Creating a trust that pays your descendants

[ken-do-nim]

I got the idea for this from an ex-girlfriend of mine. When we were together in our 20s, she was collecting $8000 per year on royalties from software her mother and sister had sold to school systems, but they graciously spread the money around the whole family. That extra income allowed us to buy a condo when I didn't have anything saved up yet.

[crimsonghost747]

(10-19-2020, 10:33 AM)fenders53 Wrote:

(10-19-2020, 10:04 AM)crimsonghost747 Wrote: Ohh there definitely can't be a cookie cutter best answer since everyone is different and lives in a different situation. But indeed, my idea was to get everyone thinking of the possibilities. "We generally don't inherit at the proper time" is true, but "such is life" does not need to be true. And that was my point, you CAN affect when that transfer of wealth occurs.

One way would be to indeed "spend" it on them earlier on. All education etc is free here so no personal experience but I imagine graduating with zero debt would be a pretty good starting position in the states. Or maybe pay the first 1-2 years of their mortgage payments to help out at that time.
Or simply offer to "double their salary" for the first 2 years that they have a job. I think we all remember our first real job and the salary probably wasn't much.
Or, if you prefer holding onto everything until you pass away, maybe designate a part to go to your grandchildren instead since it's very likely that they are in a position to need it much more than your children do.

Just some random ideas that could indeed work in order to put that money where and when it is most needed, instead of it all arriving on someone's bank account when they are 60+ years old.

edit: I should add that here, as with most money things, diversifying is probably a prudent thing to do. It doesn't have to be "either this or that" but rather "both this and that"

My daughter needs money right now, and I can't give it to her without sacrificing my early retirement I invested for all my life.  I help her some of course, and I have, but the fact I can't fix everything causes her to grow as an adult. There is always a spare bedroom in my house.  If she is too proud to do that and wants to make her own way then it's all good.  Your point is taken though.  There is no need to make her wait until she is 60 to received the entirety of any benefit I may have the ability to leave her.

Firstly, let me state that I am of course talking in the general sense here. Just throwing around ideas that could be useful to people. Your situation is of course something that only you know well enough and I'm sure that you have thought about these and as a rational man you've made the right decisions.

But indeed, based on what I've read on this thread, it sounds like you're doing exactly what I'm talking about here. You paid a part of her education, okay she didn't finish it but that is her choice to make. You gave her the opportunity to educate herself without getting into ridiculous amounts of debt. That is worth a lot. And as you said you help her some now, and believe me it makes a big difference. 

These are exactly the kind of things I'm talking about. It would be absolutely unrealistic to let go of the majority of your assets now, since you'll need them for another 40 years. And she probably wouldn't even know what to do with half of your portfolio right now. But $1000 that pays for her car repair now is probably worth to her much more than having that $1000 as part of inheritance. It's the small things that make a difference when you're young.

[NilesMike]

(10-19-2020, 03:10 PM)crimsonghost747 Wrote:

(10-19-2020, 10:33 AM)fenders53 Wrote: [quote='crimsonghost747' pid='22358' dateline='1603119846']

.These are exactly the kind of things I'm talking about. It would be absolutely unrealistic to let go of the majority of your assets now, since you'll need them for another 40 years. And she probably wouldn't even know what to do with half of your portfolio right now. But $1000 that pays for her car repair now is probably worth to her much more than having that $1000 as part of inheritance. It's the small things that make a difference when you're young.

Definitely agree 100%
My wife and I are NOT college educated, we surmised early on that we were quite fortunate to have gotten as far as we have w/o degrees. We figured that our children would need at least a 4 year degree to compete in their environment. We felt compelled and obligated to pay for it as part of raising them. They both worked all through High School and were required to put $500 per quarter into a Roth IRA for 5 years (until age 21) and just leave it alone (all world fund).
Money doesn't mean as much when we are older, the young ones do need it more especially if raising a family. My daughter wishes to move and what they would like is somewhat out of their price range. We offered to make up the difference but S-I-L is too proud. I told them if it makes them feel better, they can pay us back at sometime.
We'll see how it all shakes out.

My view of money is that it provides freedom. Freedom to spend a little more than you otherwise might or the freedom to walk away from a job you hate and know you have backup security.

Great thread.

[fenders53]

(10-19-2020, 04:58 PM)NilesMike Wrote:

(10-19-2020, 03:10 PM)crimsonghost747 Wrote:

(10-19-2020, 10:33 AM)fenders53 Wrote: .These are exactly the kind of things I'm talking about. It would be absolutely unrealistic to let go of the majority of your assets now, since you'll need them for another 40 years. And she probably wouldn't even know what to do with half of your portfolio right now. But $1000 that pays for her car repair now is probably worth to her much more than having that $1000 as part of inheritance. It's the small things that make a difference when you're young.

