Tell me about establishing trusts for our minor children

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Tell me about establishing trusts for our minor children

Post by texasdiver » Tue Oct 30, 2018 11:58 am

My wife and I have an appointment to update our will since we recently relocated to a new state. As part of that process I want to figure out the most logical and prudent way to set up a trust for our assets should we both die.

We have 3 unmarried daughters ages 12, 15, and 20.

The total value of our estate should we die today would be in the $3.5 million range of which is very roughly divided as follows: $1.2 million in retirement acounts, $0.3 million in home equity, $2 million in life insurance on both of us.

My wife's single brother will act as primary trustee and also our children's guardian should they still be minors. He lives in Chile but is a high-level investment banker with a large European bank and manages billions of dollars of investments throughout Latin America. Although he is extremely astute financially, I don't want to burden him with decision-making regarding investments, but we do want to rely on him to be the decision-maker regarding disbursements because he is frugal and we trust his judgement.

I would like to set it up so that our estate is broken up into 3 separate trusts (or a single trust that is partitioned into 3 separate accounts), one for each daughter that they will inherit free and clear at age 30. I would like the funds to be maintained in a simple and appropriate index fund portfolio. I would like my brother-in-law to manage spending until each child reaches age 30 (cars, houses, college education, etc).

We don't have any desire to maintain or establish some sort of multi-generational trust that runs in perpituity. We just want to make sure that our daughters don't come into to much money too early in life and have to at least make a start at independent productive lives before inheriting our assets free and clear.

We are contemplating using Vanguard Trust Services and having Vanguard act as financial advisor and Co-Trustee along with my brother-in-law. I understand that this isn't necessarily the cheapest option but seems reasonable. Vanguard's fees for a trust under $5 million in size are 0.25% for trust administration and 0.3% for financial advisor which seems reasonable. I have not shopped around but I am comfortable with Vanguard as a company. So questions...

1. Co-Trustee? It seems to me that having Vanguard (or another firm) act as co-trustee makes the most sense, mainly because my brother-in-law lives and works overseas. He is Chilean and lives in Santiago but is frequently traveling on business to other Latin American capitals and to Europe so is frequently on the road but rarely in the US. I want him to be the decision-maker that our daughters have to go to if they need $$ for a car or college tuition or monthly allowance or whatever. But I don't want him to have to deal with US financial paperwork, taxes, etc. long distance. So my idea is to set things up where he is the decision-maker but can just pass those decisions on to the co-trustee via phone or email to deal with the details. If he was a US banker with an office in a US city I would likely feel differently. Any comments on this, especially when the primary trustee is not a US citizen and doesn't reside in the US?

2. Successor Trustee? We have no one else in the immediate family who is capable of taking on the trustee role should by brother-in-law no longer be able. So we think we would just want Vanguard to take over as sole trustee should my brother-in-law be unable or unwilling. This make sense?

3. Three trusts vs one. As our daughters are separated by 8 years and will be aging out at different dates and will possibly have very different needs for money when they are young (college education vs starting a business vs marriage and buying a house etc.) we think it makes sense to separate the funds into 3 separate pools of money. So that the spending on one child doesn't affect the inheritance of the others. Are there legal or practical reasons for how to do this? Or reasons not to?

4. Age that the trust expires. We picked age 30 because it will require that the girls actually get thorugh college and get a solid start on adult life before taking control of their money. I'd welcome any advice here regarding this age or if others make more sense. Philosophically I don't want to be too controlling from the grave. Who knows what the future holds. But I don't want them to come into such a large sum of money before they are ready and before they have started productive adult lives. What does everyone else do here?

5. I assume that we do not actually have to take any steps to make this happen now such as contacting Vanguard and opening an account. All we need to do is leave specific instructions in our will that this is what we want done. Is this correct? Or do we need to actually establish trust documents and such now for a trust that we may never use?

6. Any additional issues to consider?

We are going to be meeting with a highly recommended estate attorney to make all of this happen. I just want to have as many ducks in a row as possible and understand what exactly we want to do before that meeting happens. Our current will simply calls for a trust to be established for our 3 children and makes my brother-in-law and my father co-trustees but does not have much other detail. It was written over 10 years ago when they were much younger.

Carson
Posts: 564
Joined: Fri May 09, 2014 3:26 pm

Re: Tell me about establishing trusts for our minor children

Post by Carson » Tue Oct 30, 2018 12:51 pm

texasdiver wrote:
Tue Oct 30, 2018 11:58 am

3. Three trusts vs one. <snip> Or reasons not to?
You have a lot in your post, but just wanted to chime in on this. We wanted to split our estate equally to our two minor kids, however the lawyer brought up a great point that we hadn't considered - what if one child suffers someway where they objectively need more resources/care - how would that be handled in case the trusts were split?

The language we decided on was for the trustee to disburse money for their respective needs until they were a certain adult-ish age. At that point, the remaining $ would be split into 2 'pots' and the trustee could disburse to each child at their discretion until they reached a final adult age and got what was remaining and the trust was dissolved.

Also be prepared for the lawyer to ask you more permutations about you/your wife/your kids dying (It's horrible to think about I know) and where the $ go in those situations.
30-something personal finance enthusiast, just get getting started on this whole portfolio thing.

delamer
Posts: 6286
Joined: Tue Feb 08, 2011 6:13 pm

Re: Tell me about establishing trusts for our minor children

Post by delamer » Tue Oct 30, 2018 1:14 pm

To state the obvious, your estate attorney will have recommendations on how to handle the out-of-country trustee issues. If Vanguard is going to manage the investments, a successor trustee wouldn’t need to be investment-savvy — just practically minded.

You didn’t mention who would be the younger girls’ guardian if they are minors when die, but that person will need to have a cordial relationship with the trustee. And you need to provide for the guardian to be reimbursed for expenses related to taking in your child(ren).

Our kids’ inheritance will be disbursed over the years until they have full access at age 40. I am not sure I am comfortable with that anymore — I think a permanent trust with the kid as trustee might be better.

warner25
Posts: 316
Joined: Wed Oct 29, 2014 4:38 pm

Re: Tell me about establishing trusts for our minor children

Post by warner25 » Tue Oct 30, 2018 1:34 pm

Coincidentally, I sat down with an attorney yesterday to grapple with these same matters, and we seem to have similar philosophies, so I'll share what I did.
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
Three trusts vs one.
I chose one. We also have multiple kids, each a couple years apart. The main problem with three separate trusts, according to the attorney, is the overhead cost; fees and accounting would be 3x more. I think it would be silly for none of the kids to get control of any money until the youngest reaches a certain age, but it doesn't have to work that way. The trustee has the discretion to disburse any kid's portion, according to the situation and their judgment, at any time.
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
Age that the trust expires.
I also chose 30, but, again, the intent is for the trustee to exercise judgment prior to that. For example, my wife and I got married young and we're confident that we could have handled lots of money in our early 20s. We also understand that we're outliers (this is Bogleheads, after all). We agreed that we wouldn't want our kids to miss out on being stay-at-home parents, if that's what they want, due to a lack of money. So the trustee could disperse a portion at age 25, or whatever, if the 25 year-old were married, having kids, making sensible decisions, etc. Continuing to involve a trustee and pay the overhead costs of a trust indefinitely doesn't make sense to me.

