Revocable Living Trust and Apportionment

[stephenson]

We have done initial consultation with a reputable trust attorney (Florida) - referred by friends.

We are not near the Federal Estate and Gift Tax limits - but, over the next 20 years could be. We have several pieces of real estate in Florida.

We're read the book, "Beyond the Grave," and lots on why RLT makes sense.

Our biggest consideration is how to apportion ... we have two sons (30 and 35), the younger one and wife love kids, and likely will have a couple over the next 5 years or so. The elder is unmarried, a bit less mature and is showing no indication of a desire to be married, yet.

Initial thoughts:
- executor tbd, including option for independent
- 25% going straight to each son (10% immediately and 15% at 5 years later)
- 25% going to each son's natural children (assuming they have children)
- funds to remain invested, in a mix we specify
- funds to be used for college expenses ... with a bonus for graduation at each level (bachelors, and masters)
- if the grandchildren do not attend college, the funds to roll to their children college expenses with same bonus provisions
- if sons don't have children, then the funds would revert to our sons on their 65th birthday

Questions:
1. The above seems harder than it needs to be?
2. What are some constructs you have used?
3. Has anyone used an independent executor - like Fidelity?
4. How about a secondary executor - in remote case the primary dies prematurely?

We find ourselves trying to be motivational from the grave - both of us worked jobs in college and would like to help grandkids in this way. We also hate the idea of our hard work being wasted, so we are trying to avoid the basic circumstances when they could happen.

Would appreciate your thoughts!

 

[gerntz]

If this SECURE Act passes & limits IRA distribution time for non-spouse beneficiaries to 10 years in order to increase & speed up fed & state governments take, having as many beneficiaries of the IRA's as possible likely limits those takes to a degree by having the distributions taxed at lower rates. Having poor - likely young - beneficiaries helps with that too. Net, I think waiting to see what happens there before finalizing your plan would be good.

 

[ExFlyBoy5]

Are you establishing a trust for most of your assets? Between that and use of PODs, the will should function as merely a "pour over" document. An independent executor isn't a bad idea, but they aren't cheap, either. Who would be the trustee? The same person as the executor? These are some questions you should be asking yourself with the advice/counsel of your attorney.

You can try and be "motivational" from the grave, or you can be a parent that won't let your kids grow up and be adults. At some point, you can't parent anymore.

The elder is unmarried, a bit less mature and is showing no indication of a desire to be married, yet.

I hope you are not implying that because he isn't married and doesn't have the current inclination to do so immediately is related to being a "bit less mature"

 

[marko]

We find ourselves trying to be motivational from the grave - both of us worked jobs in college and would like to help grandkids in this way. We also hate the idea of our hard work being wasted, so we are trying to avoid the basic circumstances when they could happen.

We have an entirely different mindset. Our one main concern is providing for my disabled brother for his lifetime after both of us are gone.

My brother gets the bulk, but there are also nine other heirs (nieces and nephews). As far as them, the money will be well used by 5 of them, the other 4 will be similar to "Lottery Winner Syndrome"; likely pretty disastrous but we have designated equal amounts to all.

We don't care what is done or who does it right after we're gone. Good luck to them.

 

[stephenson]

ExFlyBoy,

Ha - no, the elder has always been less mature. Nada to do with marital status.

Trustee would likely be the more mature son, but not sure what to do re a backup trustee in case of his untimely death - it could be the other son, or an independent entity, but I too am afraid of the costs. Costs can be minimized with a simple plan - added complexity likely means a lot more cost.

Yes - the will is a pour over.

I do want to motivate, and am aware of the optic being to manipulate, but do not want the money and assets to be squandered - they were hard fought and saved.

 

[The Cosmic Avenger]

Our biggest consideration is how to apportion ... we have two sons (30 and 35), the younger one and wife love kids, and likely will have a couple over the next 5 years or so. The elder is unmarried, a bit less mature and is showing no indication of a desire to be married, yet.

I think first you have to decide whether you want to penalize the "more mature" son at the expense of the other, because it sounds like some of your arrangements are to try to parent the older son after you're gone.
My feelings are that you should try to counsel the older son while you're around, but he may have to learn his lessons the hard way, and the more you try to protect him from himself, the less prepared he'll be to take care of himself when he's completely on his own. Of course, there are exceptions, so this could be the wrong approach. If he really can't take care of himself, IMO you should set up a trust for him, but let the other, presumably fiscally responsible son have his share all at once.

Initial thoughts:
- executor tbd, including option for independent
- 25% going straight to each son (10% immediately and 15% at 5 years later)
- 25% going to each son's natural children (assuming they have children)
- funds to remain invested, in a mix we specify
- funds to be used for college expenses ... with a bonus for graduation at each level (bachelors, and masters)
- if the grandchildren do not attend college, the funds to roll to their children college expenses with same bonus provisions
- if sons don't have children, then the funds would revert to our sons on their 65th birthday

Questions:
1. The above seems harder than it needs to be?
2. What are some constructs you have used?
3. Has anyone used an independent executor - like Fidelity?
4. How about a secondary executor - in remote case the primary dies prematurely?

I think it's definitely harder than it needs to be. As I said above, I think the default should be for any reasonably responsible adult to receive a lump sum. Unless one son should have a special needs trust set up for him, give them whatever share you think is fair in a lump sum. And personally, in our family we don't give shares to grandkids, as money given to the kids is sure to be spent on the grandkids and will probably increase whatever is left to them by their parents. But that's just how we like to do things. And that doesn't preclude smaller educational setasides, but we wouldn't normally consider a percentage share for grandkids.

