Design of Testamentary Trust

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

oldfort wrote: Wed Jun 10, 2020 11:38 am
$=WxTxI wrote: Wed Jun 10, 2020 10:25 am Why are your children limited to low income jobs?

They are both still relatively young.

You have significant assets. Make the inheritance contigent on them getting education that has a higher income than 40k.

This would be a far better gift and would ensure your grandchildren have a brighter future.

I apologize if I overstepped, but you were both successful and I don't understand why your children can't be as well.
At 33, getting more education may be challenging. The application deadline for the fall is past, so you would need to start in 2021. If you don't have an undergrad degree and start undergrad at 34, finish undergrad at 38, and then go to law school, you can finish law school at 41. You can be a first year associate at 41. If they do have undergrad degrees, their GPAs may be too low to get admitted to a tier I or tier II law school.

They have to goto law school? Is that the only way to make more than 40k?

There are lots of trades that make over 100k.
oldfort
Posts: 2541
Joined: Mon Mar 02, 2020 8:45 pm

Re: Design of Testamentary Trust

Post by oldfort »

$=WxTxI wrote: Wed Jun 10, 2020 12:24 pm
oldfort wrote: Wed Jun 10, 2020 11:38 am
$=WxTxI wrote: Wed Jun 10, 2020 10:25 am Why are your children limited to low income jobs?

They are both still relatively young.

You have significant assets. Make the inheritance contigent on them getting education that has a higher income than 40k.

This would be a far better gift and would ensure your grandchildren have a brighter future.

I apologize if I overstepped, but you were both successful and I don't understand why your children can't be as well.
At 33, getting more education may be challenging. The application deadline for the fall is past, so you would need to start in 2021. If you don't have an undergrad degree and start undergrad at 34, finish undergrad at 38, and then go to law school, you can finish law school at 41. You can be a first year associate at 41. If they do have undergrad degrees, their GPAs may be too low to get admitted to a tier I or tier II law school.

They have to goto law school? Is that the only way to make more than 40k?
Med school may be worse. 4 years of undergrad + 4 years of med school + a minimum of a 3 year residency.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

oldfort wrote: Wed Jun 10, 2020 12:26 pm
$=WxTxI wrote: Wed Jun 10, 2020 12:24 pm
oldfort wrote: Wed Jun 10, 2020 11:38 am
$=WxTxI wrote: Wed Jun 10, 2020 10:25 am Why are your children limited to low income jobs?

They are both still relatively young.

You have significant assets. Make the inheritance contigent on them getting education that has a higher income than 40k.

This would be a far better gift and would ensure your grandchildren have a brighter future.

I apologize if I overstepped, but you were both successful and I don't understand why your children can't be as well.
At 33, getting more education may be challenging. The application deadline for the fall is past, so you would need to start in 2021. If you don't have an undergrad degree and start undergrad at 34, finish undergrad at 38, and then go to law school, you can finish law school at 41. You can be a first year associate at 41. If they do have undergrad degrees, their GPAs may be too low to get admitted to a tier I or tier II law school.

They have to goto law school? Is that the only way to make more than 40k?
Med school may be worse. 4 years of undergrad + 4 years of med school + a minimum of a 3 year residency.
Is med school and law school the only way to make more than 40k? Is it the only way to make more than 100k?
afan
Posts: 5556
Joined: Sun Jul 25, 2010 4:01 pm

Re: Design of Testamentary Trust

Post by afan »

It would be a wonderful world if everyone who wanted to could make 100k. That is not the reality. Some people, for many valid reasons, will not be able to get there. In fact, MOST people make well under 100k.
OP knows their kids and seems sure about their financial potential. The questions are how to provide for them.
Sure, it would be great to tell them to become Fortune 500 CEOs, then the money left by their parents would not matter. But staying in the real world, most people struggle to make enough money.
What was the median individual income?
Median individual income was $40,100.00 in 2019 in the United States.
https://dqydj.com/average-median-top-in ... rcentiles/
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
User avatar
LilyFleur
Posts: 1608
Joined: Fri Mar 02, 2018 10:36 pm

Re: Design of Testamentary Trust

Post by LilyFleur »

Mackster wrote: Tue Jun 09, 2020 10:49 am
neverpanic wrote: Tue Jun 09, 2020 9:47 am
Mackster wrote: Tue Jun 09, 2020 6:35 am
LilyFleur wrote: Tue Jun 09, 2020 5:01 am Will the niece be compensated for her time? It sounds like it has the possibility of being a stressful job.
We would certainly compensate her although I'm not sure what a reasonable amount would be.
Your referenced HEMS. When you set up your trust, one suggestion is to assign shares for different parties and purposes. One of those shares should be for the expenses of the trust, which would include compensation for the trustee, accounting/tax preparation, etc. My estate is significantly smaller than yours and I'm in NV, so I'm not a reasonable comp, but we decided on a flat fee of $8000-10000/year, with appropriate increases if investments performed well and grew the pot. Just throwing a number out, I would imagine a starting point of about 0.5%. You will shop around, of course, but you have to figure that a corporate trustee would cost you no less than 1%/year, maybe a little more.
I just assumed that admin costs including CPA, attorney, and compensation would be paid by the trustee as warranted. Did not realize that it would be necessary to create shares for each bene and for each of the possible recipients of admin fees.
We've looked at Schwab (.50%) and Vanguard (.55%) as corporate trustees. As I noted elsewhere, that seemed almost confiscatory for a small estate ($250k-$275k per 10 years) since we'd expect the trust to last possibly 50 years. Since our expectation was for income distribution I'm not sure we'd see substantial growth of trust principal. At any rate we certainly agree that there needs to be provision for reasonable comp to retain the trustee's services.
Did those low quotes from Schwab and Vanguard include administrative duties such as paying bills, setting up an estate sale, etc.? Last time I checked with Schwab, that was only for investments, not administrative, such as paying bills. My mother's corporate trustee charged 1% for administrative as well as investment duties. That cost was short-term, though. And, yes, it costs money to protect money. The trust tax return was paid for separately. The jewelry appraisal was paid for separately. But it was all done very professionally and my sibling and I were very grateful.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

afan wrote: Wed Jun 10, 2020 12:36 pm It would be a wonderful world if everyone who wanted to could make 100k. That is not the reality. Some people, for many valid reasons, will not be able to get there. In fact, MOST people make well under 100k.
OP knows their kids and seems sure about their financial potential. The questions are how to provide for them.
Sure, it would be great to tell them to become Fortune 500 CEOs. then the money left by their parents would not matter. But staying in the real world, most people struggle to make enough money.
There's something about giving a man a fish versus teaching him to fish...

You're right its probably best for them to have stagnant careers and wait for mom and dad to kick off.

Oh wait mom and dad lived to 100...

I believe everyone has the potential to make over 100k. Some may have to put in more effort that others. Wanting/wishing to make 100k+ vs continuing to try until you get there are different things entirely.