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Tue Oct 30, 2018 1:43 pm

Carson wrote:
Tue Oct 30, 2018 12:51 pm
texasdiver wrote:
Tue Oct 30, 2018 11:58 am

3. Three trusts vs one. <snip> Or reasons not to?
You have a lot in your post, but just wanted to chime in on this. We wanted to split our estate equally to our two minor kids, however the lawyer brought up a great point that we hadn't considered - what if one child suffers someway where they objectively need more resources/care - how would that be handled in case the trusts were split?

The language we decided on was for the trustee to disburse money for their respective needs until they were a certain adult-ish age. At that point, the remaining $ would be split into 2 'pots' and the trustee could disburse to each child at their discretion until they reached a final adult age and got what was remaining and the trust was dissolved.

Also be prepared for the lawyer to ask you more permutations about you/your wife/your kids dying (It's horrible to think about I know) and where the $ go in those situations.
My thinking is that there should be sufficient resources in each trust to address any likely scenario where one child requires more care. I deliberately want to avoid the scenario where one child vacuums up all the resources of the other due to some sort of long-term institutional care scenario. I have a work acquaintance for whom that happened. Parents died early and essentially left one child with the responsibility of providing lifetime care to their Down's syndrome sibling who had a host of other medical issues as well. In my way of thinking, you can't prevent them from making the choice to take on such a burden. But at least you can make sure it is their choice to make and not one that you have already made for them.

I haven't dove deep into this issue at all. But, for example, if one child child needs long term institutional care of some sort and medicare or medicaid or other government assistance programs apply some sort of means test to see if the child qualifies. Then will a single large trust of which the child is one of 3 beneficiaries be treated differently then three separate trusts with different beneficiaries? Could we wind up unnecessarily depleting all 3 children's inheritances when we could have protected the money by keeping separate trusts? I don't know the answer but it is a question that has occurred to me. I know this issue frequently comes up when elderly parents require long-term care.

One also never knows what the future holds. I would hate, for example, to see the bulk of trust resources depleted on behalf of Child A who has some sort of extraordinary long term care need and then five years later Child B is married and has a child with some other extraordinary medical or long term care need. Or winds up with a disabled husband who needs long term care. Or whatever. The prudent thing in my mind is to make sure that they are all independently cared for if we aren't around to do it ourselves.
Last edited by texasdiver on Tue Oct 30, 2018 2:10 pm, edited 4 times in total.

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Tue Oct 30, 2018 1:53 pm

warner25 wrote:
Tue Oct 30, 2018 1:34 pm
Coincidentally, I sat down with an attorney yesterday to grapple with these same matters, and we seem to have similar philosophies, so I'll share what I did.
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
Three trusts vs one.
I chose one. We also have multiple kids, each a couple years apart. The main problem with three separate trusts, according to the attorney, is the overhead cost; fees and accounting would be 3x more. I think it would be silly for none of the kids to get control of any money until the youngest reaches a certain age, but it doesn't have to work that way. The trustee has the discretion to disburse any kid's portion, according to the situation and their judgment, at any time.
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
Age that the trust expires.
I also chose 30, but, again, the intent is for the trustee to exercise judgment prior to that. For example, my wife and I got married young and we're confident that we could have handled lots of money in our early 20s. We also understand that we're outliers (this is Bogleheads, after all). We agreed that we wouldn't want our kids to miss out on being stay-at-home parents, if that's what they want, due to a lack of money. So the trustee could disperse a portion at age 25, or whatever, if the 25 year-old were married, having kids, making sensible decisions, etc. Continuing to involve a trustee and pay the overhead costs of a trust indefinitely doesn't make sense to me.
This might be the case for some administrators, but looking that the information from Vanguard's Trust Services it appears that their only fees are their 0.25% Trust Administration fee and their 0.3% financial management fee. So three trusts should cost the same as one provided that you have sufficient funds to establish three separate trusts. According to the web site the minimum size trust is $500,000. They specifically state that there are no additional or hidden fees.

bsteiner
Posts: 3546
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Tell me about establishing trusts for our minor children

Post by bsteiner » Tue Oct 30, 2018 9:17 pm

texasdiver wrote:
Tue Oct 30, 2018 11:58 am
...
My wife's single brother will act as primary trustee and also our children's guardian should they still be minors. He lives in Chile but is a high-level investment banker with a large European bank and manages billions of dollars of investments throughout Latin America. ...
If he's not a U.S. citizen, you'll probably need two U.S. trustees to avoid having the trusts be treated as foreign trusts. Your lawyer should be familiar with the requirements for avoiding foreign trust status. Since your children are U.S. persons, you want their trusts to be treated as domestic rather than foreign.
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
...
We have 3 unmarried daughters ages 12, 15, and 20.
...
I would like to set it up so that our estate is broken up into 3 separate trusts (or a single trust that is partitioned into 3 separate accounts), one for each daughter that they will inherit free and clear at age 30. ...
Most people provide separate trusts for each child from the inception, so that they can be invested differently, and so distributions can be made non pro rata. However, especially with a modest estate and a large age difference, some people create a single trust that divides into separate trusts at some point, generally when the last one reaches a specified age. That lets the youngest one's education be paid out of the pot if you die at a point when you paid for the oldest one's education but not the youngest one's education.

We wouldn't mandate that the trusts end at a specified age. Instead, we would give each child control over her trust at that point. A child might get divorced, outlive her spouse and remarry, have a creditor problem, go into a nursing home and want Medicaid, or do well and have a taxable estate. Washington State, where you are, has a state estate tax with high rates and a low exempt amount, so if your children stay there, even if their estates aren't large enough to pay Federal estate tax, they could easily be large enough to pay state estate tax.

HEDGEFUNDIE
Posts: 1001
Joined: Sun Oct 22, 2017 2:06 pm

Re: Tell me about establishing trusts for our minor children

Post by HEDGEFUNDIE » Tue Oct 30, 2018 10:30 pm

texasdiver wrote:
Tue Oct 30, 2018 1:43 pm
Carson wrote:
Tue Oct 30, 2018 12:51 pm
texasdiver wrote:
Tue Oct 30, 2018 11:58 am

3. Three trusts vs one. <snip> Or reasons not to?
You have a lot in your post, but just wanted to chime in on this. We wanted to split our estate equally to our two minor kids, however the lawyer brought up a great point that we hadn't considered - what if one child suffers someway where they objectively need more resources/care - how would that be handled in case the trusts were split?

The language we decided on was for the trustee to disburse money for their respective needs until they were a certain adult-ish age. At that point, the remaining $ would be split into 2 'pots' and the trustee could disburse to each child at their discretion until they reached a final adult age and got what was remaining and the trust was dissolved.

Also be prepared for the lawyer to ask you more permutations about you/your wife/your kids dying (It's horrible to think about I know) and where the $ go in those situations.
My thinking is that there should be sufficient resources in each trust to address any likely scenario where one child requires more care. I deliberately want to avoid the scenario where one child vacuums up all the resources of the other due to some sort of long-term institutional care scenario. I have a work acquaintance for whom that happened. Parents died early and essentially left one child with the responsibility of providing lifetime care to their Down's syndrome sibling who had a host of other medical issues as well. In my way of thinking, you can't prevent them from making the choice to take on such a burden. But at least you can make sure it is their choice to make and not one that you have already made for them.

