Trust investment choices for a difficult beneficiary

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
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FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Mon Apr 15, 2019 3:58 pm

Gill wrote:
Mon Apr 15, 2019 2:43 pm
afan wrote:
Mon Apr 15, 2019 2:36 pm
Would such a provision prevent the trust from buying the annuity and then assigning it to the beneficiary? The trust would have to purchase the annuity in the beneficiary's name from the start.
Yes, it would seem to. I would think the trust would have to buy the annuity in the name of the beneficiary as annuitant and owner unless the trust was willing to keep the ownership. That would seem to be the ideal way which would make the trust beneficiary only the annuitant.
Gill
Michael Kitces and John Olsen wrote an excellent book called the "The Advisor's Guide to Annuities" which has a discussion on different types of ownership of annuities. I need to review it to see how this could be owned. I would prefer that the beneficiary own it so that the need for a trustee is eliminated.
"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

Gill
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Location: Florida

Re: Trust investment choices for a difficult beneficiary

Post by Gill » Mon Apr 15, 2019 5:55 pm

FBN2014 wrote:
Mon Apr 15, 2019 3:58 pm
Gill wrote:
Mon Apr 15, 2019 2:43 pm
afan wrote:
Mon Apr 15, 2019 2:36 pm
Would such a provision prevent the trust from buying the annuity and then assigning it to the beneficiary? The trust would have to purchase the annuity in the beneficiary's name from the start.
Yes, it would seem to. I would think the trust would have to buy the annuity in the name of the beneficiary as annuitant and owner unless the trust was willing to keep the ownership. That would seem to be the ideal way which would make the trust beneficiary only the annuitant.
Gill
Michael Kitces and John Olsen wrote an excellent book called the "The Advisor's Guide to Annuities" which has a discussion on different types of ownership of annuities. I need to review it to see how this could be owned. I would prefer that the beneficiary own it so that the need for a trustee is eliminated.
I agree. I’ve concurred all along that your objective should be to terminate the trust after properly providing for the beneficiaries.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Ybsybs
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Re: Trust investment choices for a difficult beneficiary

Post by Ybsybs » Mon Apr 15, 2019 6:52 pm

If the beneficiary has an annuity purchased that somehow cannot be sold, what impact would it have on the beneficiary's eligibility for government services such as Medicaid? If he lives long enough and the money is no longer in stocks, it seems very likely that medical and living assistance services will exceed the annuity payout level.

There's the house that could be sold and the beneficiary's half spent on his care, but would that be enough? Would he then ask the OP to cover the difference?

Topic Author
FBN2014
Posts: 588
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Mon Apr 15, 2019 7:16 pm

Ybsybs wrote:
Mon Apr 15, 2019 6:52 pm
If the beneficiary has an annuity purchased that somehow cannot be sold, what impact would it have on the beneficiary's eligibility for government services such as Medicaid? If he lives long enough and the money is no longer in stocks, it seems very likely that medical and living assistance services will exceed the annuity payout level. I believe that Medicaid would pay the difference between the cost of LTC and the annuity payment. However, I will check this with an elder care attorney before buying an annuity.

There's the house that could be sold and the beneficiary's half spent on his care, but would that be enough? Would he then ask the OP to cover the difference? No, because the trust would have been terminated. My goal in doing this is to remove myself from ongoing responsibility as trustee if the beneficiary and his attorney consent to the plan and have him sign a release in the event he should change his mind in the future and then try to hold me liable for breach of fiduciary duty.
"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

afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Mon Apr 15, 2019 7:23 pm

From what you describe, it may not prevent the beneficiary from asking, but it would eliminate the OP's obligation to respond.

A lot of heavy lifting, but if it works, the beneficiary will get what he seems to want- control over his money without having to deal with the OP. The OP will be out of the trustee business, at least as far as the beneficiary is concerned (sounds like the family trust may continue without him?).
Wins all around. Beneficiary will sink or swim with the annuity payments, the house, and whatever other resources he may have.

Did I miss the part where the size of the annuity checks is reduced since the insurance trust will use some money to buy out half the house? Only the amount left will be available to invest in the annuity. Depending on the value of the house, that might be a big drop in income. Will it be less than what he is getting now?
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
FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Mon Apr 15, 2019 7:39 pm

afan wrote:
Mon Apr 15, 2019 7:23 pm
From what you describe, it may not prevent the beneficiary from asking, but it would eliminate the OP's obligation to respond.

A lot of heavy lifting, but if it works, the beneficiary will get what he seems to want- control over his money without having to deal with the OP. The OP will be out of the trustee business, at least as far as the beneficiary is concerned (sounds like the family trust may continue without him?).
Wins all around. Beneficiary will sink or swim with the annuity payments, the house, and whatever other resources he may have.

Did I miss the part where the size of the annuity checks is reduced since the insurance trust will use some money to buy out half the house? Only the amount left will be available to invest in the annuity. Depending on the value of the house, that might be a big drop in income. Will it be less than what he is getting now? I will need to get an appraisal of the house but I believe it is worth about $180,000. The buyout would reduce the annuity payment by $5-6,000 so the payment would be about $53,000, still $15,000 more than he receives now.
"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

michaeljc70
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Re: Trust investment choices for a difficult beneficiary

Post by michaeljc70 » Mon Apr 15, 2019 8:14 pm

Sorry you're in this situation. What you are doing is fine to satisfy the terms of the trust (according to what has been said here). Given the hostility you are receiving I would be inclined to make no changes. If he doesn't want you to call him, I would respond in kind and ask them not to contact you to complain. Won't getting SS give them additional income and maybe ease the pressure on you?

Topic Author
FBN2014
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Joined: Sat Mar 08, 2014 3:07 pm

Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Tue Apr 16, 2019 7:24 am

michaeljc70 wrote:
Mon Apr 15, 2019 8:14 pm
Sorry you're in this situation. What you are doing is fine to satisfy the terms of the trust (according to what has been said here). Given the hostility you are receiving I would be inclined to make no changes. If he doesn't want you to call him, I would respond in kind and ask them not to contact you to complain. Won't getting SS give them additional income and maybe ease the pressure on you? Yes, he can take SS in a few months. My estimate is that at a minimum he would get $15,000/yr. I don't think he would ever be satisfied unless he got a full distribution from the trust. That is not what the grantor wanted obviously.
"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

gokartmozart
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Re: Trust investment choices for a difficult beneficiary

Post by gokartmozart » Tue Apr 16, 2019 1:56 pm

FBN2014 wrote:
Mon Apr 15, 2019 7:16 pm
... if the beneficiary and his attorney consent to the plan and have him sign a release ...
+1 on the release.

Get the attorneys on both sides to sign the release too. That makes it harder for the beneficiary to later claim, "Poor unsophisticated me was tricked into signing this release!" The attorneys will likely add some appropriate verbiage stating the attorneys themselves are not parties to the release, but read/drafted/approve the language.

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