Irrevocable Trust for my descendants

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Topic Author
Wise_Saver
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Irrevocable Trust for my descendants

Post by Wise_Saver »

I would be interested in setting up an Irrevocable Trust for my descendants.

I am in my late 50s, so I have (hopefully) another 20-30 years to live, but I want to start planning it now, for tax purposes. Now I have about 2 Mil. and I hope to have a similar (or hopefully even higher) amount when I die, so I am thinking of something like a "Guaranteed minimum income" for my descendants, starting with my 2 children. My mother said it's a terrible idea, because then my descendants will not want to work, which I believe is silly, but of course there is the risk that they will move to a cheap country (e.g. Thailand) and spend their lives drunk on the beach (which would be a shame, but then it's their lives, and they can decide how to live it).

I am wondering what the best amount would be. Perhaps 1,500 per adult descendent (for my two children), and 500 from birth to 18? So if I die in 20 years, and my children have two children each in 20 years (to simplify the calculation) the trust would pay 1,500*2 + 500*4 = 5000 a month (60,000 a year), and after 18 years 1,500*6=9000 a month (108,000 a year). All this should be inflation-pegged.

I can see a time when the trust's money will be finished if my descendants have 2-3-4 children, depending on the performance of the stock market. Perhaps in 100 or 150 years the money will be finished?

I can also imagine a time when my descents will die out, in which case what shall I do?
1) give the rest to a charity (I could set up a charity myself, but who knows what the world will be like in 100, 150, or 200 years?), or
2) give more money to the last people? E.g. if in 100 years I will have one descendent who doesn't want to have children, let him have all the rest of the money? But this then would be an incentive to not have children?

I wonder if anybody has any thought about all this. Is it a good idea? A bad idea because...?

Thank you all in advance!
HomeStretch
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Re: Irrevocable Trust for my descendants

Post by HomeStretch »

Consult with an experienced trusts and estate attorney in your state.

Leaving an inheritance, if significant, in trust(s) for your children is reasonable for various reasons. As part of the trust design you specify allowable distributions, remainder beneficiaries, etc. For the trust to have protection, the beneficiaries usually cannot be the sole trustee. So you would need to find a person or corporate entity to be the trustee or co-trustee. If you expect to the trust to be in existence for 100-150 years, a corporate trustee for a fee may be appropriate. The trustee has to oversee distributions, required tax (and perhaps court) filings, manage investments, etc.

I would not necessarily expect a trust funded with $2-$4 million to last 100-150 years. You also can’t be sure you will leave that much to the beneficiaries as end-of-life care costs, etc. can spend down your savings. Also, don’t forget to factor in the corporate trustee fees of probably 1%+ per year.

To your mother’s point about disincentivizing your beneficiaries… Either you spend your savings or your heirs will. Someone(s) needs to receive the trust distributions and (likely) spend them.
Topic Author
Wise_Saver
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Re: Irrevocable Trust for my descendants

Post by Wise_Saver »

Thank you for your response.

I forgot to mention that I am thinking of using Vanguard as the trustee. The fees would be about 0.55%. Though I am based in Europe, and I am not sure they provide the trustee service to Europeans.
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oldcomputerguy
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Re: Irrevocable Trust for my descendants

Post by oldcomputerguy »

Wise_Saver, welcome to Bogleheads. Since you have told us that you are in Europe, I have moved your question to our Non-US Investing forum, where members have more experience dealing with financial issues outside the US.
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
bsteiner
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Re: Irrevocable Trust for my descendants

Post by bsteiner »

Many people outside the United States set up trusts in the United States for various reasons.

It's generally better to give the trustees discretion as to distributions. No one knows what the future will bring.
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Wise_Saver
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Re: Irrevocable Trust for my descendants

Post by Wise_Saver »

oldcomputerguy wrote: Wed May 15, 2024 7:50 am Wise_Saver, welcome to Bogleheads. Since you have told us that you are in Europe, I have moved your question to our Non-US Investing forum, where members have more experience dealing with financial issues outside the US.
Thank you for the welcome! :happy Sorry, we are preparing to move to the US in a few months, so could you please move me back to the original forum? Thank you very much!
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oldcomputerguy
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Re: Irrevocable Trust for my descendants

Post by oldcomputerguy »

^ Done! :happy
There is only one success - to be able to spend your life in your own way. (Christopher Morley)
barnaclebob
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Re: Irrevocable Trust for my descendants

Post by barnaclebob »

Instead of tying everything to a dollar amount and inflation, it would probably be better to just let each descendant have a straight % each year, say 4% of the trust value. Also trying to stretch 2 million over 100 or more years is a bit silly. The money could become so watered down by an increasing number of descendants that it becomes more of a PITA than a help, especially if you require a professional trustee for a trust under 1 million. Mosts trusts will include a small trust provision where the money is paid out if it becomes less than 250k.

Don't tie it to the amount of children they have, while logical, thats an overreach IMO. What if their child dies and now they get less money? Thanks for another kick in the gut mom/dad.

I also disagree with your mother that providing income for children will lead to laziness, especially if the income doesn't kick in until they are well established adults.
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Wise_Saver
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Re: Irrevocable Trust for my descendants

Post by Wise_Saver »

barnaclebob wrote: Wed May 15, 2024 10:32 am Instead of tying everything to a dollar amount and inflation, it would probably be better to just let each descendant have a straight % each year, say 4% of the trust value. Also trying to stretch 2 million over 100 or more years is a bit silly. The money could become so watered down by an increasing number of descendants that it becomes more of a PITA than a help, especially if you require a professional trustee for a trust under 1 million. Mosts trusts will include a small trust provision where the money is paid out if it becomes less than 250k.
Thank you. I am not trying to stretch the money. I would give a fixed income (indexed with inflation) and once the money is finished, that's it. If the share market crashes and inflation is high and they have many kids the money might be finished after 40 years. If the market goes well and they have few kids the money may last for 300 years. I have no idea, I can't see the future. I didn't know there can be a clause that the money is paid out if it becomes less than 250k. It's actually a good idea.
barnaclebob wrote: Wed May 15, 2024 10:32 amDon't tie it to the amount of children they have, while logical, thats an overreach IMO. What if their child dies and now they get less money? Thanks for another kick in the gut mom/dad.
Thank you. You are right. This would be to help financially if one has a child. But then, it shouldn't be my job. I could simply give 1,500 a month for any descendant that is older than 18. This would also help them to go to university without making massive debts.
barnaclebob wrote: Wed May 15, 2024 10:32 amI also disagree with your mother that providing income for children will lead to laziness, especially if the income doesn't kick in until they are well established adults.
Yes, but on the other hand they would know that when they reach 18 they will get 1,500 a month for life (as long as there are funds). So they might just decide to take it easy? If I had known this when I was 18 I would probably have moved to Thailand and become an alcoholic :D .
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MrBobcat
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Re: Irrevocable Trust for my descendants

Post by MrBobcat »

Wise_Saver wrote: Wed May 15, 2024 5:42 am
I wonder if anybody has any thought about all this. Is it a good idea? A bad idea because...?

Thank you all in advance!
Wouldn't be my cup of tea, but I'm not you.

1. The complexity and cost of maintaining a trustee are big turn offs for me.
2. The irrevocable part is a big turn off for me.
3. If I feel the need to gift kids/grandkids money while I'm alive I can easily do so.
4. My kids are adults and most likely will be well into their 50s if not 60s by the time they get any inheritance, and I trust them to do what's right for them or any kids they may have.

That being said if I had massive wealth, yea maybe, but $2-$4 mil isn't remotely close enough for me.
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