Again. Tons of tradesmen make more than 100k.
afan
Posts: 5556
Joined: Sun Jul 25, 2010 4:01 pm

Re: Design of Testamentary Trust

Post by afan »

NotWhoYouThink wrote: Tue Jun 09, 2020 4:13 pm Fun family story. FIL's living trust specified that the money would be divided into 3 trusts, beneficiaries were to be his 3 direct descendants, then their descendants. Made it clear at the time that the reason was to keep the money away from his DILs.

The successor trustee in charge of dividing up the trusts instead liquidated everything and wrote 3 checks, no successor trusts were ever formed. All 3 sons effectively turned over the money to their wives to invest, manage, squander, or whatever they chose.

If you want your wishes followed, have a corporate trustee. They'll do what you say (at a high fee) because they know they can be sued if they don't.
I know of a similar event. The executor was also the beneficiary and decided not to create the trust. Effectively disinherited his children and blew the money in the traditional ways of high living. Sad. Fortunately, the kids were self sufficient.
Since the executor/beneficiary would have been the trustee of his trust anyway, even if he had followed the testator's wishes, he still would have been able to run through the money.
If you are worried that your executor will not follow your wishes, then you can have a lawyer, bank or trust department do it. They will charge a lot of money.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
afan
Posts: 5556
Joined: Sun Jul 25, 2010 4:01 pm

Re: Design of Testamentary Trust

Post by afan »

LilyFleur wrote: Wed Jun 10, 2020 12:41 pm
Mackster wrote: Tue Jun 09, 2020 10:49 am
neverpanic wrote: Tue Jun 09, 2020 9:47 am
Mackster wrote: Tue Jun 09, 2020 6:35 am
LilyFleur wrote: Tue Jun 09, 2020 5:01 am Will the niece be compensated for her time? It sounds like it has the possibility of being a stressful job.
We would certainly compensate her although I'm not sure what a reasonable amount would be.
Your referenced HEMS. When you set up your trust, one suggestion is to assign shares for different parties and purposes. One of those shares should be for the expenses of the trust, which would include compensation for the trustee, accounting/tax preparation, etc. My estate is significantly smaller than yours and I'm in NV, so I'm not a reasonable comp, but we decided on a flat fee of $8000-10000/year, with appropriate increases if investments performed well and grew the pot. Just throwing a number out, I would imagine a starting point of about 0.5%. You will shop around, of course, but you have to figure that a corporate trustee would cost you no less than 1%/year, maybe a little more.
I just assumed that admin costs including CPA, attorney, and compensation would be paid by the trustee as warranted. Did not realize that it would be necessary to create shares for each bene and for each of the possible recipients of admin fees.
We've looked at Schwab (.50%) and Vanguard (.55%) as corporate trustees. As I noted elsewhere, that seemed almost confiscatory for a small estate ($250k-$275k per 10 years) since we'd expect the trust to last possibly 50 years. Since our expectation was for income distribution I'm not sure we'd see substantial growth of trust principal. At any rate we certainly agree that there needs to be provision for reasonable comp to retain the trustee's services.
Did those low quotes from Schwab and Vanguard include administrative duties such as paying bills, setting up an estate sale, etc.? Last time I checked with Schwab, that was only for investments, not administrative, such as paying bills. My mother's corporate trustee charged 1% for administrative as well as investment duties. That cost was short-term, though. And, yes, it costs money to protect money. The trust tax return was paid for separately. The jewelry appraisal was paid for separately. But it was all done very professionally and my sibling and I were very grateful.
Vanguard will not settle estates and will not serve as trustee if there is real estate in the trust. Schwab will serve as trustee of a trust with real estate. I don't know whether it will serve as executor. The prices for Schwab and Vanguard include paying bills according to what I was told years ago.

There are companies that will serve as administrative trustee, including paying bills, but not manage the investments. Apparently they will charge a flat fee that may be lower than S or V. You have to make other arrangements for managing the money.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
oldfort
Posts: 2541
Joined: Mon Mar 02, 2020 8:45 pm

Re: Design of Testamentary Trust

Post by oldfort »

$=WxTxI wrote: Wed Jun 10, 2020 12:28 pm
oldfort wrote: Wed Jun 10, 2020 12:26 pm
$=WxTxI wrote: Wed Jun 10, 2020 12:24 pm
oldfort wrote: Wed Jun 10, 2020 11:38 am
$=WxTxI wrote: Wed Jun 10, 2020 10:25 am Why are your children limited to low income jobs?

They are both still relatively young.

You have significant assets. Make the inheritance contigent on them getting education that has a higher income than 40k.

This would be a far better gift and would ensure your grandchildren have a brighter future.

I apologize if I overstepped, but you were both successful and I don't understand why your children can't be as well.
At 33, getting more education may be challenging. The application deadline for the fall is past, so you would need to start in 2021. If you don't have an undergrad degree and start undergrad at 34, finish undergrad at 38, and then go to law school, you can finish law school at 41. You can be a first year associate at 41. If they do have undergrad degrees, their GPAs may be too low to get admitted to a tier I or tier II law school.

They have to goto law school? Is that the only way to make more than 40k?
Med school may be worse. 4 years of undergrad + 4 years of med school + a minimum of a 3 year residency.
Is med school and law school the only way to make more than 40k? Is it the only way to make more than 100k?
If you don’t like law or med school, then what are your ideas on what the OP’s kids should do?
User avatar
LilyFleur
Posts: 1608
Joined: Fri Mar 02, 2018 10:36 pm

Re: Design of Testamentary Trust

Post by LilyFleur »

TomatoTomahto wrote: Tue Jun 09, 2020 4:12 pm
NotWhoYouThink wrote: Tue Jun 09, 2020 4:06 pm I would especially refuse to be the trustee of a trust for a family member whose parents were at all involved in his possible prenup negotiations.

Yes, the trust administration will be costly. But if you want a service you pay for it. I pay for a first class ticket, or I put up with flying coach, or I save money by staying home. I don't decide to pay nothing and expect first class service.
I think OP is worried that even paying “full freight,” the size of the trust will not get first class service. I have no experience either way.
I do have experience, for a trust smaller than that of the OP, at 1%. I think we paid the corporate trustee for about three years, then each sibling took a lump sum payout as we were both very mature and good at handling money, one with a law degree and one with the ability to manage money. The beneficiaries need to understand the trust very well, review the monthly statements (yes, I found errors), and be quietly persistent if needs are not being met. (We had a corporate trustee starting when my mother was declared incapacitated.) That said, the assistance provided to us in terms of the administrative work was invaluable.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

oldfort wrote: Wed Jun 10, 2020 1:01 pm
$=WxTxI wrote: Wed Jun 10, 2020 12:28 pm
oldfort wrote: Wed Jun 10, 2020 12:26 pm
$=WxTxI wrote: Wed Jun 10, 2020 12:24 pm
oldfort wrote: Wed Jun 10, 2020 11:38 am

At 33, getting more education may be challenging. The application deadline for the fall is past, so you would need to start in 2021. If you don't have an undergrad degree and start undergrad at 34, finish undergrad at 38, and then go to law school, you can finish law school at 41. You can be a first year associate at 41. If they do have undergrad degrees, their GPAs may be too low to get admitted to a tier I or tier II law school.

