Don't trust Son-In-Law - Spendthrift trust?

[Kelor]

I think it's inevitable that my daughter and son-in-law will go their separate ways. He's a green-card holding immigrant that I'm still confident married my daughter to maintain his visa. He is also a high income / low asset spendthrift. As a mid 20's kid, he has already owned a brand new M6 Convertible, TWO brand new X5M's, an insane brand new boat, jet skis, etc..

Things disappear and something better appears every 6 months.

I have no plans on leaving this world soon, but have a fear that he would be able to gain our substantial assets, and leave my daughter high and dry.

I understand the negative tax consequence of a trust, but I can't think of another way to protect the assets from the inevitable separation of these two individuals.

We used to have our trust documents set up to protect the surviving spouse, but now we see a bigger concern being protecting the assets for our daughter once she is divorced.

Thoughts?

[OldShooter]

Quote:

Originally Posted by Kelor ... Thoughts?

Do it. It's a no brainer.

Our situation is a little less toxic but both sons will be beneficiaries of testamentary trusts when the second of us dies. #1 is a super nice guy and would easily be gulled by hucksters, #2 would be a spendthrift with his wife's enthusiastic assistance. So in both cases the money needs to be protected.

These things are pretty easy to change while you're on this side of the grass, so you can change the plan if they split before you die. You may still want a trust if there is significant money and she is not financially oriented. Our trusts will be at Schwab and it was fairly inexpensive. Well under 100bps but I don't remember the number.

[Kelor]

We had trusts set up many years ago when all the kids were younger. We decided to stop updating them and just list the kids as beneficiaries when they became adults.

It seems it's time to update again.

I'm not quite sure what you mean about Schwab charging 100 bps. Didn't you just go through your own edler law attorney?

[joeea]

Quote:

Originally Posted by Kelor Thoughts?

It's your money, you have a right to do whatever you want with it.

What does your daughter think?

[ziggy29]

Quote:

Originally Posted by OldShooter These things are pretty easy to change while you're on this side of the grass, so you can change the plan if they split before you die. You may still want a trust if there is significant money and she is not financially oriented. Our trusts will be at Schwab and it was fairly inexpensive. Well under 100bps but I don't remember the number.

Yes, a revocable living trust can easily be changed by the trustee as long as they are alive. Once all the trustees are deceased it becomes irrevocable.

I don't understand the 100 bps (1%), though. What I am looking at through Schwab shows that there is no extra fees for trusts. Were you maybe talking about one using some financial planning services that would use Schwab trust accounts?

[Kelor]

Quote:

Originally Posted by joeea It's your money, you have a right to do whatever you want with it. What does your daughter think?

That's an excellent question. The lovely Mrs. is spending the entire day with her on Tuesday, and she's going to broach the subject of our money not transferring to them in the event of our death.

In July I'm taking her on a 2 1/2 week hiking trip through the Alps, and will have the conversation again.

Our family attorney passed away unexpectedly about 2 years ago, so it's also a matter of me finding a new attorney that I like.

[OldShooter]

Quote:

Originally Posted by Kelor ... I'm not quite sure what you mean about Schwab charging 100 bps. Didn't you just go through your own edler law attorney?

Schwab has recently started offering trust services as custodian. So when the trusts are created the money goes there and the trust gets charged an annual fee. They are quite a bit cheaper than bank custodians.

NB we are not talking here about a rev trust. These trusts are created after the second of us dies and specified assets go into them. To change prior to death is just a matter of updating the paperwork.

[ziggy29]

Quote:

Originally Posted by OldShooter Schwab has recently started offering trust services as custodian. So when the trusts are created the money goes there and the trust gets charged an annual fee. They are quite a bit cheaper than bank custodians.

Ah, so you are talking about not only having the account there but also having them act as the trustee -- and in charge of investments, disbursements and such?

[Earl E Retyre]

Quote:

Originally Posted by OldShooter Do it. It's a no brainer. Our situation is a little less toxic but both sons will be beneficiaries of testamentary trusts when the second of us dies. #1 is a super nice guy and would easily be gulled by hucksters, #2 would be a spendthrift with his wife's enthusiastic assistance. So in both cases the money needs to be protected. These things are pretty easy to change while you're on this side of the grass, so you can change the plan if they split before you die. You may still want a trust if there is significant money and she is not financially oriented. Our trusts will be at Schwab and it was fairly inexpensive. Well under 100bps but I don't remember the number.