I haven't dove deep into this issue at all. But, for example, if one child child needs long term institutional care of some sort and medicare or medicaid or other government assistance programs apply some sort of means test to see if the child qualifies. Then will a single large trust of which the child is one of 3 beneficiaries be treated differently then three separate trusts with different beneficiaries? Could we wind up unnecessarily depleting all 3 children's inheritances when we could have protected the money by keeping separate trusts? I don't know the answer but it is a question that has occurred to me. I know this issue frequently comes up when elderly parents require long-term care.

One also never knows what the future holds. I would hate, for example, to see the bulk of trust resources depleted on behalf of Child A who has some sort of extraordinary long term care need and then five years later Child B is married and has a child with some other extraordinary medical or long term care need. Or winds up with a disabled husband who needs long term care. Or whatever. The prudent thing in my mind is to make sure that they are all independently cared for if we aren't around to do it ourselves.
If your three children were all still minors and one required expensive long term care, would you deny that child the necessary resources so that the other two would still get their “fair share”?

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Tue Oct 30, 2018 11:11 pm

HEDGEFUNDIE wrote:
Tue Oct 30, 2018 10:30 pm
texasdiver wrote:
Tue Oct 30, 2018 1:43 pm
Carson wrote:
Tue Oct 30, 2018 12:51 pm
texasdiver wrote:
Tue Oct 30, 2018 11:58 am

3. Three trusts vs one. <snip> Or reasons not to?
You have a lot in your post, but just wanted to chime in on this. We wanted to split our estate equally to our two minor kids, however the lawyer brought up a great point that we hadn't considered - what if one child suffers someway where they objectively need more resources/care - how would that be handled in case the trusts were split?

The language we decided on was for the trustee to disburse money for their respective needs until they were a certain adult-ish age. At that point, the remaining $ would be split into 2 'pots' and the trustee could disburse to each child at their discretion until they reached a final adult age and got what was remaining and the trust was dissolved.

Also be prepared for the lawyer to ask you more permutations about you/your wife/your kids dying (It's horrible to think about I know) and where the $ go in those situations.
My thinking is that there should be sufficient resources in each trust to address any likely scenario where one child requires more care. I deliberately want to avoid the scenario where one child vacuums up all the resources of the other due to some sort of long-term institutional care scenario. I have a work acquaintance for whom that happened. Parents died early and essentially left one child with the responsibility of providing lifetime care to their Down's syndrome sibling who had a host of other medical issues as well. In my way of thinking, you can't prevent them from making the choice to take on such a burden. But at least you can make sure it is their choice to make and not one that you have already made for them.

I haven't dove deep into this issue at all. But, for example, if one child child needs long term institutional care of some sort and medicare or medicaid or other government assistance programs apply some sort of means test to see if the child qualifies. Then will a single large trust of which the child is one of 3 beneficiaries be treated differently then three separate trusts with different beneficiaries? Could we wind up unnecessarily depleting all 3 children's inheritances when we could have protected the money by keeping separate trusts? I don't know the answer but it is a question that has occurred to me. I know this issue frequently comes up when elderly parents require long-term care.

One also never knows what the future holds. I would hate, for example, to see the bulk of trust resources depleted on behalf of Child A who has some sort of extraordinary long term care need and then five years later Child B is married and has a child with some other extraordinary medical or long term care need. Or winds up with a disabled husband who needs long term care. Or whatever. The prudent thing in my mind is to make sure that they are all independently cared for if we aren't around to do it ourselves.
If your three children were all still minors and one required expensive long term care, would you deny that child the necessary resources so that the other two would still get their “fair share”?
Maybe so. It's not about "fair share". It's about making sure that all 3 children are taken care of for as long as necessary and certainly well into adulthood if we aren't there to do it ourselves. I would not want to see all the resources drained for one child early on and then several years later have a second child encounter equally compelling needs and find that all the family resources were long ago drained. As we won't be around to step in and help at that point.

In any event, with our current assets and life insurance we are talking about individual trusts in the over $1 million range. So they aren't likely to get depleted under most scenarios. But this is entirely new ground for me. I'm basically asking for the pros and cons of both approaches.

letsgobobby
Posts: 11652
Joined: Fri Sep 18, 2009 1:10 am

Re: Tell me about establishing trusts for our minor children

Post by letsgobobby » Wed Oct 31, 2018 1:02 am

The state estate tax in your state of residence is just over $2 million. If you follow your plan, each of your daughters will inherit an amount equal to more than half her estate tax exemption at age 30. With their own life insurance policies and assets, they are likely to be over the exemption amount. Practically speaking this means your inheritance to them wil be taxed even if you manage to escape said tax by virtue of being married.

Protection from creditors and estate taxes is one of the major reasons our trusts don’t arbitrarily end at age 30. They are otherwise very flexible and the trustees can even wthdraw all the assets if they see fit. I’d encourage you to consider extending the trusts longer, and it has nothing to do with control from the grave.

FBN2014
Posts: 465
Joined: Sat Mar 08, 2014 3:07 pm

Re: Tell me about establishing trusts for our minor children

Post by FBN2014 » Wed Oct 31, 2018 8:09 am

I concur with posters who recommend assets remaining in trust for asset protection features in case of a daughter's divorce, judgements as a result of an auto accident, etc. Daughters can become trustee of their own trust at a specified age but still have asset protection.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Wed Oct 31, 2018 10:33 am

letsgobobby wrote:
Wed Oct 31, 2018 1:02 am
The state estate tax in your state of residence is just over $2 million. If you follow your plan, each of your daughters will inherit an amount equal to more than half her estate tax exemption at age 30. With their own life insurance policies and assets, they are likely to be over the exemption amount. Practically speaking this means your inheritance to them wil be taxed even if you manage to escape said tax by virtue of being married.

Protection from creditors and estate taxes is one of the major reasons our trusts don’t arbitrarily end at age 30. They are otherwise very flexible and the trustees can even wthdraw all the assets if they see fit. I’d encourage you to consider extending the trusts longer, and it has nothing to do with control from the grave.
That makes a lot of sense. Thanks. I'm just trying to arm myself with as much information and ideas as possible before meeting with an estate attorney so we can get down to business and not have me pay her for the education in the basics.

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: Tell me about establishing trusts for our minor children

Post by megabad » Wed Oct 31, 2018 3:33 pm

texasdiver wrote:
Tue Oct 30, 2018 11:58 am
We are contemplating using Vanguard Trust Services and having Vanguard act as financial advisor and Co-Trustee along with my brother-in-law. I understand that this isn't necessarily the cheapest option but seems reasonable. Vanguard's fees for a trust under $5 million in size are 0.25% for trust administration and 0.3% for financial advisor which seems reasonable.
I would recommend that you consult with Vanguard on your specific situation. I believe the fees you quote would apply to trusts that are 1.4 million and above. Vanguard's fees could be as high as 1% of assets depending on trust size if smaller. This excludes fund expenses, legal, and accounting costs.

