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Creating a trust with yourself as beneficary
Old 09-18-2014, 02:16 PM   #1
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Creating a trust with yourself as beneficary

I was asked this question, did not find out too much info online, would like opinions.
A single individual wants to put $200,000 into some type of investment vehicle(not an annuity)
to get a monthly check of $2000 until all the money is gone.
The main reason is lack of self control, does not want to have access to the principle but wants the income.

Can this be done with a trust? Invest the 200k in various funds and every month the 2k comes off the top.
Asset protection was another concern but no a big one.

Any ideas?


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Old 09-18-2014, 02:56 PM   #2
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Quote:
Originally Posted by Refresher View Post
I was asked this question, did not find out too much info online, would like opinions.
A single individual wants to put $200,000 into some type of investment vehicle(not an annuity)
to get a monthly check of $2000 until all the money is gone.
The main reason is lack of self control, does not want to have access to the principle but wants the income.

Can this be done with a trust? Invest the 200k in various funds and every month the 2k comes off the top.
Asset protection was another concern but no a big one.

Any ideas?


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Sure one can create Irrevocable Trust to do that.

Usually people create them for Asset protection and to make sure that kids (when they inherit trust) don't spend all money in few months .
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Old 09-18-2014, 03:28 PM   #3
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Sure one can create Irrevocable Trust to do that.



Usually people create them for Asset protection and to make sure that kids (when they inherit trust) don't spend all money in few months .

The trusts needs to pay the person that creates it. It is monthly income payable to that single person until there is no money left. If person dies then a beneficiary would receive the rest of the payments.
Is that possible?


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Old 09-18-2014, 03:53 PM   #4
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Why would you do it? There are many types of trusts but usually they are created to control the disbersement of funds to someone other than the person that created it per the comments of eta2020 in his response. I see no value in what you would gain......others might but I don't. Now, I've created trusts for my wife, my kids and a special needs trust for another person and I have a revocable trust that I can change that holds funds and disperses them to others. The primary purpose......generally speaking is to set boundries on the dispersment so that the money can't be p*ssed away instead of what I intended.....a stream of funds to my kids to compliment earnings and will be there for the rest of their lives......so, again, from what you've told us and asked from us, I see no value whatsoever. ......maybe others will point out some value to you
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Old 09-18-2014, 04:12 PM   #5
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Why would you do it? There are many types of trusts but usually they are created to control the disbersement of funds to someone other than the person that created it per the comments of eta2020 in his response. I see no value in what you would gain......others might but I don't. Now, I've created trusts for my wife, my kids and a special needs trust for another person and I have a revocable trust that I can change that holds funds and disperses them to others. The primary purpose......generally speaking is to set boundries on the dispersment so that the money can't be p*ssed away instead of what I intended.....a stream of funds to my kids to compliment earnings and will be there for the rest of their lives......so, again, from what you've told us and asked from us, I see no value whatsoever. ......maybe others will point out some value to you
Thanks for the reply, I agree with what you say but this is the reasoning

The individual wants to secure a monthly income so that they do not p*ss away the money. They want a disciplined way of receiving a monthly check but do not want to go with an annuity. The other mindset was asset protection. If they were sued or whatever may happen they would not have access to these funds only the income they receive each month. Not a mainstream plan but a question.
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Old 09-18-2014, 04:48 PM   #6
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Why would you do it? There are many types of trusts but usually they are created to control the disbersement of funds to someone other than the person that created it per the comments of eta2020 in his response. I see no value in what you would gain......others might but I don't. Now, I've created trusts for my wife, my kids and a special needs trust for another person and I have a revocable trust that I can change that holds funds and disperses them to others. The primary purpose......generally speaking is to set boundries on the dispersment so that the money can't be p*ssed away instead of what I intended.....a stream of funds to my kids to compliment earnings and will be there for the rest of their lives......so, again, from what you've told us and asked from us, I see no value whatsoever. ......maybe others will point out some value to you
I agree. You have to also weight in tax implications of creating trust which has some pluses and some minuses.

Like passing more then 5.34 million without having to pay estate tax and minus that for example dividend yield of some ETF inside of trust is taxed as income instead of qualified dividend. (At least I think so )

But OP does not gain much by creating trust unless he/she is in eminent threat of some lawsuit.
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Old 09-18-2014, 05:13 PM   #7
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I agree. You have to also weight in tax implications of creating trust which has some pluses and some minuses.

Like passing more then 5.34 million without having to pay estate tax and minus that for example dividend yield of some ETF inside of trust is taxed as income instead of qualified dividend. (At least I think so )

But OP does not gain much by creating trust unless he/she is in eminent threat of some lawsuit.
Lawsuits are not the main issue but a secondary thought.

A guy come into some money. He knows he has minimal self control with holding onto a large sum of money for very long. He asks how he can get a monthly check that will last him 10-15 years or more to supplement his current income and does not want to raid the funds. A trust invested for appreciation that will distribute x amount per month is the main objective. If he dies before the money is exhausted he has a beneficiary. If the money runs out before he dies no more checks.

Some people know their limitations and try to plan accordingly.
That's what he asked.
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Old 09-18-2014, 05:20 PM   #8
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Lawsuits are not the main issue but a secondary thought.

