How to handle money left to heirs...

[Raymond01]

My spouse and I are 55, retired for 2 years. We have wills, TOD's on accounts, beneficiaries etc. all set up. We have 2 adult children, one is 27, married, very responsible and is the executor of our will. The other is 23, still struggling to find their way and does not always make the right decisions. My spouse is concerned about leaving a pretty sizeable nest egg to the younger one not knowing if they will continue to grow, become lazy, blow the money, what have you.

We are somewhat interested in creating a trust, but unsure what that would look like, who should be in charge of it etc. I have read that it is not the best idea to put a sibling in charge of doling out money to another sibling for fear of alienating them.

Thoughts, comments, suggestions are appreciated.

 

[RunningBum]

What if you put %s on it, like 25% immediately, and 25% at 30, 35, and 40 or whatever you think is best. The other sibling wouldn't really be in charge of doling it out but rather just following your orders with no legal choice in the matter. In 10-15 years you'll probably still be alive, and #2 will probably be more responsible, and you can take that clause out. Or it would be moot in 17 years anyway.

 

[OldShooter]

... We are somewhat interested in creating a trust, but unsure what that would look like, who should be in charge of it etc. I have read that it is not the best idea to put a sibling in charge of doling out money to another sibling for fear of alienating them.

Thoughts, comments, suggestions are appreciated.

Our estate plan includes trusts for both our boys. One would blow all the money (probably north of $1M) in a year or two. The other is quite naive and would be shark bait for Series 7 "financial advisors" and/or for glib insurance and annuity salespeople.

The terms of a trust can be whatever you like. In our case, the trust provide for support into retirement for the kids and include language like "It is not our intention that our son will not have to work for a living." Trusts (not ours) can also liquidate on a schedule, like x% at age 30, y% at age 45, and the balance at age 60 if that works better for the grantor. My wife had an assistant die of brain cancer at a very young age. The trust they set up for her kids allowed any of the three to draw for higher education expenses without regard to % shares, then beginning at age 25 the trust begin equal liquidation payments to all three. The idea was to strongly motivate higher education. Trust can also provide support to the beneficiary during his/her lifetime and then the residual goes to charity. Tons of options. Find an experienced trusts & estates attorney and get creative.

Trusts can also be protection against bankruptcy, judgments, divorce, etc. that would put your money at risk if you gave it to kids directly.

Re trustee, use a professional trustee like a bank. Bank trust officers are very used to saying "No" to greedy or creative beneficiaries. I see that Vanguard offers trusts, too, so that might be worth a look but also it may stifle your creativity.

For us, the decision was a no-brainer. Working out the details took some time, though.

 

[wrigley]

Just my 2 cents. I also have 2 adult children. One is more responsible than the other and more stable than the other, but the bottom line is they are both my children and I love them equally. Whatever my wife and I leave them they will split 50/50. If they want to be responsible or not responsible that's up to them at that point.

Mike

 

[gayl]

Just my 2 cents. I also have 2 adult children. One is more responsible than the other and more stable than the other, but the bottom line is they are both my children and I love them equally. Whatever my wife and I leave them they will split 50/50. If they want to be responsible or not responsible that's up to them at that point.

Mike

Ditto! Same with the legacy account going to the 7 grandkids .... all equal amounts (20 yo wanting to be a music teacher eventually school admin, 16 yo who wants to be a street musician, 13 yo in medical academy, 10, 4, 3, 1)

 

[hesperus]

Just my 2 cents. I also have 2 adult children. One is more responsible than the other and more stable than the other, but the bottom line is they are both my children and I love them equally. Whatever my wife and I leave them they will split 50/50. If they want to be responsible or not responsible that's up to them at that point.

Mike

+1
Anything else will almost certainly create friction.
If one is OK at the thought of having your children fight among themselves, perhaps being estranged for the rest of their lives, then by all means split it unequally.

 

[hesperus]

Our estate plan includes trusts for both our boys. One would blow all the money (probably north of $1M) in a year or two. The other is quite naive and would be shark bait for Series 7 "financial advisors" and/or for glib insurance and annuity salespeople.

The terms of a trust can be whatever you like. In our case, the trust provide for support into retirement for the kids and include language like "It is not our intention that our son will not have to work for a living." Trusts (not ours) can also liquidate on a schedule, like x% at age 30, y% at age 45, and the balance at age 60 if that works better for the grantor. My wife had an assistant die of brain cancer at a very young age. The trust they set up for her kids allowed any of the three to draw for higher education expenses without regard to % shares, then beginning at age 25 the trust begin equal liquidation payments to all three. The idea was to strongly motivate higher education. Trust can also provide support to the beneficiary during his/her lifetime and then the residual goes to charity. Tons of options. Find an experienced trusts & estates attorney and get creative.