I would start out by saying that it is my opinion that you are a poor candidate for a trust, but you should visit a lawyer experienced with such and discuss with him/her to determine yourself (as you intend). I feel this way for the following reasons:

Your are a two parent household.
You have mostly retirement assets.
Retirement accounts would traditionally not be placed in trust (though you could name a trust distribution beneficiary).
Life insurance must be controlled by guardian prior to age 18 in most states anyway.
You have a complicated guardianship situation (children could be living in foreign country and BIL will need to self perform all local tax functions or find a very very knowledgeable accountant).
In your case, it appears that probate avoidance is not a significant factor.


1. Co-Trustee? It seems to me that having Vanguard (or another firm) act as co-trustee makes the most sense, mainly because my brother-in-law lives and works overseas. He is Chilean and lives in Santiago but is frequently traveling on business to other Latin American capitals and to Europe so is frequently on the road but rarely in the US. I want him to be the decision-maker that our daughters have to go to if they need $$ for a car or college tuition or monthly allowance or whatever. But I don't want him to have to deal with US financial paperwork, taxes, etc. long distance. So my idea is to set things up where he is the decision-maker but can just pass those decisions on to the co-trustee via phone or email to deal with the details. If he was a US banker with an office in a US city I would likely feel differently. Any comments on this, especially when the primary trustee is not a US citizen and doesn't reside in the US?

2. Successor Trustee? We have no one else in the immediate family who is capable of taking on the trustee role should by brother-in-law no longer be able. So we think we would just want Vanguard to take over as sole trustee should my brother-in-law be unable or unwilling. This make sense?
In your case, I would name eldest daughter, but this is obviously a personal decision. Remember, a successor trustee may not be needed until many years from now.

3. Three trusts vs one. As our daughters are separated by 8 years and will be aging out at different dates and will possibly have very different needs for money when they are young (college education vs starting a business vs marriage and buying a house etc.) we think it makes sense to separate the funds into 3 separate pools of money. So that the spending on one child doesn't affect the inheritance of the others. Are there legal or practical reasons for how to do this? Or reasons not to?
If you decide to go the trust route for the reasons you stated, I would likely have three trusts. You may pay more by doing so (as indicated by other posters).

4. Age that the trust expires. We picked age 30 because it will require that the girls actually get thorugh college and get a solid start on adult life before taking control of their money. I'd welcome any advice here regarding this age or if others make more sense. Philosophically I don't want to be too controlling from the grave. Who knows what the future holds. But I don't want them to come into such a large sum of money before they are ready and before they have started productive adult lives. What does everyone else do here?
This is very personal and I suspect you would balk at my opinion. I am a proponent of raising children well, educating them, indicating my wishes (not forcing my wishes) in the will, and letting them have control at 18. This is not a popular viewpoint and all children are different.

5. I assume that we do not actually have to take any steps to make this happen now such as contacting Vanguard and opening an account. All we need to do is leave specific instructions in our will that this is what we want done. Is this correct? Or do we need to actually establish trust documents and such now for a trust that we may never use?
You need to speak to your lawyer here. In my experience, in the case of testamentary trust, the executor would deliver trust creation document and will to Vanguard upon death of decedent. In such case, the trust creation document and will were drawn up many years prior by decedent. The VG account, however, needed to be created post death.

6. Any additional issues to consider?

We are going to be meeting with a highly recommended estate attorney to make all of this happen. I just want to have as many ducks in a row as possible and understand what exactly we want to do before that meeting happens. Our current will simply calls for a trust to be established for our 3 children and makes my brother-in-law and my father co-trustees but does not have much other detail. It was written over 10 years ago when they were much younger.

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Wed Oct 31, 2018 5:17 pm

megabad wrote:
Wed Oct 31, 2018 3:33 pm
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
We are contemplating using Vanguard Trust Services and having Vanguard act as financial advisor and Co-Trustee along with my brother-in-law. I understand that this isn't necessarily the cheapest option but seems reasonable. Vanguard's fees for a trust under $5 million in size are 0.25% for trust administration and 0.3% for financial advisor which seems reasonable.
I would recommend that you consult with Vanguard on your specific situation. I believe the fees you quote would apply to trusts that are 1.4 million and above. Vanguard's fees could be as high as 1% of assets depending on trust size if smaller. This excludes fund expenses, legal, and accounting costs.

I would start out by saying that it is my opinion that you are a poor candidate for a trust, but you should visit a lawyer experienced with such and discuss with him/her to determine yourself (as you intend). I feel this way for the following reasons:

Your are a two parent household.
You have mostly retirement assets.
Retirement accounts would traditionally not be placed in trust (though you could name a trust distribution beneficiary).
Life insurance must be controlled by guardian prior to age 18 in most states anyway.
You have a complicated guardianship situation (children could be living in foreign country and BIL will need to self perform all local tax functions or find a very very knowledgeable accountant).
In your case, it appears that probate avoidance is not a significant factor.


1. Co-Trustee? It seems to me that having Vanguard (or another firm) act as co-trustee makes the most sense, mainly because my brother-in-law lives and works overseas. He is Chilean and lives in Santiago but is frequently traveling on business to other Latin American capitals and to Europe so is frequently on the road but rarely in the US. I want him to be the decision-maker that our daughters have to go to if they need $$ for a car or college tuition or monthly allowance or whatever. But I don't want him to have to deal with US financial paperwork, taxes, etc. long distance. So my idea is to set things up where he is the decision-maker but can just pass those decisions on to the co-trustee via phone or email to deal with the details. If he was a US banker with an office in a US city I would likely feel differently. Any comments on this, especially when the primary trustee is not a US citizen and doesn't reside in the US?

2. Successor Trustee? We have no one else in the immediate family who is capable of taking on the trustee role should by brother-in-law no longer be able. So we think we would just want Vanguard to take over as sole trustee should my brother-in-law be unable or unwilling. This make sense?
In your case, I would name eldest daughter, but this is obviously a personal decision. Remember, a successor trustee may not be needed until many years from now.

3. Three trusts vs one. As our daughters are separated by 8 years and will be aging out at different dates and will possibly have very different needs for money when they are young (college education vs starting a business vs marriage and buying a house etc.) we think it makes sense to separate the funds into 3 separate pools of money. So that the spending on one child doesn't affect the inheritance of the others. Are there legal or practical reasons for how to do this? Or reasons not to?
If you decide to go the trust route for the reasons you stated, I would likely have three trusts. You may pay more by doing so (as indicated by other posters).

4. Age that the trust expires. We picked age 30 because it will require that the girls actually get thorugh college and get a solid start on adult life before taking control of their money. I'd welcome any advice here regarding this age or if others make more sense. Philosophically I don't want to be too controlling from the grave. Who knows what the future holds. But I don't want them to come into such a large sum of money before they are ready and before they have started productive adult lives. What does everyone else do here?
This is very personal and I suspect you would balk at my opinion. I am a proponent of raising children well, educating them, indicating my wishes (not forcing my wishes) in the will, and letting them have control at 18. This is not a popular viewpoint and all children are different.

5. I assume that we do not actually have to take any steps to make this happen now such as contacting Vanguard and opening an account. All we need to do is leave specific instructions in our will that this is what we want done. Is this correct? Or do we need to actually establish trust documents and such now for a trust that we may never use?
You need to speak to your lawyer here. In my experience, in the case of testamentary trust, the executor would deliver trust creation document and will to Vanguard upon death of decedent. In such case, the trust creation document and will were drawn up many years prior by decedent. The VG account, however, needed to be created post death.

