year, subject to a 1 1/2% floor and a 3% cap. This will be a lot of money, and will preserve the trusts for at least a few generations. The trustees have HEMS authority, but there is an accompanying letter that provides them with our guidance on how to distribute.

Our estate attorney spent some time explaining the concept of timed distributions versus timed control. In other words, instead of letting them take chunks out at intervals, give them increasing control of the trusts at intervals. We did not choose either route really, maybe someday we will change if we live longer and as they mature.

Separate gift trusts are smaller but not insignificant and have outright principal distribution options at intervals. Kind of a modified hybrid approach.
doesn't that fail the test of perpetual trust that the recent changes tried to prevent?

{In our case, we allowed the trustees to have discretion and have separate trust established for those under age of maturity that provided for HEMS. }
We live in Florida and trusts here can be up to 360 years I believe. I'm pretty sure the money won't last that long.
NotWhoYouThink
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Re: How did you set up your trust distributions?

Post by NotWhoYouThink »

If I live a couple more years my trust will distribute directly to my kids. They will be old enough to spend it, donate it squander it or protect it as they choose.
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Nestegg_User
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Re: How did you set up your trust distributions?

Post by Nestegg_User »

Marker

are you sure that the trust won't be invalidated (after all, 360 years is effectively "perpetual". Even treaties, like that for the Panama Canal (by the US) and Hong Kong (by the Brits) were only 99 years!
MikeG62
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Re: How did you set up your trust distributions?

Post by MikeG62 »

joo2lo wrote: Sat May 16, 2020 12:50 pm Hello all,

My wife and I are setting up a trust. It would be funded with $5 million in assets comprising from retirement accounts, brokerage accounts, life insurance, home equity, etc. Just wondering how you guys set up beneficiary distributions in your estate plan? We have 1 daughter who would be sole beneficiary at this time unless we have another child. Just looking for examples here. Will you guys rely on the HEMS standard (health, education, maintenance, support), discretionary distributions by your trustee, staggered distributions, or a mix of these things?
Our testamentary trusts (as to which there will be two trustees - the beneficiary and a corporate co-trustee) provide for distribution of all income to each beneficiary (at least quarterly) and for the payment out of of principal to each beneficiary following the HEMS standard. In addition, the beneficiary can apply for the distribution of up to 1/3rd of the balance of their trust anytime after attaining the age of 50, up to 1/2 of the remaining balance after attaining the age of 55 and any portion of the remaining balance in their trust anytime after attaining the age of 60. Our will's were completed in 2015. We will at some point revisit all this, but this is how it is set up now.
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T-Mack2124
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Re: How did you set up your trust distributions?

Post by T-Mack2124 »

My two kids each have a trust, with staggered distributions at 18, 21, 25 and 30. Fidelity is named Successor Trustee and our attorney is Trust Advisor (needed in the event my spouse and I can't agree on something). Although some family and friends are named in our Wills for guardianship and our assets (including financial), we chose not to name any of them in the kids' Trusts.
oldfort
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Re: How did you set up your trust distributions?

Post by oldfort »

bsteiner wrote: Sun May 17, 2020 6:23 pm The principal claim that insurance won't cover is spouses. In about 3/4 of the estates, inheritances aren't subject to equitable distribution (division) upon divorce. However, in about 1/4 of the states, inheritances are in the pot upon divorce.
Which states treat inheritances as marital property?
neverpanic
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Re: How did you set up your trust distributions?

Post by neverpanic »

joo2lo wrote: Sat May 16, 2020 1:19 pm Our daughter is 18 months old. We have an estate attorney that we are using. Just wondering what other people here do with their estate plans for additional information.
Smart start! There's no telling what the future will hold - you could easily wind up with one child who's a spendthrift while the other is quite frugal.

The primary purpose of my trust was asset protection for my heirs and also to establish fair distribution in order to limit disputes, because of a blended family situation.

I established equal shares for 1) daughter, 2) wife, 3) possible future child, and 4) emergencies or hardships and then a minor share for 5) expenses of the trust, which includes compensation for fiduciary services. If there are no additional children, then that share 3) passes to the grandchildren.

If I die today, each gets a lump sum and then monthly distributions (wife for life, children to adulthood).
I am not a financial professional or guru. I'm a schmuck who got lucky 10 times. Such is the life of the trader.
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