Trusts can also be protection against bankruptcy, judgments, divorce, etc. that would put your money at risk if you gave it to kids directly.

Re trustee, use a professional trustee like a bank. Bank trust officers are very used to saying "No" to greedy or creative beneficiaries. I see that Vanguard offers trusts, too, so that might be worth a look but also it may stifle your creativity.

For us, the decision was a no-brainer. Working out the details took some time, though.

Trusts can offer protection from divorces, judgements, etc, but trying to control $$ from the grave is another matter. Not recommended.

 

[bradaz2488]

I never understood parenting from the grave once a child reaches 18. If you try to control them it will usually lead to resentment and if the executor is another sibling it could lead to bad feelings. IMO you should just give them the money and let them spend it as they wish. Money can bring out the worst in even good people.

 

[kimcdougc]

Just my 2 cents. I also have 2 adult children. One is more responsible than the other and more stable than the other, but the bottom line is they are both my children and I love them equally. Whatever my wife and I leave them they will split 50/50. If they want to be responsible or not responsible that's up to them at that point.

Mike

+1

 

[RunningBum]

OK, if you want to treat them equally, give them the same age based increments. Responsible kid probably won't be impacted, and less responsible kid isn't treated differently.

I don't agree that a young adult, especially one you have questions about, needs to get immediate and full access to a fortune. Had we had significant money in the extended family, at least a couple would've blown through a fortune and may not have survived to 25 or 30, but all are very responsible now. None were that hard to see at 18 either. If you want to call that managing from the grave, fine, but I wouldn't sleep well knowing if I don't wake up I am setting them up for disaster.

 

[Raymond01]

Very good input everyone thanks much!

 

[bclover]

I never understood parenting from the grave once a child reaches 18. If you try to control them it will usually lead to resentment and if the executor is another sibling it could lead to bad feelings. IMO you should just give them the money and let them spend it as they wish. Money can bring out the worst in even good people.

I really don't call it parenting from the grave. Sorry my brother was a crack addict, my other siblings and I totally agreed with the conditions my parents put on the will. No way no how am I leaving my money to some one who is the antithesis of every thing I believed it, even if they are my kid. my kid goes out and joins the KKK that's on him.

You are also right that money brings out the worst. We do have wills but my late husband and I really don't like inheritances. Basically we gift our kids while we are alive.

My sons know that when I die (assuming it's at a nice old age, ) a large portion of my estate will go to charities I support. after free college tuition, free law school tuition and probably help with house purchase, I don't feel the need to leave them a wad of cash.

but they are listed as beneficiaries on stuff. 50/50

Now I don't have grand babies so when that happens I'll do a reevaluate.

 

[DrRoy]

What if you put %s on it, like 25% immediately, and 25% at 30, 35, and 40 or whatever you think is best. The other sibling wouldn't really be in charge of doling it out but rather just following your orders with no legal choice in the matter.

Something like this may be the way to go. Speaking from experience, I do suggest that you treat each child equally so as not to create a divide between them.

 

[Raymond01]

Does anyone know if I can set up something like the following:

After we pass, money goes into a Vanguard account. Automatically pay a certain $$ amount out to them 50/50 each month.

 

[bingybear]

Does anyone know if I can set up something like the following:

After we pass, money goes into a Vanguard account. Automatically pay a certain $$ amount out to them 50/50 each month.

Not directly. You guys pass, then who owns the money?

you could set it up that you pass, your money buys some annuities and the annuities pay your heirs for specified time (or until EOL)

you could set up a trust that gets the $ on your death and invests it at VG and the trust spits out payments.

But you need something or someone to own your assets.

Using a trust can be expensive if not setup and run correctly.

 

[Senator]

Have fun. Spend it all. Leave them $0.

 

[DrRoy]

Does anyone know if I can set up something like the following:

After we pass, money goes into a Vanguard account. Automatically pay a certain $$ amount out to them 50/50 each month.

A payout arrangement can be set up through a trust. It costs some money but is necessary to do it. I would suggest that everything pay out within 10 to 20 years. You can't control everything.

 

[Sunset]

..... Whatever my wife and I leave them they will split 50/50. If they want to be responsible or not responsible that's up to them at that point.....

+1
OP is going to probably live another 20-30 years (or at least one of them will), and their kids will be close to retirement at that time.

OP should spend it, not try to control it from the grave.

 

[OldShooter]

... trying to control $$ from the grave is another matter. Not recommended.

Not recommended by whom?

My wife was an SVP in Investments & Trusts for a major bank. She and her staff were trustees on many, many accounts. With very minor exceptions, mostly the bank getting sued by beneficiaries who wanted to do something not allowed by the trust, there were no problems. That's the whole point of a trust; to protect the money from problems.

