10-26-2020, 02:17 PM
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.
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.