Definitely agree 100%
My wife and I are NOT college educated, we surmised early on that we were quite fortunate to have gotten as far as we have w/o degrees. We figured that our children would need at least a 4 year degree to compete in their environment. We felt compelled and obligated to pay for it as part of raising them. They both worked all through High School and were required to put $500 per quarter into a Roth IRA for 5 years (until age 21) and just leave it alone (all world fund).
Money doesn't mean as much when we are older, the young ones do need it more especially if raising a family. My daughter wishes to move and what they would like is somewhat out of their price range. We offered to make up the difference but S-I-L is too proud. I told them if it makes them feel better, they can pay us back at sometime.
We'll see how it all shakes out.

My view of money is that it provides freedom. Freedom to spend a little more than you otherwise might or the freedom to walk away from a job you hate and know you have backup security.

Great thread.

Mine as well.  I have a lot of friends and relatives that have certainly had more new cars and nicer homes, but most of them will be working at least ten years longer than I.  I do feel like I have some freedom now.  I work part-time at HD because I choose too.  There are others there well past 65 that really need the money to get by, and some in their 30s that really can't buy a home on their wage.  They've been there 5-10yrs already.  That would stink.

[ken-do-nim]

Agreed; I will probably stay at my job as long as I can, but it will be nice to have the security to know I don't need it.

[fenders53]

(10-20-2020, 09:47 AM)ken-do-nim Wrote: Agreed; I will probably stay at my job as long as I can, but it will be nice to have the security to know I don't need it.

It's a very good feeling.  I also happen to believe it affects how you are treated by bosses in general.  I'm reliable and try to always perform of course, but when things occasionally get annoying, I've noticed at my last two jobs that management is all about problem solving because they are very aware I am not going to stay if it stops being "fun".  They make it very clear they don't want me to walk.  That's about as good as it gets in a part-time/non-career job.

[catnap88]

Great post @ken-do-nim! Very thought provoking. your plan is very clearly laid out. I just wonder if 7% return/yield is feasible long term. I may just take your plan to my estate attorney

[fenders53]

(10-22-2020, 12:42 PM)catnap88 Wrote: Great post @ken-do-nim!   Very thought provoking.   your plan is very clearly laid out.   I just wonder if 7% return/yield is feasible long term.  I may just take your plan to my estate attorney

For significant periods of my investing career it could be done.  Right now it's on the edge.  I have some in my port, and these are the securities I feel the need to keep an eye on.  IMO not buy it and forget it type investments, especially if a large position.   If short-term interest rates return to 3-4% some day, then it gets much easier. That's not happening soon.

[ChadR]

Great post ken-do-nim. I'm finally through my busy season so I can get back to the forum. I've missed it.

A couple of things. Don't take this as me discouraging your idea because it is a good idea that has many wonderful benefits and planning opportunities.

1) Like another has said, I don't think that a management fund would even mess with your portfolio if it was $5 million especially for just 10% of it's payout.
2) If you did find a management company to take over your portfolio, they would not get the 7% that you are using in your example. They will go very conservative and you might get lucky to get 3%. They don't want to get sued by the beneficiaries of the trust if it loses money, so they will go the extremely safe route and invest in CDs, TBills, bond funds, and some safe low paying stocks.
3) In your example you are paying a huge amount in federal taxes. You will be paying 37% of income not distributed by the trust on amounts over $12,950. So of the $150,000 you are putting back each year for future stock buys, nearly $54,000 is lost to Uncle Sam. And the top tax rate for trusts is tied to the top tax rate for individuals. I expect the top tax rate to rise within the next 10 years. So the amount lost to taxes will be even greater. Also, this is assuming you are in a state that doesn't have a state income tax. If you are in a state that does, the tax bill is even higher.

I like your plan and my wife and I plan on doing something similar to it. But since my wife is nearly 48 and I'm 45.5, we have a few years before we have to finalize anything. Like you, I don't want my life savings to go to a nursing home.

[fenders53]

You sure took the fun right out of that Chad. Those tax rates make other options look attractive.

[ChadR]

Yeah trusts are great just not for leaving them alone to let them build through their income. Always best to just pull out all the income every year.

[fenders53]

(10-27-2020, 10:29 AM)ChadR Wrote: Yeah trusts are great just not for leaving them alone to let them build through their income.   Always best to just pull out all the income every year.

I'll have to wise up on the inner workings when the time gets closer.  Taxes and interest rates change the game.  Trusts and annuities certainly have their purpose.  I have a few friends that are trust beneficiaries.  They just get a quarterly check and they can remain clueless on finances for the rest of their lives.  (just as their parents expected they would).

On a side note, I am on this forum because I bothered to research the details of an annuity my 401K was scheduled to convert to next year.  I wasn't thrilled like with the deal when the FED Funds rate was 2%.  I'm sure I wouldn't like it at 1/2%.  If you are 15yrs out from retiring, it seems all you can do is formulate a very rough draft plan.  Just too many variables unless you are prepared to fund it when almost everyone is still accumulating.