They have to goto law school? Is that the only way to make more than 40k?
Med school may be worse. 4 years of undergrad + 4 years of med school + a minimum of a 3 year residency.
Is med school and law school the only way to make more than 40k? Is it the only way to make more than 100k?
If you don’t like law or med school, then what are your ideas on what the OP’s kids should do?
I have suggested trades (more than once) as a path to increase their income without a great deal of education. Get in on an apprenticeship and within a few years you will be making more than 100k with OT. Do side work on the weekends and you will be over 200k.


Trades (Hvac, electrician, plumber)
Lineman
Powerplant operator
Water plant operator
Commision Sales
IT

I'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

$=WxTxI wrote: Wed Jun 10, 2020 1:16 pmI'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
I get the FI part but not the RE part of FIRE.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:16 pmI'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.

Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
oldfatguy
Posts: 775
Joined: Tue Feb 27, 2018 1:38 pm

Re: Design of Testamentary Trust

Post by oldfatguy »

$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
I agree there may be underlying issues as to why the OPs adult children are earning a low income.
I'm not sure why the OP framed it that way, but 40K is well above the median wage in the US, and not really "low income." Of course, the lifestyle that 40K buys depends a great deal on specific location.
oldfort
Posts: 2541
Joined: Mon Mar 02, 2020 8:45 pm

Re: Design of Testamentary Trust

Post by oldfort »

$=WxTxI wrote: Wed Jun 10, 2020 1:16 pm I have suggested trades (more than once) as a path to increase their income without a great deal of education. Get in on an apprenticeship and within a few years you will be making more than 100k with OT. Do side work on the weekends and you will be over 200k.


Trades (Hvac, electrician, plumber)
Lineman
Powerplant operator
Water plant operator
Commision Sales
IT

I'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
You're vastly over-estimating what the trades pay, unless you're assuming some crazy amount of overtime. The median pay for an electrician is $27/hour. With a normal 40 hour work week, that's $56k/year.
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:16 pmI'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you. That said, many of the trade internships are not as accessible to many as one would hope.

FWIW, I would consider $40k not a low income; I referred to it as “moderate.” Not long ago, median US income for individuals was less than $32k and household income was iirc just above $60k. I’m as guilty of projecting/generalizing my good fortune as anyone, but it’s important to remember what real life is like.
I get the FI part but not the RE part of FIRE.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

oldfort wrote: Wed Jun 10, 2020 1:52 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:16 pm I have suggested trades (more than once) as a path to increase their income without a great deal of education. Get in on an apprenticeship and within a few years you will be making more than 100k with OT. Do side work on the weekends and you will be over 200k.


Trades (Hvac, electrician, plumber)
Lineman
Powerplant operator
Water plant operator
Commision Sales
IT

I'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
You're vastly over-estimating what the trades pay, unless you're assuming some crazy amount of overtime. The median pay for an electrician is $27/hour. With a normal 40 hour work week, that's $56k/year.
You get out of life what you put into it.

Tradesmen make well over 100k with a little hustle.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

TomatoTomahto wrote: Wed Jun 10, 2020 1:55 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:16 pmI'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you. That said, many of the trade internships are not as accessible to many as one would hope.

FWIW, I would consider $40k not a low income; I referred to it as “moderate.” Not long ago, median US income for individuals was less than $32k and household income was iirc just above $60k. I’m as guilty of projecting/generalizing my good fortune as anyone, but it’s important to remember what real life is like.
I was mainly referring to 40k as low income because OP had said both sons making 40k with a "history of low hourly wages". It seemed to indicate to me that OP made considerably more during working years, since they thought of 40k as low. That and a great net worth.
senex
Posts: 676
Joined: Wed Dec 13, 2017 4:38 pm

Re: Design of Testamentary Trust

Post by senex »

oldfort wrote: Wed Jun 10, 2020 11:24 am There may be tax reasons to avoid doing this, if the beneficiary doesn't save anything. When the beneficiary is in a low tax bracket, it's tax efficient for the trust to distribute all the trust income, above the first $2600 each year, to the beneficiary. Otherwise, the trust would have to pay taxes on the retained income at higher rates.
For sure. There are many question marks and suboptimalities. I only mention it as an interesting thought exercise that gives roughly the incentives some people would want for irresponsible inheritors: the better they manage their financial life, the more trust money they get.

It flies in the face of most prudent trust advice (allow trustee discretion & max flexibility). But if heirs are irresponsible, and one doesn't want to give all to charity, and one doesn't want to subsidize a life of dissipation, I think it's fun to think outside the box. Maybe one doesn't land outside the box; ruling from the grave is often a terrible idea, and maybe I shouldn't have even mentioned such a crazy scheme; but maybe ideas like that could inspire some creative solutions. Dicy topics.
oldfatguy
Posts: 775
Joined: Tue Feb 27, 2018 1:38 pm

Re: Design of Testamentary Trust

Post by oldfatguy »

$=WxTxI wrote: Wed Jun 10, 2020 1:59 pm

Tradesmen make well over 100k with a little hustle.
The data just doesn't support that ... the 90th percentile earning for plumbers, for example, is 97K and the median is 55K.
oldfort
Posts: 2541
Joined: Mon Mar 02, 2020 8:45 pm

Re: Design of Testamentary Trust

Post by oldfort »

TomatoTomahto wrote: Wed Jun 10, 2020 1:55 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:16 pmI'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you.
Unless the plumbers and electricians are self-employed and contracting directly with you, their employer, not them, gets to keep most of those extortionate amounts.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

oldfort wrote: Wed Jun 10, 2020 1:01 pm If you don’t like law or med school, then what are your ideas on what the OP’s kids should do?
I never said I didn't like law or med school. You indicated it would be challenging for them to do it at their age. Law and med are fine careers. They are also not the only way to skin a :moneybag cat. I was trying to give examples of ways to get their income up quickly.

:sharebeer
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

oldfatguy wrote: Wed Jun 10, 2020 2:13 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:59 pm

Tradesmen make well over 100k with a little hustle.
The data just doesn't support that ... the 90th percentile earning for plumbers, for example, is 97K and the median is 55K.
In my experience, the plumbers making a lot of money are really “small business owners.” I don’t know how they are classified (ie, as plumbers or SBO) in the stats.
I get the FI part but not the RE part of FIRE.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

oldfort wrote: Wed Jun 10, 2020 2:16 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:55 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:16 pmI'm unsure what they have as education. But if they have their 4 year already then there are more opportunities. They can do any of the above trades and continue to work on their degrees. Or move into management.
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you.
Unless the plumbers and electricians are self-employed and contracting directly with you, their employer, not them, gets to keep most of those extortionate amounts.
Do you believe the rates they charge are not appropriate?