6. Any additional issues to consider?

We are going to be meeting with a highly recommended estate attorney to make all of this happen. I just want to have as many ducks in a row as possible and understand what exactly we want to do before that meeting happens. Our current will simply calls for a trust to be established for our 3 children and makes my brother-in-law and my father co-trustees but does not have much other detail. It was written over 10 years ago when they were much younger.
Thanks.

1. If not a trust then what? Just leave the money in care of the guardian if they are minors and to the children if over age 18?

2. I did not mention inheritances but those could be involved as well. Our 3 girls are the only 3rd generation heirs on both sides of the family. My wife's parents have a 7 figure estate (exactly how much is a bit of a mystery but they have at least 10 rental properties all over Santiago Chile that they own free and clear) and my wife and her brother are the only heirs. On my side it's my two unmarried brothers and myself to split a similar sized estate. Our parents are all still alive and reasonably healthy but all in their mid-80s. We aren't counting on any of this for our own retirement or maintenance of our kids but it may be something to consider in terms of estate planning and setting up trusts. In 10 years our estate could easily be more than double due to market gains and inheritances.

3. Regarding age 18. Admitedly my sample size is very small. But I have known two trust fund babies in my younger life. The first was a college roommate who was the most annoying and irresponsible person I have ever met. Gave no care or respect for other people's property. Would trash your stuff and just shrug and then say 'chill dude, don't worry, we can just replace it' and then never would. His parents were idle wealthy and he was living off some sort of trust fund from his grandparents. Second was a drifter type I knew in the Peace Corps who had just enough of a trust fund that he didn't ever have to work if he was frugal but not enough to live and upper middle class life. So he was just drifting aimlessly through the 3rd world, starting up little businesses here and there that never did much and then getting bored and moving on. I remember being both extremely annoyed and extremely disdainful of both of them for basically being useless and having no understanding of the value of money and what it took to earn it. I'm certainly not giving my children $1 million to start life on their 18th birthday when I am alive. I'm not sure why I'd do it if I'm dead. I've been a HS teacher for 11 years. There's probably less than one in fifty 18-year olds whom I have taught who would be mature enough to handle a $1 million windfall at age 18 and not have it screw up their life. There are a few but they are pretty rare. The more likely scenario would be like the common stories we hear of lottery winners who flame out in life.

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: Tell me about establishing trusts for our minor children

Post by megabad » Wed Oct 31, 2018 5:58 pm

texasdiver wrote:
Wed Oct 31, 2018 5:17 pm
1. If not a trust then what? Just leave the money in care of the guardian if they are minors and to the children if over age 18?

2. I did not mention inheritances but those could be involved as well. Our 3 girls are the only 3rd generation heirs on both sides of the family. My wife's parents have a 7 figure estate (exactly how much is a bit of a mystery but they have at least 10 rental properties all over Santiago Chile that they own free and clear) and my wife and her brother are the only heirs. On my side it's my two unmarried brothers and myself to split a similar sized estate. Our parents are all still alive and reasonably healthy but all in their mid-80s. We aren't counting on any of this for our own retirement or maintenance of our kids but it may be something to consider in terms of estate planning and setting up trusts. In 10 years our estate could easily be more than double due to market gains and inheritances.

3. Regarding age 18. Admitedly my sample size is very small. But I have known two trust fund babies in my younger life. The first was a college roommate who was the most annoying and irresponsible person I have ever met. Gave no care or respect for other people's property. Would trash your stuff and just shrug and then say 'chill dude, don't worry, we can just replace it' and then never would. His parents were idle wealthy and he was living off some sort of trust fund from his grandparents. Second was a drifter type I knew in the Peace Corps who had just enough of a trust fund that he didn't ever have to work if he was frugal but not enough to live and upper middle class life. So he was just drifting aimlessly through the 3rd world, starting up little businesses here and there that never did much and then getting bored and moving on. I remember being both extremely annoyed and extremely disdainful of both of them for basically being useless and having no understanding of the value of money and what it took to earn it. I'm certainly not giving my children $1 million to start life on their 18th birthday when I am alive. I'm not sure why I'd do it if I'm dead. I've been a HS teacher for 11 years. There's probably less than one in fifty 18-year olds whom I have taught who would be mature enough to handle a $1 million windfall at age 18 and not have it screw up their life. There are a few but they are pretty rare. The more likely scenario would be like the common stories we hear of lottery winners who flame out in life.
These are all fair points to your situation and background views (that I did not know). My opinions are clouded by the limited statistical likelihood of simultaneous double parental death in the immediate future as well as my views on heir maturity (which are different than yours and, as I said, are not popular). I am not opposed to the idea of a trust, rather I just see limited benefit in your situation. The questions you asked are good and illustrate that trusts can be a complex consideration, I would simply lean more toward simplicity in your case. You have indicated your intent to speak with an experienced attorney who should be able to provide you with good guidance based on personal experience with others.

delamer
Posts: 6286
Joined: Tue Feb 08, 2011 6:13 pm

Re: Tell me about establishing trusts for our minor children

Post by delamer » Wed Oct 31, 2018 6:07 pm

texasdiver wrote:
Wed Oct 31, 2018 5:17 pm
megabad wrote:
Wed Oct 31, 2018 3:33 pm
texasdiver wrote:
Tue Oct 30, 2018 11:58 am
We are contemplating using Vanguard Trust Services and having Vanguard act as financial advisor and Co-Trustee along with my brother-in-law. I understand that this isn't necessarily the cheapest option but seems reasonable. Vanguard's fees for a trust under $5 million in size are 0.25% for trust administration and 0.3% for financial advisor which seems reasonable.
I would recommend that you consult with Vanguard on your specific situation. I believe the fees you quote would apply to trusts that are 1.4 million and above. Vanguard's fees could be as high as 1% of assets depending on trust size if smaller. This excludes fund expenses, legal, and accounting costs.

I would start out by saying that it is my opinion that you are a poor candidate for a trust, but you should visit a lawyer experienced with such and discuss with him/her to determine yourself (as you intend). I feel this way for the following reasons:

Your are a two parent household.
You have mostly retirement assets.
Retirement accounts would traditionally not be placed in trust (though you could name a trust distribution beneficiary).
Life insurance must be controlled by guardian prior to age 18 in most states anyway.
You have a complicated guardianship situation (children could be living in foreign country and BIL will need to self perform all local tax functions or find a very very knowledgeable accountant).
In your case, it appears that probate avoidance is not a significant factor.


1. Co-Trustee? It seems to me that having Vanguard (or another firm) act as co-trustee makes the most sense, mainly because my brother-in-law lives and works overseas. He is Chilean and lives in Santiago but is frequently traveling on business to other Latin American capitals and to Europe so is frequently on the road but rarely in the US. I want him to be the decision-maker that our daughters have to go to if they need $$ for a car or college tuition or monthly allowance or whatever. But I don't want him to have to deal with US financial paperwork, taxes, etc. long distance. So my idea is to set things up where he is the decision-maker but can just pass those decisions on to the co-trustee via phone or email to deal with the details. If he was a US banker with an office in a US city I would likely feel differently. Any comments on this, especially when the primary trustee is not a US citizen and doesn't reside in the US?