We find ourselves trying to be motivational from the grave - both of us worked jobs in college and would like to help grandkids in this way. We also hate the idea of our hard work being wasted, so we are trying to avoid the basic circumstances when they could happen.

You're not going to be able to force either son to save or spend by the way you structure your trust. I mean, it is your money, so you can leave it to them, or not, however makes you feel good, but as I said, I think it's unnecessarily complicated. A spenthrift might avoid saving and probably build up a mountain of debt to be taken care of by that 5-year distribution. A good saver will probably resent not being able to invest the funds as they see fit.
But if it makes you feel better, sure, structure it however you want. It's just not the way I would do it...but it is your money!

 

[Dash man]

What if a child wants to take up a trade? Are you allowing college funds to be used for training? College isn’t for everyone. Or they may be entrepreneurs and may need the cash for a business startup. We went through this with our sons a few years ago and decided to equally split the trust after we gifted smaller amounts to family and charities. We have funded 529 college funds for our three grandkids as the motivation, but that can be used for training in the trades. We’ve decided we can’t live their lives for them, and we don’t want the trust tax rates and trust fees to eat up the funds by stretching it out over years.

 

[Souschef]

Your proposed arrangement smacks of "reaching from the grave" to try to direct your son.
I agree with dashman. on what to do.
I had a trust, and it was a PITA. My wife passed away, and the trust became complicated, but with some judicious handling, I was able to terminate it.
I have remarried, and this put a whole different spin on things.We went to an estate attorney, who prepared POAs, advanced directives, and pour over wills.
All our assets have beneficiaries and contingent beneficiaries. They will all pass without probate.
They are all Per Stipes, so that if one passes away, the children will divide the share.

 

[Scratchy]

Please don't take offense to my writing frankly but I am willing to wager that your plans as set out above will result in your sons having no relationship and one of your sons resenting you. Probably all your grandchildren as well. This is based on my own life experience. Perhaps your family will be different. That's what my father thought too.

My advice: Treat your sons exactly the same in every way in your trust. Make them co-trustees or nominate a corporate trustee. Don't try to use your money to direct your grandchildrens' choices.

Regarding the federal estate tax exemption, I'm also willing to wager that it will be far lower with the next few years than it is now. So I would plan with that in mind.

 

[stephenson]

Great inputs from everyone - we decided to do the following (at least initially):

- 25% to each of our two sons
- 50% to be split between their children (one son is married and is likely to have children) with language to spend on education, and then the remainder at age 40
- co-trustees - we wanted them to discuss and agree on any course of action, and this provides a backup trustee, as well
- if sons have no children, then sons get the remainder at date certain - the 60th birthday of the eldest (5 year separation - we settled on 2040)

Lots of time between now and whenever - but, this gets us going ... we really did not want to change the arc of our kid's lives by tossing too much money at them. If the total of the 50% of the grandkid's money is spent on education that would be great, but is not, then also want them to make their way until they mature enough (age 40).

We recognize the two sons could modify most of the trust, but we have to "trust."

Would appreciate any further comments as can certainly make changes at this stage.

George

 

[OldShooter]

A few things: Trustees cannot modify a trust without going to court for approval. If they do any freelance modifying, beneficiaries that are hurt by the modification could/can sue.

Trustees should have the ability to change the distribution plan in some circumstances. For example, suppose a grandchild gets cancer at 35 and will not live to 40. You would probably want to permit the trustee to disburse funds to pay for things like 24x7 home care. Or just disburse early.

THe trusts should say what happens to the money if a beneficiary dies prematurely. Goes to charity? Distributed to others? A good trusts & estates attorney will give you options on how to handle unanticipated events. That is a big part of getting the trust language right.

Our trusts for the grands include $100K available for post-secondary education up to a certain age. If the money is not spent at that point it goes to charity. Yes, controlling from beyond the grave to strongly encourage education.

Re "lots of time" just be sure to get all this done by the day before the car crash or the heart attack.

 

[Scratchy]

Great inputs from everyone - we decided to do the following (at least initially):

- 25% to each of our two sons
- 50% to be split between their children (one son is married and is likely to have children) with language to spend on education, and then the remainder at age 40

- if sons have no children, then sons get the remainder at date certain - the 60th birthday of the eldest (5 year separation - we settled on 2040)



George

Could you clarify:

What if one son has two kids and one son has one kid? How does the 50 % designated for the grandchildren get split?

What if one son has kids and the other son does not. Does the 50 % designated for grandchildren go entirely to the grandchildren of one son and the other son receives nothing more?

Does the 50 % designated for the grandchildren only go to grandchildren born at the time of your death? What if one of your sons has children after your death?

What if one of your grandchildren dies before age 40? What happens to the remainder assigned to that grandchild?

 

[EQMAN]

We did it along the same general idea but set up as follows. Two children each get 25% each. If there are grand children of our son they split 25%. The same is true if our daughter has children they split 25%. If our son has no children he get 50% ( his 25% + the 25% that was available because he had no children). Same with our daughter. All beneficiaries get funds for health, education, maintenance, and support. They also har a right to withdraw 1/3 at 40, 1/2 at 45, and balance at 50. They can also keep the funds in the trust if they chose so they do not become part of a divorce settlement in the states they currently reside in.

 

[OldShooter]

Could you clarify ... What if?

One of the things an experienced trusts & estates attorney does is to help the grantor(s) consider and deal with events that may affect the plan. That's how questions like these get dealt with.

... health, education, maintenance, and support ...

This, aka "HEMS," is the standard trust language that gives the trustee(s) flexibility to deal with unforeseen events. Additional language can elaborate on the grantor(s) intentions and wishes, for example, "The primary purpose of this trust is to give our son a more comfortable life in retirement." or "It is not our intention that our son will not have to work for a living."