If so, are you overpaid as well? :beer
rooms222
Posts: 572
Joined: Fri Feb 22, 2013 2:12 pm

Re: Design of Testamentary Trust

Post by rooms222 »

As a practical matter, and for a beneficial start to the marriage, I would consider paying off some of the daughter-in-laws student loan debt as the gift when married.
oldfatguy
Posts: 775
Joined: Tue Feb 27, 2018 1:38 pm

Re: Design of Testamentary Trust

Post by oldfatguy »

TomatoTomahto wrote: Wed Jun 10, 2020 2:19 pm
oldfatguy wrote: Wed Jun 10, 2020 2:13 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:59 pm

Tradesmen make well over 100k with a little hustle.
The data just doesn't support that ... the 90th percentile earning for plumbers, for example, is 97K and the median is 55K.
In my experience, the plumbers making a lot of money are really “small business owners.” I don’t know how they are classified (ie, as plumbers or SBO) in the stats.
In occupational data, they would be classified by the type of work they perform. A plumber who owns his own business, but goes out on jobs and performs the work of a plumber is classified as a plumber. Someone who owns a plumbing business, but employs other people to do all the plumbing work and never gets his hands dirty would likely be classified as some type of manager/executive.
oldfort
Posts: 2541
Joined: Mon Mar 02, 2020 8:45 pm

Re: Design of Testamentary Trust

Post by oldfort »

$=WxTxI wrote: Wed Jun 10, 2020 2:22 pm
oldfort wrote: Wed Jun 10, 2020 2:16 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:55 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you.
Unless the plumbers and electricians are self-employed and contracting directly with you, their employer, not them, gets to keep most of those extortionate amounts.
Do you believe the rates they charge are not appropriate?

If so, are you overpaid as well? :beer
My main point was if the electrician or plumber works for someone else, they might be getting 30% of whatever hourly rate their employer charges. So TomatoTomahto might pay $100/hour, but only $30/hour goes to the electrician or plumber.
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

$=WxTxI wrote: Wed Jun 10, 2020 2:22 pm
oldfort wrote: Wed Jun 10, 2020 2:16 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:55 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:33 pm
I’m pretty sure if it were as simple as mentioning it to his kids, OP would have done so. It seems to me that OP’s kids, for one reason or another, are earning at a moderate level and OP has not asked for counsel on that subject.
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you.
Unless the plumbers and electricians are self-employed and contracting directly with you, their employer, not them, gets to keep most of those extortionate amounts.
Do you believe the rates they charge are not appropriate?

If so, are you overpaid as well? :beer
I was mostly joking. They work hard for their money, and I don’t think their rates are inappropriate.

We live in a mostly stone house that had not been repointed in a while. It’s our first stone house. If you can get a mason’s estimate without having your breath taken away, you’re tougher than I am.

I haven’t worked in ages, but was overpaid back then and my wife is, by one reckoning, overpaid today. And that is why we can afford electricians, plumbers, and masons 😄
I get the FI part but not the RE part of FIRE.
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

FWIW, I should have said “exorbitant“ rather than “extortionate,” which does imply something undeserved about the rate. My bad.
I get the FI part but not the RE part of FIRE.
$=WxTxI
Posts: 50
Joined: Fri Apr 24, 2020 12:54 pm

Re: Design of Testamentary Trust

Post by $=WxTxI »

TomatoTomahto wrote: Wed Jun 10, 2020 2:30 pm
$=WxTxI wrote: Wed Jun 10, 2020 2:22 pm
oldfort wrote: Wed Jun 10, 2020 2:16 pm
TomatoTomahto wrote: Wed Jun 10, 2020 1:55 pm
$=WxTxI wrote: Wed Jun 10, 2020 1:40 pm
Lots of people as the posts above indicate are under the impression that you can only make good money as a Lawyer or Doctor.

I agree there may be underlying issues as to why the OPs adult children are earning a low income. I was just throwing these ideas out there incase OP had not considered these careers.
😁. Having recently paid extortionate amounts for plumbing, electrical, and especially masonry work, I agree with you.
Unless the plumbers and electricians are self-employed and contracting directly with you, their employer, not them, gets to keep most of those extortionate amounts.
Do you believe the rates they charge are not appropriate?

If so, are you overpaid as well? :beer
I was mostly joking. They work hard for their money, and I don’t think their rates are inappropriate.

We live in a mostly stone house that had not been repointed in a while. It’s our first stone house. If you can get a mason’s estimate without having your breath taken away, you’re tougher than I am.

I haven’t worked in ages, but was overpaid back then and my wife is, by one reckoning, overpaid today. And that is why we can afford electricians, plumbers, and masons 😄
:sharebeer

OP,
Sorry for derailing your thread. I took it off the rails and dragged a couple people with me.
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

Yes, OP, apologies. Now back to our regularly scheduled programming.
I get the FI part but not the RE part of FIRE.
User avatar
celia
Posts: 12122
Joined: Sun Mar 09, 2008 6:32 am
Location: SoCal

Re: Design of Testamentary Trust

Post by celia »

BillWalters wrote: Tue Jun 09, 2020 7:27 am The parents’ insistence on a prenup is controlling and inappropriate.
But it should also be a wake-up call for the son that he may be marrying an unknown amount of debt. Can't say he wasn't warned. At a minimum, son and fiancee should disclose their entire financial situation (assets and debts) and a current credit report to each other, if only to start discussing how they will pay for everything after they marry.

It's not romantic, but neither is having a debt collector hound you.

OP, Here's a positive going for you. I'll bet at least you or your spouse will live another 20 or 30 years. By then ex-DIL will be long gone and the grandkids would no longer be minors.
User avatar
LilyFleur
Posts: 1608
Joined: Fri Mar 02, 2018 10:36 pm

Re: Design of Testamentary Trust

Post by LilyFleur »

celia wrote: Wed Jun 10, 2020 3:08 pm
BillWalters wrote: Tue Jun 09, 2020 7:27 am The parents’ insistence on a prenup is controlling and inappropriate.
But it should also be a wake-up call for the son that he may be marrying an unknown amount of debt. Can't say he wasn't warned. At a minimum, son and fiancee should disclose their entire financial situation (assets and debts) and a current credit report to each other, if only to start discussing how they will pay for everything after they marry.

It's not romantic, but neither is having a debt collector hound you.