2. Successor Trustee? We have no one else in the immediate family who is capable of taking on the trustee role should by brother-in-law no longer be able. So we think we would just want Vanguard to take over as sole trustee should my brother-in-law be unable or unwilling. This make sense?
In your case, I would name eldest daughter, but this is obviously a personal decision. Remember, a successor trustee may not be needed until many years from now.

3. Three trusts vs one. As our daughters are separated by 8 years and will be aging out at different dates and will possibly have very different needs for money when they are young (college education vs starting a business vs marriage and buying a house etc.) we think it makes sense to separate the funds into 3 separate pools of money. So that the spending on one child doesn't affect the inheritance of the others. Are there legal or practical reasons for how to do this? Or reasons not to?
If you decide to go the trust route for the reasons you stated, I would likely have three trusts. You may pay more by doing so (as indicated by other posters).

4. Age that the trust expires. We picked age 30 because it will require that the girls actually get thorugh college and get a solid start on adult life before taking control of their money. I'd welcome any advice here regarding this age or if others make more sense. Philosophically I don't want to be too controlling from the grave. Who knows what the future holds. But I don't want them to come into such a large sum of money before they are ready and before they have started productive adult lives. What does everyone else do here?
This is very personal and I suspect you would balk at my opinion. I am a proponent of raising children well, educating them, indicating my wishes (not forcing my wishes) in the will, and letting them have control at 18. This is not a popular viewpoint and all children are different.

5. I assume that we do not actually have to take any steps to make this happen now such as contacting Vanguard and opening an account. All we need to do is leave specific instructions in our will that this is what we want done. Is this correct? Or do we need to actually establish trust documents and such now for a trust that we may never use?
You need to speak to your lawyer here. In my experience, in the case of testamentary trust, the executor would deliver trust creation document and will to Vanguard upon death of decedent. In such case, the trust creation document and will were drawn up many years prior by decedent. The VG account, however, needed to be created post death.

6. Any additional issues to consider?

We are going to be meeting with a highly recommended estate attorney to make all of this happen. I just want to have as many ducks in a row as possible and understand what exactly we want to do before that meeting happens. Our current will simply calls for a trust to be established for our 3 children and makes my brother-in-law and my father co-trustees but does not have much other detail. It was written over 10 years ago when they were much younger.
Thanks.

1. If not a trust then what? Just leave the money in care of the guardian if they are minors and to the children if over age 18?

2. I did not mention inheritances but those could be involved as well. Our 3 girls are the only 3rd generation heirs on both sides of the family. My wife's parents have a 7 figure estate (exactly how much is a bit of a mystery but they have at least 10 rental properties all over Santiago Chile that they own free and clear) and my wife and her brother are the only heirs. On my side it's my two unmarried brothers and myself to split a similar sized estate. Our parents are all still alive and reasonably healthy but all in their mid-80s. We aren't counting on any of this for our own retirement or maintenance of our kids but it may be something to consider in terms of estate planning and setting up trusts. In 10 years our estate could easily be more than double due to market gains and inheritances.

3. Regarding age 18. Admitedly my sample size is very small. But I have known two trust fund babies in my younger life. The first was a college roommate who was the most annoying and irresponsible person I have ever met. Gave no care or respect for other people's property. Would trash your stuff and just shrug and then say 'chill dude, don't worry, we can just replace it' and then never would. His parents were idle wealthy and he was living off some sort of trust fund from his grandparents. Second was a drifter type I knew in the Peace Corps who had just enough of a trust fund that he didn't ever have to work if he was frugal but not enough to live and upper middle class life. So he was just drifting aimlessly through the 3rd world, starting up little businesses here and there that never did much and then getting bored and moving on. I remember being both extremely annoyed and extremely disdainful of both of them for basically being useless and having no understanding of the value of money and what it took to earn it. I'm certainly not giving my children $1 million to start life on their 18th birthday when I am alive. I'm not sure why I'd do it if I'm dead. I've been a HS teacher for 11 years. There's probably less than one in fifty 18-year olds whom I have taught who would be mature enough to handle a $1 million windfall at age 18 and not have it screw up their life. There are a few but they are pretty rare. The more likely scenario would be like the common stories we hear of lottery winners who flame out in life.
It isn’t just a question of the kid’s maturity at 18 — a lawsuit, a divorce, or a disability can happen at any point in adulthood. Protecting the kid’s money against those possibilities is part of the reason for a trust.

afan
Posts: 3888
Joined: Sun Jul 25, 2010 4:01 pm

Re: Tell me about establishing trusts for our minor children

Post by afan » Thu Nov 01, 2018 4:36 am

You should check with Vanguard about pricing for multiple trusts. In the past the fee based on assets would be calculated for the collection of trusts as a whole, with a smaller fee for each trust. So three trusts would be more expensive than one, but less than three independent trusts would have been.

You would want Vanguard to review the draft of your estate planning documents that create the trusts. Vanguard would want to make sure they would be willing to follow the terms of your trusts.

You need to make sure that your estate will own only assets that Vanguard will hold. Basically nothing other than marketable securities. No real estate, for example.

Rather than naming Vanguard as trustee, you would be better off giving the brother in law the ability to name the corporate trustee and to change trustees. Vanguard may be the best choice now but by the time you both die there may be better alternatives. You would want him to be able to make the choice when the time comes. I have no idea the effect, if any, of giving someone who is not a US citizen that power. Your lawyer should know.

In the first post you say the brother in law also will be the guardian. I assume this means guardian of the children's assets, not of the children themselves. You would need someone to take care of them, besides 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

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Thu Nov 01, 2018 8:59 am

afan wrote:
Thu Nov 01, 2018 4:36 am

In the first post you say the brother in law also will be the guardian. I assume this means guardian of the children's assets, not of the children themselves. You would need someone to take care of them, besides managing the money.
No, their actual guardian as well. We basically have no one else in the family to turn to and he wants the responsibility. Says in that event he'd move up here and take care of them and work long distance. Or they would possibly move down to Chile. Whatever worked out best.

afan
Posts: 3888
Joined: Sun Jul 25, 2010 4:01 pm

Re: Tell me about establishing trusts for our minor children

Post by afan » Thu Nov 01, 2018 11:01 am

Losing both parents then leaving school, activities and all friends to move to a foreign country does not sound like a great solution.

Very generous of brother in law to relocate if needed. Does he have US citizenship or permanent resident status? If not, could he actually make that move?
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

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Thu Nov 01, 2018 2:07 pm

afan wrote:
Thu Nov 01, 2018 11:01 am
Losing both parents then leaving school, activities and all friends to move to a foreign country does not sound like a great solution.

Very generous of brother in law to relocate if needed. Does he have US citizenship or permanent resident status? If not, could he actually make that move?
Our daughters are all dual US-Chilean citizens. They have grandparents and lots of cousins and extended family and their favorite uncle down there who all have beautiful houses and apartments in Santiago and houses on the beach. Our middle daughter is going down this year for a semester study abroad to private school in Santiago that is run by one of my wife's college friends. Younger daughter will no doubt follow in a couple years. We've been visiting on holidays at least once a year and send the girls down on their own to visit their grandparents during school holidays. So it is as much of a home away from home as they have. They have as many memories of Chile as any place in the US other than our actual home. The Chilean side of our family is much tighter and more affluent, educated, and worldly. The US side of our family is more blue collar and scattered randomly about in rural areas. Their Chilean grandfather was a renowned doctor and medical professor who taught at Oxford and in Scotland as well as in Santiago and in their retirement they travel frequently to the UK and south of France a couple times a year. Their Chilean uncle studied at the London School of Economics and works in a high level position for one of the largest banks in Europe. He is frequently in Paris and the big Latin American financial capitals on business. The extended Chilean family sends their kids to the US for college and HS exchanges. They have a Chilean cousin who is studying at Vanderbilt and one who graduated from MIT. Another one worked last winter as a ski instructor in CO. We have hosted two of their Chilean cousins on HS exchanges here so they know them better than any of their US cousins.