+1 We are in a similar boat. One is not financially oriented/mature/gullable and the other is even worse plus is in a very bad, untrusting and toxic relationship. So, at this point, we decided to do testamentary trusts as well.

The difficulty for us was figuring out who will be the trustee. At this point, we trust a particular family member over a financial institution such as Schwab. Plus there would not be an annual fee. At some point in the future we may change this plan assuming they mature.

[Dash man]

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Originally Posted by ziggy29 Ah, so you are talking about not only having the account there but also having them act as the trustee -- and in charge of investments, disbursements and such?

That’s how we have ours set up at USAA. We don’t have anyone that could handle the complexity of our assets, so we’re putting it in the hands of a professional. One son can handle his share, but the other would mismanage it. We also want the grandkids to get something.

[OldShooter]

Quote:

Originally Posted by ziggy29 Ah, so you are talking about not only having the account there but also having them act as the trustee -- and in charge of investments, disbursements and such?

Yes. Trustee. Brain fade -- used the wrong word. Sorry for any confusion.

Re using a family member as trustee, that is fraught. DW was an SVP with megabank investments and trusts. She and her troops served as the punching bag when beneficiaries wanted something that they should not have or could not have due to the language of the trust. Payments to the beneficiary need to be discretionary according to the terms of the trust. With fixed payments and rigidity there is no way to deal with unforeseen events, but flexibility can put the trustee and the beneficiary at odds. "I need a car." "OK, the trust permits that." "A Lamborghini" "No, your parents would not approve of that and it would deplete the assets of the trust too fast." = instant antagonism.

[Kelor]

I just reviewed my "old" trust documents from 6 years ago. Frankly, it looks like it would be a pretty simple fix to add some language regarding marriages, divorces, etc..

[gerntz]

Quote:

Originally Posted by OldShooter Schwab has recently started offering trust services as custodian. So when the trusts are created the money goes there and the trust gets charged an annual fee. They are quite a bit cheaper than bank custodians.

But they are not the trustee, right?

[OldShooter]

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Originally Posted by gerntz But they are not the trustee, right?

No, they are the trustee. I used the word "custodian" when I should have used the word "trustee." Very sorry for the stupidity.

IMO we will see VG and Fido, at least, going into the trustee business. There will be a lot of boomer money going into trusts and this is a way for the brokerage houses to both add a line of business and to keep the assets from being moved away.

[OldShooter]

Quote:

Originally Posted by Kelor I just reviewed my "old" trust documents from 6 years ago. Frankly, it looks like it would be a pretty simple fix to add some language regarding marriages, divorces, etc..

Get help. There could be kids, too. And pathological cases where she dies after divorce, kid becomes beneficiary of the trust, and bad dad as guardian gets his hands on whatever money is disbursed.

[Dtail]

You mentioned the negative tax aspects of the trust. The trust earnings can be distributed to "X" person and taxed as a K1 form distribution at the normal 1040 form rates.

[Kelor]

Quote:

Originally Posted by OldShooter Get help. There could be kids, too. And pathological cases where she dies after divorce, kid becomes beneficiary of the trust, and bad dad as guardian gets his hands on whatever money is disbursed.

Yep. Understood.

It would be a good retirement project to hang out in the law library for a few weeks and do it on my own, but I know that's not efficient.

We have 5 kids and only have one of these situations. I guess I did ok.

[ziggy29]

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Originally Posted by Kelor We have 5 kids and only have one of these situations. I guess I did ok.

Well, it might not be a lot of consolation, but it sounds like this only puts 20% of the estate at risk....

For what it's worth, I was one of five children but the trust was divided among four of us. In our case, the fifth child was fairly irresponsible, but the reason why the trust was divided four ways was because this fifth child was on SSI and Medicaid, so my parents carved out a fixed sum to be put into a special needs trust for him, and the rest to be divided equally in four parts. If this one brother of mine otherwise inherited anything, the state would have taken it.

[bingybear]

you need to talk with an estate lawyer. Does not sound like a spend thrift trust. More like a heritage, bloodline, or dynasty trust

[joeea]

Quote:

Originally Posted by Kelor That's an excellent question. The lovely Mrs. is spending the entire day with her on Tuesday, and she's going to broach the subject of our money not transferring to them in the event of our death. In July I'm taking her on a 2 1/2 week hiking trip through the Alps, and will have the conversation again. Our family attorney passed away unexpectedly about 2 years ago, so it's also a matter of me finding a new attorney that I like.

Be careful.

I know if my parents tried to come between my spouse and I whose side I would have chosen.