OP, Here's a positive going for you. I'll bet at least you or your spouse will live another 20 or 30 years. By then ex-DIL will be long gone and the grandkids would no longer be minors.
As usual, Celia, you provide a good perspective! :sharebeer
Of my four "children" in their 20s (two children + their SOs), all have no debt and three have started 401ks (and are still students--two in grad school and one in undergrad.) The undergrad has a plan for her employer to completely foot the bill for grad school as well. Who knows what the future will bring, but thankfully these kids are rather disciplined financially and take a practical approach. I have sacrificed to help my children through school, but that's what my parents did for me. My son told me once, "Mom, I will pay you back as soon as I can," and I told him, "You know how you can pay me back? Pay it forward, for your own children or if you do not have children, then to nieces or nephews or other children who need help on their education."
deserat
Posts: 59
Joined: Fri Dec 27, 2019 5:08 am

Re: Design of Testamentary Trust

Post by deserat »

"Age 29, unmarried, living with fiance (age 23), marriage tentative Aug, 2020, plans to have children, owns recently purchased home ($170k market value), $40k equity(his down payment) in home, parents hold $125k 30 yr mortgage, $50k savings, approx. $40k gross income (history of low hourly wages), access to 401k plan"

"She has apparently not disclosed her assets/liabilities although she claims $100k student debt that requires over $1000/m payments. Her income is also approx. $40k but she has not contributed to rent/utilities in the year prior to our son's home purchase or to mortgage/utilities/taxes in the year since the home purchase citing the student loan payment requirement. "

Something is not right above with those numbers to me. First, what type of degree did she get for $100K? Second, if she is earning $40k, they are both pulling in $80K together. That's better than most today. I'm guessing you gave him a good interest rate on a $125K loan (am lazy so haven't figured range of monthly payments). Is she contributing to her 401K? Also, I thought that student loan payments (I never had any due to having scholarships for all of my education) were based on one's income (one could of course always pay more on the principal), however, I don't think that $1000/mo would be *required* from her based on her stated salary.

I see it several ways - she wants to get the student loan monkey off her back ASAP, so that is a good characteristic. She is young and wants to have children early but wants to make sure she can stay home to raise them; that is commendable in one way and disconcerting in another. Is she willing to play 'defense' at home an minimize expenses while he play 'offense' in earnings? She refuses to sign a pre-nup; I can see both sides, however, her behavior is not leading you to believe she would be in it "for richer or poorer." Also, I think someone is counseling her with regard to what she should/shouldn't do. Your son is stuck in the middle. And the ever irrepressible biological imperative to procreate is probably quite strong in them at their ages.

Sticky wicket, indeed. Unfortunately, it can be difficult to control people from the grave. You've been given some great insight by people much more knowledgeable than I in trusts. I would echo ensuring your niece understands exactly what would be needed and is recompensed for her efforts. I would also be quietly and carefully counseling my son about possible future issues you may see based on her current behavior. Moreover, those traits may also be perpetuated in her children, your grandchildren. I would be doing my best to make sure I have access to and can be with those grandchildren so they can have more mentors and/or examples to choose from for decision-making and values. I know I have greatly valued my grandparents input in to my upbringing.

I wish you success in your endeavor and am interested in what you decide if you are willing to share again on this thread.
simas
Posts: 924
Joined: Wed Apr 04, 2007 5:50 pm

Re: Design of Testamentary Trust

Post by simas »

TomatoTomahto wrote: Tue Jun 09, 2020 4:12 pm
NotWhoYouThink wrote: Tue Jun 09, 2020 4:06 pm I would especially refuse to be the trustee of a trust for a family member whose parents were at all involved in his possible prenup negotiations.

Yes, the trust administration will be costly. But if you want a service you pay for it. I pay for a first class ticket, or I put up with flying coach, or I save money by staying home. I don't decide to pay nothing and expect first class service.
I think OP is worried that even paying “full freight,” the size of the trust will not get first class service. I have no experience either way.
I think the OP expectations are incorrect as well as there is plenty mental accounting/funny math going on here (annual fees are prorated into decades to scare yourself , etc).

- if OP wants to "stay home", and don't engage any professional help than yes there is almost certainly would be a personal/family conflict around the money. to what extent ? who knows, but it is the misalignment of interests is present from the start and by design . you want dirt cheap (10k a year on 5m estate), that is what you are buying along with potentially burning good will of BIL/niece, etc

- if OP wants to get first class service ('someone who is more involved in the sons lives ,etc'), deal with family office or higher touch (not 0.6% AUM) trustees. you pay for what you want to get. you also do not get what you did not pay for.

-if OP wants to fly 'basic economy' and get the lowest market going rates with Schwab and Vanguard (0.5-0.6% AUM), then they get basic economy type service and don't complain about 'attention of junior trust officer'.

Which one is it? the fantasy of I will pay nothing, others will take this one essentially for free and I would get everything plus some are highly unlikely..

Also , on mental accounting - the entire prorating fees over decade or decades (to scare yourself) is silly, compare equivalent things , percentages with percentages ( in terms of costs), dollars with dollars. if you comparing dollars, compare it over the same timeframes, not fantasies of 50 year costs compared to starting amount. if the 5M trust grows to 9M over those same 10 years while at the same time providing sons with support per trustee instructions, how scary is the 275k-300K number then?

I think OP should just decide what they want and willing to pay for ,and go for that.


in terms of personal experience , in in-laws are turning 80 this year and we were hoping for great family reunion cruise together. they have two girls, one of them is my wife of 20 years. earlier (10-15 years ago) they asked me to be a co-trustee of assets, life insurance proceeds, etc for things to be distributed to their children and charities they support (primarily universities they went to and some other religious organizations). my dw and myself were fortunate in our career that we are already financially independent by my dear SIL is not (different path, different issues, etc). I will respect and support any decision my in-laws would do, and execute it to the best of my/our ability. they are also helping SIL and her family directly now with money while they are alive which I think is awesome as it gives and opportunity to have meaningful impact today vs from the grave and gave her the chance to finish education into very marketable field, adopt a baby with her husband , and have stable live. I do not think in-laws need corporate trustee and family relationships are happy so there is no external party here.

OP, I would also strongly think of what you can do for children you love now. could the pattern of 'low hourly wages' by at all impacted? could you help them today in what may be a trivial amount to your estate but could be meaningful to their lives? my in-laws helped us with first house purchase (second mortgage then since we did not wanted a gift ) decades ago which allowed us to get settled.
bayview
Posts: 2321
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: Design of Testamentary Trust

Post by bayview »

Mackster wrote: Mon Jun 08, 2020 4:07 pm...
simas wrote: Fri Jun 12, 2020 7:53 am ...OP, I would also strongly think of what you can do for children you love now. could the pattern of 'low hourly wages' by at all impacted? could you help them today in what may be a trivial amount to your estate but could be meaningful to their lives? my in-laws helped us with first house purchase (second mortgage then since we did not wanted a gift ) decades ago which allowed us to get settled.
To add to the idea of what you could do now, perhaps “incentivize” (I hate that word, but it works) the growth of financial understanding and responsibility by making yearly gifts that are partially tied to some action on their parts. For instance, if they establish and fully fund (and maintain) various forms of savings, you will match; if they get training or education that allows them to increase income/ job prospects, you will refund the costs each semester; etc. In other words, act like you’re running a fund-raiser for public radio. :D You have the money to do this now. Have them get some skin in the game, rather than waiting on you and your DW to die. This might increase the chances that when they do inherit, they might “act like they have some sense,” as my mother-in-law used to say.

More seriously, if they have mental health issues that keep them from their potential, and they are willing to address them, you might offer to help with the costs of that (with accountability.) Sometimes people have to get out of their own ways before they can move forward.