Here in the US on my side of the family, no one else finished college and no one lives nearby. We have family in rural PA who do roofing contracting and dairy farming. We have family in rural IN who work as home health aids and insulation contracting. We have family in northern MI who do sugarbeet farming, water hauling, school bus driving and work as prison guards. Instead of sending their kids to college and taking trips abroad their time off is mainly deer hunting except for the one annual holiday to the family time share in Gatlinburg TN to drink and listen to country music. It is pretty much a no brainer for us as to which side of the family we want raising our girls should the unthinkable happen and we both die.

As for my wife's brother? Chile is on the visa waiver program like European countries so he flies in and out all the time. But he doesn't have permanent residency or US Citizenship. That's something that would have to get sorted out. He would be an easy candidate for an investor visa as he could easily drop the required amount of cash into a local US business if he wanted to. That's something they can figure out later. But I would also be very comfortable with our younger girls finishing out their HS education at one of the top international schools in Santiago surrounded by family then going back to the US for college if it came to that. It would be a far better option then sending them to rural PA, MI, or IN to live with relatives they barely know and have only met at family reunions. And who aren't going to have the slightest idea how to direct them into good college and professional life. And, most importantly, when we ask our daughters the question, they say if we die they would much rather live with their Chilean extended family than their US extended family and they love visiting Chile. So there's that too.

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: Tell me about establishing trusts for our minor children

Post by megabad » Thu Nov 01, 2018 2:53 pm

delamer wrote:
Wed Oct 31, 2018 6:07 pm
It isn’t just a question of the kid’s maturity at 18 — a lawsuit, a divorce, or a disability can happen at any point in adulthood. Protecting the kid’s money against those possibilities is part of the reason for a trust.
In my state, an inherited IRA would protect most of OP's assets against lawsuit and divorce. An umbrella policy and a lack of comingling would prevent the rest from being exposed unless court found child incapable/disabled (which can happen at any age). Also, I am not of the opinion that the likelihood of divorce or lawsuit stops at 30 or 35, so where do you draw the line? Can you draw the line?

I might suggest that folks are a bit trust happy these days. With significant taxable holdings, I might feel differently but we are not talking about a cluster of toddlers that are going to come into Warren Buffett's fortune here. These children are approaching adulthood. If I can trust them to drive a 3000 lb steel box at 70mph and live away at college for months on end with no supervision, than I would like to think they wouldn't make money mistakes so horrible that they couldn't recover from them. Additionally, I find some younger folks half my age act more responsibly than my cohorts (and even myself sometimes). I think sometimes it is parents that have a hard time letting children grow up.

JGoneRiding
Posts: 1194
Joined: Tue Jul 15, 2014 3:26 pm

Re: Tell me about establishing trusts for our minor children

Post by JGoneRiding » Thu Nov 01, 2018 2:54 pm

texasdiver wrote:
Thu Nov 01, 2018 8:59 am
afan wrote:
Thu Nov 01, 2018 4:36 am

In the first post you say the brother in law also will be the guardian. I assume this means guardian of the children's assets, not of the children themselves. You would need someone to take care of them, besides managing the money.
No, their actual guardian as well. We basically have no one else in the family to turn to and he wants the responsibility. Says in that event he'd move up here and take care of them and work long distance. Or they would possibly move down to Chile. Whatever worked out best.
You need to understand how this would really work. It's highly doubtful us courts would give custody to a single non us citizen. He would need a firm commitment and legal ability to live in the US. The court system not you had final say on legal guardianship of minors.

texasdiver
Posts: 2719
Joined: Thu Jun 25, 2009 12:50 am
Location: Vancouver WA

Re: Tell me about establishing trusts for our minor children

Post by texasdiver » Thu Nov 01, 2018 3:27 pm

JGoneRiding wrote:
Thu Nov 01, 2018 2:54 pm
texasdiver wrote:
Thu Nov 01, 2018 8:59 am
afan wrote:
Thu Nov 01, 2018 4:36 am

In the first post you say the brother in law also will be the guardian. I assume this means guardian of the children's assets, not of the children themselves. You would need someone to take care of them, besides managing the money.
No, their actual guardian as well. We basically have no one else in the family to turn to and he wants the responsibility. Says in that event he'd move up here and take care of them and work long distance. Or they would possibly move down to Chile. Whatever worked out best.
You need to understand how this would really work. It's highly doubtful us courts would give custody to a single non us citizen. He would need a firm commitment and legal ability to live in the US. The court system not you had final say on legal guardianship of minors.
That's certainly something we will be discussing with our attorney. The girls are all dual citizens and we may well decide it makes more sense for them to finish HS in Chile. That might well be their preference as well.

bsteiner
Posts: 3546
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Tell me about establishing trusts for our minor children

Post by bsteiner » Thu Nov 01, 2018 3:33 pm

megabad wrote:
Thu Nov 01, 2018 2:53 pm
delamer wrote:
Wed Oct 31, 2018 6:07 pm
It isn’t just a question of the kid’s maturity at 18 — a lawsuit, a divorce, or a disability can happen at any point in adulthood. Protecting the kid’s money against those possibilities is part of the reason for a trust.
In my state, an inherited IRA would protect most of OP's assets against lawsuit and divorce. An umbrella policy and a lack of comingling would prevent the rest from being exposed unless court found child incapable/disabled (which can happen at any age). Also, I am not of the opinion that the likelihood of divorce or lawsuit stops at 30 or 35, so where do you draw the line? Can you draw the line?
...
In about 3/4 of the states gifts and inheritances are not in the pot for equitable distribution (division) on divorce (assuming you can trace the assets). But in about 1/4 of the states they're in the pot for equitable distribution on divorce. Also, a child could outlive his/her spouse and remarry, or do well and have a taxable estate, or go into a nursing home and want Medicaid.

You can always provide that the child gains control over the trust at a specified age.

Money in a trust is like toothpaste in a tube. You can always take it out, but you can't put it back. In other words, the trustees can always distribute the assets to the child, but if they do so, or if the inheritance is outright, you can't put the assets in, or back in, a trust.

delamer
Posts: 6286
Joined: Tue Feb 08, 2011 6:13 pm

Re: Tell me about establishing trusts for our minor children

Post by delamer » Thu Nov 01, 2018 8:31 pm

megabad wrote:
Thu Nov 01, 2018 2:53 pm
delamer wrote:
Wed Oct 31, 2018 6:07 pm
It isn’t just a question of the kid’s maturity at 18 — a lawsuit, a divorce, or a disability can happen at any point in adulthood. Protecting the kid’s money against those possibilities is part of the reason for a trust.
In my state, an inherited IRA would protect most of OP's assets against lawsuit and divorce. An umbrella policy and a lack of comingling would prevent the rest from being exposed unless court found child incapable/disabled (which can happen at any age). Also, I am not of the opinion that the likelihood of divorce or lawsuit stops at 30 or 35, so where do you draw the line? Can you draw the line?