A guy come into some money. He knows he has minimal self control with holding onto a large sum of money for very long. He asks how he can get a monthly check that will last him 10-15 years or more to supplement his current income and does not want to raid the funds. A trust invested for appreciation that will distribute x amount per month is the main objective. If he dies before the money is exhausted he has a beneficiary. If the money runs out before he dies no more checks.

Some people know their limitations and try to plan accordingly.
That's what he asked.
Why would not he consider buying Immediate Fixed annuity? I would think trust will cost some attorney fees.
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Old 09-18-2014, 05:35 PM   #9
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Why would not he consider buying Immediate Fixed annuity? I would think trust will cost some attorney fees.
That is being explored as well. Fees and terms are issues.

The mindset is not to go wild with the money and be broke in a year.
Like a 19 year old might.
The idea is to make the money last for 15 years or so to supplement employment income. The investment vehicles will be diversified.
Do not know what the plans are after the 15 years.

If the trust can be created as a self funded trust I guess Legal Zoom can create the trust and then an account can be opened at a brokerage firm.
Seems logical
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Old 09-18-2014, 06:20 PM   #10
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Was he planning to hire a professional trustee to administer the trust over the 15 years or so?

-gauss
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Old 09-18-2014, 06:37 PM   #11
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Was he planning to hire a professional trustee to administer the trust over the 15 years or so?

-gauss
No wants to do everything himself.
Maybe a trust needs to be formed with another beneficary and a clause that he gets a check every month.
May not be worth the fees
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Old 09-18-2014, 06:41 PM   #12
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Was he planning to hire a professional trustee to administer the trust over the 15 years or so?

-gauss
I think your friend should give a hard look to very high quality insurance company New York Life for immediate fixed annuity.

Unfortunately nowadays due to low rates they don't pay much......
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Old 09-18-2014, 08:27 PM   #13
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Here's an idea. Deposit the funds in a taxable Vanguard account in Wellesley or the fund of his choice and set up automatic withdrawals for the $2k a month. Set up the account so that other than the automatic withdrawal the only way to access it is by mail - no web access, no phone redemptions, etc. The idea is to make it as inconvenient to access as possible other than the automated withdrawals.

He could set up a trust a you describe where he is the grantor and beneficiary. Even though it would cost a bit to set up it would be better than a low interest annuity in the long run. He might also call Vanguard and explain to them the constraints he wants in place and see if they have any mechanisms that would work for him.
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Old 09-18-2014, 09:19 PM   #14
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Here's an idea. Deposit the funds in a taxable Vanguard account in Wellesley or the fund of his choice and set up automatic withdrawals for the $2k a month. Set up the account so that other than the automatic withdrawal the only way to access it is by mail - no web access, no phone redemptions, etc. The idea is to make it as inconvenient to access as possible other than the automated withdrawals.

He could set up a trust a you describe where he is the grantor and beneficiary. Even though it would cost a bit to set up it would be better than a low interest annuity in the long run. He might also call Vanguard and explain to them the constraints he wants in place and see if they have any mechanisms that would work for him.

Good idea but that plan can be foiled, which makes me wonder

How would most middle aged people just getting by handle a situation where they came into a lump sum of money.
Say a 50 year old with an OK job gets 300k.

Majority will think I need to invest and make this money last until I die but how many can follow through with a disciplined plan?

I say minority
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Old 09-19-2014, 05:28 AM   #15
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By the time you pay all the costs involved with creating and administering a trust you would be far better off with an immediate annuity.
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Old 09-19-2014, 06:15 AM   #16
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He's looking at drawing money for 8 years. He wants to make sure he can't get at it, yet what if he has an serious emergency where he needs more? I don't know why he wouldn't want to allow for that possibility. What would be more infuriating than knowing you have the money to address an emergency but you made sure you couldn't get at it?

But if the paramount issue is restricting access, go with the immediate fixed annuity. Yes, the return will be low. But that's the price one must pay for not having the self-control to handle money.
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Old 09-19-2014, 07:18 AM   #17
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Call Vanguard or Fidelity and see what they would charge for that kind of trust....


But the kicker is that almost any trust will have a clause in it that the person can get extra money for health, safety etc.... which defeats the purpose of paying for a trustee if he would just call and say "I need more money"....


The annuity is the best way to go.... if he does not want it for the rest of his life, he can buy a time certain annuity where he knows how long he will get that $2,000... easy peasy...
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Old 09-19-2014, 08:24 AM   #18
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By the time you pay all the costs involved with creating and administering a trust you would be far better off with an immediate annuity.
Bruce
I really have to disagree on that one. I am a co-trustee of my Dad's trust and other than initially establishing it the cost is nothing. I do the trust tax return each year and the K-1 but it is simple and takes less than an hour so even if you hire it out it would not cost that much.

Annuity interest rates are so low, the OP's friend would be much better off with a trust and plunking the money in Wellesley or a similar balanced fund.
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Old 09-19-2014, 11:03 AM   #19
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No wants to do everything himself.
Maybe a trust needs to be formed with another beneficary and a clause that he gets a check every month.
May not be worth the fees
If he is administering the trust himself, what is to keep him from withdrawing principal from the investment accounts once it is up and running?

Do the investment companies review the terms of the trust every time a transaction is performed, or do they just ensure the identify of the trustee and rely on the trustee to keep compliant with the terms of the trust?

-gauss
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Old 09-19-2014, 03:05 PM   #20
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Good point I would think the broker would payout upon the trustees instructions.



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