Remember that you DON’T have to pay gift taxes on annual gifts over $15k ($30k when you and DW both give) under the current tax laws. You just have to keep paperwork for the IRS, which I understand is annoying, but hardly a game-ender.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
Topic Author
Mackster
Posts: 27
Joined: Sun Jun 07, 2020 7:13 pm

Re: Design of Testamentary Trust

Post by Mackster »

Discussion and opinions have been wide-ranging so I'll try to clarify a few things:

1. We have not made any decision on a trustee. I can see advangtages and disadvantages to both a corporate trustee and a family member trustee. The comments regarding potential family conflict reflect my own concerns in naming a niece. At this point we have no idea if the niece would even consent to doing the job. We have lots of reservations about whether it's even fair to ask her to take it on. Other than the warnings of my bank trust officer friend about using a corporate trustee I have no insight into the levels of service that may be provided or into whether higher fees actually correspond with better service. He's elected not to use a corporate trustee and will have a trusted RIA act as co-trustee along with his daughter and son-in-law. I distrust the notion that a corporate trustee charging 1.5% will deliver 3 times the service/expertise of one charging .50%. By the way, the alternative is not paying a family member $10,000/yr. (don't believe I ever indicated that's what we'd pay the niece). Vanguard, for example charges .25% for admin and .30% for advisory fees plus whatever professional fees are incurred. That's approx. $27,500 annually for what some have said is cheap, low-end, non-personalized service. I'm not sure what the price point is for higher-end, more personalized service. I suppose the only way I will know is to do considerable research into corporate trustee alternatives.
2. Whether $40,000 is low or moderate income is obviously relative. In my experience regular bi-weekly net of $1000(bolstered by heftier over-time weeks) leaves little room for anything after meeting mortgage, utility, car, insurance, and tax requirements. So when we think about what we want to do with our estate it seems reasonable to us to want it to generate some income assistance to help improve the standard of living.
3. Neither son completed college (1 semester for one and just shy of an associate degree for the other). We've urged them to reconsider and they know we will cover the costs. I very much like the idea of incentivizing education with some gifting while living, however. Thanks for the suggestion. We've also discussed with our attorney providing some amount of lump sum distribution from the trust upon the attainmnent of degrees and of having the educational costs covered as well. That said, we also understand that college degrees don't automatically translate into high paying jobs. I've hired any number of college graduates for positions paying $25k-$50k. But in general the data suggests that increased education correlates with increased income. I also see some merit in incentivizing financial discipline by rewarding savings/investment with lifetime gifting. Think this would be great for both of them. Thanks for that idea!
4. Regarding the pending marriage and the distrust of the fiance, we also think "the numbers don't add up". My understanding of student loan payment terms is that they are established with consideration of the borrower's net income. A $1000 monthly payment would be unreasonable for someone with a $2500 net monthly income. Even if that's the case we wonder where the other $1500/m goes since we know it has not been used towards rent, utilities, etc. Someone suggested that we pay down the student loan. Her father is a co-signer on the note but her family has not offered any assistance. Not sure why we should. Apparently student debt remains with the borrower and our son will not be liable for any payment upon marriage.

This is my first experience on the forum. I did not know what to expect but I'm very gratified by the number of individuals who have taken the time to comment, advise, scold, and relate personal anecdotes. I see a broad range of experience and expertise in many of the comments. It's given me much fuel for thought, helped direct my continued research, and provided lot's of questions that I'll need to pursue with the attorney. Thanks to all!
Kagord
Posts: 577
Joined: Fri Nov 23, 2018 1:28 pm

Re: Design of Testamentary Trust

Post by Kagord »

Speaking from experience, I've seen trusts with clear, yet complex, intent, not turn out very well and cause great strife.

Trying to control a trust after you're dead can get complex, not to mention a major hassle, for the beneficiaries. Sometimes people just need to own up and take responsibility for their own lives and financial habits. I would just distribute it, C'est la vie, IMHO, they are old enough.
delamer
Posts: 10886
Joined: Tue Feb 08, 2011 6:13 pm

Re: Design of Testamentary Trust

Post by delamer »

Your son won’t be legally obligated to pay his wife’s student loans, but his finances/lifestyle will certainly be impacted by them.

You haven’t mentioned what kind of relationship your sons currently have with their cousin (your niece), but if you make her a trustee then I would expect it to become contentious.

Also, I have a prejudice against any long-term plan that rests on the cooperation/availability of one individual. If your niece was unable or unwilling to act as trustee, then you have a problem.

Consider a corporate trustee for investment purposes and giving your sons control of the distributions to whatever extent you feel comfortable — which may only 3% per year and/or allowing major withdrawals for home purchasing or education or whatever.

Good luck.
Topic Author
Mackster
Posts: 27
Joined: Sun Jun 07, 2020 7:13 pm

Re: Design of Testamentary Trust

Post by Mackster »

Kagord wrote: Fri Jun 12, 2020 11:18 am Speaking from experience, I've seen trusts with clear, yet complex, intent, not turn out very well and cause great strife.

Trying to control a trust after you're dead can get complex, not to mention a major hassle, for the beneficiaries. Sometimes people just need to own up and take responsibility for their own lives and financial habits. I would just distribute it, C'est la vie, IMHO, they are old enough.
Well, that would be the easiest approach. However, to me it would be like leaving someone with a gambling addiction a truck load of cash. They have demonstrated that they do not handle money well. I'm trying to structure this so that the trust funds can provide a better standard of living for their lifetime while making sure that the whole estate isn't squandered in a couple of years. I think that's the best I can do. They can still squander the income they receive.
Topic Author
Mackster
Posts: 27
Joined: Sun Jun 07, 2020 7:13 pm

Re: Design of Testamentary Trust

Post by Mackster »

delamer wrote: Fri Jun 12, 2020 11:48 am Your son won’t be legally obligated to pay his wife’s student loans, but his finances/lifestyle will certainly be impacted by them.

You haven’t mentioned what kind of relationship your sons currently have with their cousin (your niece), but if you make her a trustee then I would expect it to become contentious.

Also, I have a prejudice against any long-term plan that rests on the cooperation/availability of one individual. If your niece was unable or unwilling to act as trustee, then you have a problem.

Consider a corporate trustee for investment purposes and giving your sons control of the distributions to whatever extent you feel comfortable — which may only 3% per year and/or allowing major withdrawals for home purchasing or education or whatever.

Good luck.
Agree. He's already been impacted by her refusal to contribute financially to the relationship.

The cousin relationship is fine but distant. They have no regular contact and might meet a couple times a year at a family gathering of some kind. I am concerned about the truste/bene relationship becoming problematic. That's the primary reason I'd consider the corporate trustee. We could name the corporate trustee as a successor I suppose.