I might suggest that folks are a bit trust happy these days. With significant taxable holdings, I might feel differently but we are not talking about a cluster of toddlers that are going to come into Warren Buffett's fortune here. These children are approaching adulthood. If I can trust them to drive a 3000 lb steel box at 70mph and live away at college for months on end with no supervision, than I would like to think they wouldn't make money mistakes so horrible that they couldn't recover from them. Additionally, I find some younger folks half my age act more responsibly than my cohorts (and even myself sometimes). I think sometimes it is parents that have a hard time letting children grow up.
Putting their inheritance into trust doesn’t have anything to do with not wanting to let my kids grow up. It is akin to providing insurance against future bad actors or circumstances. (A bit more than half of our assets are in taxable accounts.)

We have homeowner’s insurance even though we could “recover” if we were uninsured and the house burnt down.

I think some parents are too cheap to spend the money to have a skilled attorney create the trusts. It amazes me how many people post here trying to get around spending a couple thousand dollars to see a competent attorney to create an estate plan.

They’d rather just pretend that nothing can go wrong, and figure they won’t be around to see it if it does. I firmly believe that many people don’t appreciate the sheer randomness of life and how easy it is for something totally out of left field to upend everything you’ve known.

letsgobobby
Posts: 11652
Joined: Fri Sep 18, 2009 1:10 am

Re: Tell me about establishing trusts for our minor children

Post by letsgobobby » Thu Nov 01, 2018 11:53 pm

megabad wrote:
Thu Nov 01, 2018 2:53 pm
delamer wrote:
Wed Oct 31, 2018 6:07 pm
It isn’t just a question of the kid’s maturity at 18 — a lawsuit, a divorce, or a disability can happen at any point in adulthood. Protecting the kid’s money against those possibilities is part of the reason for a trust.
In my state, an inherited IRA would protect most of OP's assets against lawsuit and divorce. An umbrella policy and a lack of comingling would prevent the rest from being exposed unless court found child incapable/disabled (which can happen at any age). Also, I am not of the opinion that the likelihood of divorce or lawsuit stops at 30 or 35, so where do you draw the line? Can you draw the line?

I might suggest that folks are a bit trust happy these days. With significant taxable holdings, I might feel differently but we are not talking about a cluster of toddlers that are going to come into Warren Buffett's fortune here. These children are approaching adulthood. If I can trust them to drive a 3000 lb steel box at 70mph and live away at college for months on end with no supervision, than I would like to think they wouldn't make money mistakes so horrible that they couldn't recover from them. Additionally, I find some younger folks half my age act more responsibly than my cohorts (and even myself sometimes). I think sometimes it is parents that have a hard time letting children grow up.
The life insurance will be taxable. It will not be in a retirement account, nor protected from creditors. It will be subject to their own state estate taxes, if any. Wealthy parents are more likely to have wealthy children, who are also likely to have their own estate tax problems.

An umbrella policy will not offer protection against professional malpractice.

I don’t draw the line at 30 or 35. The trust does not end at any arbitrary age.

I’ve reported this before in other trust threads and will do it again. My parents died and left their estate to their children. The majority was left in trust. I am very grateful for this decision. We were already facing state estate taxes when we died; had my parents left their assets to me outright, rather than in trust, their assets also would have been subject to state estate tax when I die. The savings are substantial. As trustee of the trust I still have the right to remove any of the assets at any time that I want, so there is no ‘control’ or ‘lack of trust’ issue.

Our estate plan is set up to give our children the same benefits.
Last edited by letsgobobby on Fri Nov 02, 2018 8:15 am, edited 1 time in total.

User avatar
Misenplace
Posts: 234
Joined: Mon Feb 01, 2016 9:46 pm

Re: Tell me about establishing trusts for our minor children

Post by Misenplace » Fri Nov 02, 2018 1:11 am

Not an expert, but I believe you will want to do a trust anyway since you are bumping up close to the WA estate tax that kicks in at a little over $2 M per person, and it is not portable unless you set it up in trust. In other words, I believe that you will need to set up trusts to make sure you can fully use each spouse’s exemption and substantially minimize your WA estate taxes. So, you might as well get a long term generation skipping trust set up (I think in WA it can go on for 90 years) that will keep your bequest out of your daughters’ estate. And if it is set up correctly, it will help protect your loved ones from Creditors and Predators. That is Shorthand for random accidents and divorcing spouses. Deal with the first with adequate insurance. Deal with both issues with trusts.

Also, don’t you want to protect your children if one of you dies and the surviving spouse falls victim to a shyster? Older people are targeted because they can become vulnerable in their old age and because ‘that’s where the money is.’ A trust can at least put aside your half for your children should you predisease your wife.

I am doing our child a favor and putting our estate in a trust. She will control it at 35, but should she get divorced her spouse won’t get any of it. Almost 50% of marriages end in divorce.

I only wish I had had been the beneficiary of such a trust, but oh well. Just happy to be loved.

Or as my father always said “If only I had been born rich instead of so, soo, soooo bloody good-looking.”

megabad
Posts: 663
Joined: Fri Jun 01, 2018 4:00 pm

Re: Tell me about establishing trusts for our minor children

Post by megabad » Wed Nov 07, 2018 7:41 pm

delamer wrote:
Thu Nov 01, 2018 8:31 pm

Putting their inheritance into trust doesn’t have anything to do with not wanting to let my kids grow up.
I’m afraid we will have to agree to disagree here (respect you a lot and have followed your posts for years). While I agree that sometimes assets needs protection, I am of the opinion that my children should not need me to protect them from creditors (including spouses) from beyond the grave when they are adults, they should be able to figure this out themselves. Laws and rules change and so I still believe that equipping children is a better course. Additionally, trust protection with creditors and in divorce is challenged routinely and is not definitive. The only thing certain with a trust is that you will pay more than if you had held the assets in a normal taxable account. I agree that everyone needs an estate plan though, I just prefer cheaper and simpler until the numbers get large and the primary reasons for a trust are different (and the relative fees are much lower). The state estate tax issues mentioned above may factor in (as one of these different reasons) but I am not familiar with all states and they are a separate issue which is why I clarified my comment with “in my state”.

afan
Posts: 3888
Joined: Sun Jul 25, 2010 4:01 pm

Re: Tell me about establishing trusts for our minor children

Post by afan » Fri Nov 09, 2018 10:29 am

I am of the opinion that my children should not need me to protect them from creditors (including spouses) from beyond the grave when they are adults, they should be able to figure this out themselves.

It is no a matter of "figuring it out". Once they have inherited the assets outright they cannot then put them into the trust. For this protection to work it has to be done by the parents as part of the estate plan. If the parents do not do this then the kids will figure out that the opportunity has been lost.
Additionally, trust protection with creditors and in divorce is challenged routinely and is not definitive.


Not perfect protection, but much better than not having the protection at all.
The only thing certain with a trust is that you will pay more than if you had held the assets in a normal taxable account.
This is not true. You need to look at the tax laws more carefully to understand.
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

Post Reply