Re "controlling from the grave" another way to look at it is this: The creator of a trust is called the "grantor." IOW, the person who is granting his/her money to the beneficiaries. It is entirely logical that a grantor would want to have his/her money managed and spent in specific ways just as they did when they were alive. There are cases, too, where a trust is almost mandatory, too. For example a "special needs trust" to benefit a child with physical or mental issues.

 

[OldShooter]

Does anyone know if I can set up something like the following:

After we pass, money goes into a Vanguard account. Automatically pay a certain $$ amount out to them 50/50 each month.

Sure. No problem. The issue with that is the same as with annuities: It provides no flexibility.

For example, suppose a child is diagnosed with cancer, cannot work, and has no savings. A properly written trust would allow the trustee to provide additional money in circumstances like this where fixed payments are no longer appropriate.

Really, sit down with a trusts & estates attorney and brainstorm. You will learn a lot and will realize the broad range of options that you have.

 

[hesperus]

Not recommended by whom?
My wife was an SVP in Investments & Trusts for a major bank. She and her staff were trustees on many, many accounts. With very minor exceptions, mostly the bank getting sued by beneficiaries who wanted to do something not allowed by the trust, there were no problems. That's the whole point of a trust; to protect the money from problems.

Re "controlling from the grave" another way to look at it is this: The creator of a trust is called the "grantor." IOW, the person who is granting his/her money to the beneficiaries. It is entirely logical that a grantor would want to have his/her money managed and spent in specific ways just as they did when they were alive. There are cases, too, where a trust is almost mandatory, too. For example a "special needs trust" to benefit a child with physical or mental issues.

By me. Because I lived through it, as a beneficiary and trustee of a multimillion dollar inheritance. The money may be protected from problems, but the beneficiaries aren't. It ain't pretty sometimes.

 

[45th Birthday]

I would be careful about using a bank or trust company because of the fees they would charge. Also, be careful about exactly what the trust is invested in. Trusts like you would create are taxed as separate entities, and the rate is punitive. After only $12,500 in income, the trust pays 39.6% in federal taxes alone. I know Fidelity has relatively low fees, and special funds that minimize taxable income. That is the way we have it set up.

We have our kids getting 1/3 at 30, 1/3 at 35 and 1/3 at 40, split evenly. We wanted them to be able to launch themselves and make it to 30 before getting a windfall. We will be in our 70s when they turn 40 if we live that long, so realistically this won't come into play.

So far they seem like they can handle money OK (although not on the scale they would inherit so some unknown there). We set up the original trusts when they were one and three years old. Then, there were provisions regarding education, funds to raise them, medical costs, etc. Most of those provisions have been removed.

We still might put more restrictions in if circumstances warrant, but don't intend to. I don't have any qualms about controlling funds from the grave-after all it is our money to decide about, but I'm leery of setting up something that winds up being a mistake and/or has unintended consequences.

 

[bingybear]

I would be careful about using a bank or trust company because of the fees they would charge. Also, be careful about exactly what the trust is invested in. Trusts like you would create are taxed as separate entities, and the rate is punitive. After only $12,500 in income, the trust pays 39.6% in federal taxes alone. I know Fidelity has relatively low fees, and special funds that minimize taxable income. That is the way we have it set up.

Trusts don't have to pay high taxes if you distribute all income. Keeping income in the trust gets painful quickly. It's not really what they are invested in, but keeping he earnings in the trust. Now when you distribute $ you create taxes for the recipient. However this rate will likely be much less than in the trust

 

[MRG]

Just my 2 cents. I also have 2 adult children. One is more responsible than the other and more stable than the other, but the bottom line is they are both my children and I love them equally. Whatever my wife and I leave them they will split 50/50. If they want to be responsible or not responsible that's up to them at that point.

Mike

That's what both our parents did, if we had children that's what we would do.

Year's ago, my FIL expressed concerns about his DD's ability to wisely use the assets he would be leaving us. I understood as sometimes DW wasn't always responsible back then.

I finally took him into the office and showed him our 401k balance. Explaining how it got there made him realize DW did know how to control herself.

When they passed, she became more conservative. Her splurge was buying a great, reasonably priced home with cash.

My point is, you may have taught your children more than you believe they learned.

 

[pj.mask]

As someone who has firsthand experience - if you know you can't trust your kid - use a trust and set up a 3rd party to administer.

Real story: mid 20's male, somewhat ongoing recreational drug use. Left money in a trust by family member. Wanted money to blow - they eventually started a lawsuit and family member didn't want all of it to go to attorney fees so folded. Didn't know they already did 33% contingency fee. Got the money, bought nice top of the line SUV, motorcycle, etc. died a few months later on the new motorcycle. All he had left for his kid was the SUV. They had to sell it at a big loss to cover expenses.

Of course treat everyone equal but all these 'parenting from the grave people' don't have the experience to relate.

Daughter was about 9 months old.