Giving the sons control of distributions would defeat the purpose of having a trust to act as the voice of reason and discretion. Appreciate your input. We have a lot of decisions to make.
User avatar
FIREchief
Posts: 6272
Joined: Fri Aug 19, 2016 6:40 pm

Re: Design of Testamentary Trust

Post by FIREchief »

Mackster wrote: Fri Jun 12, 2020 2:47 pm
Kagord wrote: Fri Jun 12, 2020 11:18 am Sometimes people just need to own up and take responsibility for their own lives and financial habits. I would just distribute it, C'est la vie, IMHO, they are old enough.
I'm trying to structure this so that the trust funds can provide a better standard of living for their lifetime while making sure that the whole estate isn't squandered in a couple of years. I think that's the best I can do. They can still squander the income they receive.
Good for you! I've never embraced this "trying to rule from the grave is evil." You want what's best for your children whether you're here or not. All kids should be so fortunate. :sharebeer
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
afan
Posts: 5556
Joined: Sun Jul 25, 2010 4:01 pm

Re: Design of Testamentary Trust

Post by afan »

Mackster wrote: Fri Jun 12, 2020 2:53 pm

The cousin relationship is fine but distant. They have no regular contact and might meet a couple times a year at a family gathering of some kind. I am concerned about the truste/bene relationship becoming problematic. That's the primary reason I'd consider the corporate trustee. We could name the corporate trustee as a successor I suppose.

Giving the sons control of distributions would defeat the purpose of having a trust to act as the voice of reason and discretion. Appreciate your input. We have a lot of decisions to make.

Agree that this does not sound like a reasonable thing to ask of the cousin.
Agree that you need an independent trustee and preferably a completely objective professional.
It will be expensive, but in this case worth it.

Hoping Gill will chime in. He spend his career as a corporate trust officer at some of the biggest companies in the business. From what he has said in the past, he plans to have Vanguard act as his trustee. Indicates confidence in their performance.
From what he has said, the higher expense trustees bring the ability to handle complex situations that Vanguard will not touch- running a closely held business or varied real estate portfolio. Also dealing with multigenerational legacies and blended families.
For the OP's situation, it does not seem that any such expertise is required- so why pay for it?

According to Gill, the higher attention goes to the larger accounts and $5M is not a large account in the trust world. Many of the leading trust companies would not even accept an account that size. Northern Trust and Bessemer may be able to do things that Vanguard cannot, but they will charge far more and probably would not be interested in OP's trust at all.

OP should shop for trustees. Speak with your attorney. Investigate some of the companies that will do the administrative work for a flat fee and make independent arrangements for investment management. There are companies that will do investment management also for a small flat fee.

All around, not a great situation but a corporate trustee is the answer. It is always possible the beneficiary will become more responsible with age. If so, the parents can make other arrangements. If they were to need a solution right now, corporate is the way to go.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
Topic Author
Mackster
Posts: 27
Joined: Sun Jun 07, 2020 7:13 pm

Re: Design of Testamentary Trust

Post by Mackster »

FIREchief wrote: Fri Jun 12, 2020 3:05 pm
Mackster wrote: Fri Jun 12, 2020 2:47 pm
Kagord wrote: Fri Jun 12, 2020 11:18 am Sometimes people just need to own up and take responsibility for their own lives and financial habits. I would just distribute it, C'est la vie, IMHO, they are old enough.
I'm trying to structure this so that the trust funds can provide a better standard of living for their lifetime while making sure that the whole estate isn't squandered in a couple of years. I think that's the best I can do. They can still squander the income they receive.
Good for you! I've never embraced this "trying to rule from the grave is evil." You want what's best for your children whether you're here or not. All kids should be so fortunate. :sharebeer
I really don't want to 'rule from the grave'. And I realize that even trying to do so would be a futile effort. As bsteiner wisely pointed out, we can't predict the future so it's impossible to structure the trust to deal with every imaginable contingency. We can provide some broad parameters and sensible restraints and then whatever happens, happens. The consequences are pretty much limited to 1 generation anyway.
delamer
Posts: 10886
Joined: Tue Feb 08, 2011 6:13 pm

Re: Design of Testamentary Trust

Post by delamer »

Mackster wrote: Fri Jun 12, 2020 2:53 pm
delamer wrote: Fri Jun 12, 2020 11:48 am Your son won’t be legally obligated to pay his wife’s student loans, but his finances/lifestyle will certainly be impacted by them.

You haven’t mentioned what kind of relationship your sons currently have with their cousin (your niece), but if you make her a trustee then I would expect it to become contentious.

Also, I have a prejudice against any long-term plan that rests on the cooperation/availability of one individual. If your niece was unable or unwilling to act as trustee, then you have a problem.

Consider a corporate trustee for investment purposes and giving your sons control of the distributions to whatever extent you feel comfortable — which may only 3% per year and/or allowing major withdrawals for home purchasing or education or whatever.

Good luck.
Agree. He's already been impacted by her refusal to contribute financially to the relationship.

The cousin relationship is fine but distant. They have no regular contact and might meet a couple times a year at a family gathering of some kind. I am concerned about the truste/bene relationship becoming problematic. That's the primary reason I'd consider the corporate trustee. We could name the corporate trustee as a successor I suppose.

Giving the sons control of distributions would defeat the purpose of having a trust to act as the voice of reason and discretion. Appreciate your input. We have a lot of decisions to make.
My point regarding control by your sons was that there is a continuum. You could give them no discretion — they get 3% of assets each year, period. Or you could give them some discretion — they get the 3% plus they can withdraw for education, but only up to $25K/year and only if the educational institution is paid directly by the trust. Or only if they (or grandchildren) maintain a “C” average will the trust reimburse them.
Topic Author
Mackster
Posts: 27
Joined: Sun Jun 07, 2020 7:13 pm

Re: Design of Testamentary Trust

Post by Mackster »

afan wrote: Fri Jun 12, 2020 3:13 pm
Mackster wrote: Fri Jun 12, 2020 2:53 pm

The cousin relationship is fine but distant. They have no regular contact and might meet a couple times a year at a family gathering of some kind. I am concerned about the truste/bene relationship becoming problematic. That's the primary reason I'd consider the corporate trustee. We could name the corporate trustee as a successor I suppose.

Giving the sons control of distributions would defeat the purpose of having a trust to act as the voice of reason and discretion. Appreciate your input. We have a lot of decisions to make.

Agree that this does not sound like a reasonable thing to ask of the cousin.
Agree that you need an independent trustee and preferably a completely objective professional.
It will be expensive, but in this case worth it.

Hoping Gill will chime in. He spend his career as a corporate trust officer at some of the biggest companies in the business. From what he has said in the past, he plans to have Vanguard act as his trustee. Indicates confidence in their performance.
From what he has said, the higher expense trustees bring the ability to handle complex situations that Vanguard will not touch- running a closely held business or varied real estate portfolio. Also dealing with multigenerational legacies and blended families.
For the OP's situation, it does not seem that any such expertise is required- so why pay for it?

According to Gill, the higher attention goes to the larger accounts and $5M is not a large account in the trust world. Many of the leading trust companies would not even accept an account that size. Northern Trust and Bessemer may be able to do things that Vanguard cannot, but they will charge far more and probably would not be interested in OP's trust at all.

OP should shop for trustees. Speak with your attorney. Investigate some of the companies that will do the administrative work for a flat fee and make independent arrangements for investment management. There are companies that will do investment management also for a small flat fee.

All around, not a great situation but a corporate trustee is the answer. It is always possible the beneficiary will become more responsible with age. If so, the parents can make other arrangements. If they were to need a solution right now, corporate is the way to go.
I agree that my small estate does not have any complexity associated with it...sell a few things, liquidate some investment accounts and throw everything into a diversified basket of index funds to generate some income and distribute it with occasional distributions for stuff like education, health issues, etc. I'd be interested in Gill's perspective. You are right about needing to investigate what's available. And I share your reservations about whether the niece is appropriate as my trustee. Thanks.
User avatar
TomatoTomahto
Posts: 11877
Joined: Mon Apr 11, 2011 1:48 pm

Re: Design of Testamentary Trust

Post by TomatoTomahto »

delamer wrote: Fri Jun 12, 2020 3:18 pm Or you could give them some discretion — they get the 3% plus they can withdraw for education, but only up to $25K/year and only if the educational institution is paid directly by the trust. Or only if they (or grandchildren) maintain a “C” average will the trust reimburse them.
And then you’re on the slippery slope of unintended consequences. Why incentivize attending an easy school? Why incentivize attending a for-profit college, which are known for being easy graders?

I thought about a sliding scale where the distributions are based on earned income, but that incentivizes deception and guile. His employer is his friend. Do I want to turn them into co-conspirators? Do I want to turn the trustee into a forensic accountant?
I get the FI part but not the RE part of FIRE.
User avatar
LilyFleur
Posts: 1608
Joined: Fri Mar 02, 2018 10:36 pm

Re: Design of Testamentary Trust

Post by LilyFleur »

FIREchief wrote: Fri Jun 12, 2020 3:05 pm
Mackster wrote: Fri Jun 12, 2020 2:47 pm
Kagord wrote: Fri Jun 12, 2020 11:18 am Sometimes people just need to own up and take responsibility for their own lives and financial habits. I would just distribute it, C'est la vie, IMHO, they are old enough.
I'm trying to structure this so that the trust funds can provide a better standard of living for their lifetime while making sure that the whole estate isn't squandered in a couple of years. I think that's the best I can do. They can still squander the income they receive.
Good for you! I've never embraced this "trying to rule from the grave is evil." You want what's best for your children whether you're here or not. All kids should be so fortunate. :sharebeer
Do you like your son's fiance? It feels a bit adversarial, to be quite honest. Have you spent much time with them as a couple, getting to know her? I would posit that her student loans are a drop in the bucket of your wealth. If you liked her and saw the happiness she could bring your son and to you as well, by proxy, would you be willing to help with her loans? If you liked her, would you consider her your daughter? Does she have any redeeming qualities? It seems she did finish college, and your son did not. Perhaps she might be a positive influence on him choosing to finish his education; it would be wonderful to have the kind of relationship with her where you could discuss those kinds of things. I have seen marriages where one set of parents was not supportive from the start, and those marriages did end in divorce. I am realizing, the more time I spend with my children and their significant others, that I can either be accepting and encouraging and be someone they want to spend time with (and, ultimately, spend plenty of time with their children/my grandchildren), or I can focus on the negatives. The divorce rate is quite high. That doesn't give our children great chances. Would I want my son to have to pay his legal alimony and child support? Yes. I would want that security for my grandchildren.
Kagord
Posts: 577
Joined: Fri Nov 23, 2018 1:28 pm

Re: Design of Testamentary Trust

Post by Kagord »

Mackster wrote: Fri Jun 12, 2020 3:15 pm
FIREchief wrote: Fri Jun 12, 2020 3:05 pm
Mackster wrote: Fri Jun 12, 2020 2:47 pm
Kagord wrote: Fri Jun 12, 2020 11:18 am Sometimes people just need to own up and take responsibility for their own lives and financial habits. I would just distribute it, C'est la vie, IMHO, they are old enough.
I'm trying to structure this so that the trust funds can provide a better standard of living for their lifetime while making sure that the whole estate isn't squandered in a couple of years. I think that's the best I can do. They can still squander the income they receive.
Good for you! I've never embraced this "trying to rule from the grave is evil." You want what's best for your children whether you're here or not. All kids should be so fortunate. :sharebeer
I really don't want to 'rule from the grave'. And I realize that even trying to do so would be a futile effort. As bsteiner wisely pointed out, we can't predict the future so it's impossible to structure the trust to deal with every imaginable contingency. We can provide some broad parameters and sensible restraints and then whatever happens, happens. The consequences are pretty much limited to 1 generation anyway.
OK, to each their own, the only recommendation I have is to let a "larger" bank be the trustee and financial advisor, at least a large bank will be cognizant of what trustee fiduciary duty is and the legal consequences of not abiding by that. It's not a big trust in the realm of spendthrifts, but $5M is the lower bound where large banks might want to bother with this, going from memory here. You may want to add some language to investment focus (I.E. preserve/build principal or generate income, conservative/risk level guidance). The trust income above the K-1 distributions may not be tax efficient and might pay estate/trust tax rates (high 30%), and there's costs of tax preparation for both the trusts, and children, like potential foreign tax things wrapped up in large ETFs that are always fun with K-1s.
oldfort
Posts: 2541
Joined: Mon Mar 02, 2020 8:45 pm

Re: Design of Testamentary Trust

Post by oldfort »

delamer wrote: Fri Jun 12, 2020 3:18 pm
Mackster wrote: Fri Jun 12, 2020 2:53 pm
delamer wrote: Fri Jun 12, 2020 11:48 am Your son won’t be legally obligated to pay his wife’s student loans, but his finances/lifestyle will certainly be impacted by them.

You haven’t mentioned what kind of relationship your sons currently have with their cousin (your niece), but if you make her a trustee then I would expect it to become contentious.

Also, I have a prejudice against any long-term plan that rests on the cooperation/availability of one individual. If your niece was unable or unwilling to act as trustee, then you have a problem.

Consider a corporate trustee for investment purposes and giving your sons control of the distributions to whatever extent you feel comfortable — which may only 3% per year and/or allowing major withdrawals for home purchasing or education or whatever.

Good luck.
Agree. He's already been impacted by her refusal to contribute financially to the relationship.

The cousin relationship is fine but distant. They have no regular contact and might meet a couple times a year at a family gathering of some kind. I am concerned about the truste/bene relationship becoming problematic. That's the primary reason I'd consider the corporate trustee. We could name the corporate trustee as a successor I suppose.

Giving the sons control of distributions would defeat the purpose of having a trust to act as the voice of reason and discretion. Appreciate your input. We have a lot of decisions to make.
My point regarding control by your sons was that there is a continuum. You could give them no discretion — they get 3% of assets each year, period. Or you could give them some discretion — they get the 3% plus they can withdraw for education, but only up to $25K/year and only if the educational institution is paid directly by the trust. Or only if they (or grandchildren) maintain a “C” average will the trust reimburse them.
Mandating a fixed percentage of the trust be distributed each year could lead to tax inefficiency. When the beneficiary is in a low tax bracket, it’s tax efficient for the trust to distribute almost all the income to the beneficiary every year. This is less of a concern when interest rates are at historic lows. In the 80s, interest rates on treasuries went above 15% and could rise to similar levels in the future.
Post Reply