Leaving a Trust Fund for my heirs’ retirement

[pompanobeach]

Hi. Any ideas on having a Trust Fund created in order to provide monthly income to my heirs for their own retirement?

I’m not married nor do I have children. However, I do have a dozen or so nieces and nephews which I love immensely.

The issue is that their generation just doesn’t know how to save money. They spend it as fast as they make it. I dread thinking that one day they are going to find themselves not being able to retire because of it.

My idea therefore is to leave each of them a monthly income to use in their retirement, etc..

My estimates show that unless there is a severe economic downturn of events, my estate would be worth about $4m when I eventually depart.

Would like to hear your thoughts on my crazy idea and the investment.

Thank you.
PB, Fla. [emoji41]

 

[DrRoy]

I expect that to be safe, you should get an estate lawyer to set up the trust. You can probably find books and articles on the subject, though.

 

[pompanobeach]

Thank you. DrRoy. But curious on what do you think about the idea itself?

 

[Oz investor]

i will take an uneducated guess , and think most of these beneficiaries are around 30 years old ... so in essence a trust with a 40 year life time ( more or less )

that would need one heck of an honest administrator to look after that trust properly
would looking for that special administrator be a good first step , the correct person would be able to tailor the details to your desired outcomes .

also please don't write down those heirs yet one or more could find an effective reality check ( like i discovered later in life )

the 'later-life pension ' (for lack of a better description ) will depend on if there is enough funds to distribute at the appropriate time . ( and the ability to resist silly litigation attempts )

i would suggest the correct administrator first , that person should then be able invest the funds wisely if it is in cash ( when the time comes ) , or know which investments to retain if you have already invested wisely , and use the dividends to fulfill your bequest

cheers

 

[pompanobeach]

Thank you OZ! Great perspective. Appreciate your answer!

 

[marko]

The issue is that their generation just doesn’t know how to save money. They spend it as fast as they make it. I dread thinking that one day they are going to find themselves not being able to retire because of it.

If there's "a dozen or so" nieces and nephews splitting income on $4MM there's not likely a lot of money to retire on. Looks like about $1K per month income each.

Just sounds like more spending money rather than retirement money.

The idea itself is fine. Happens every day. Drive 30 miles up A1A from Pompano to Palm Beach and look around.

I know a bunch of trust funders who haven't fared so well financially (or physically) however, but a $12K annual income isn't going to put them in that class.

Even waiting until their retirement age, they might get 3X that amount; a nice boost but not RE money. The danger there is that they go through life thinking their retirement is taken care of (and spend away accordingly) only to find it's not what they can live on.

As noted, get an estate lawyer.

 

[Oz investor]

one unknown ( yet ) is that going to be $4 mill cash , or $4 mill earning say 8% a year after fees and costs .

you may easily have done all the hard work and only need a latter day Abe Lincoln

 

[pompanobeach]

Thank you Marco. With such a few responses to my inquiry, I am already rethinking this approach. Love this forum!

 

[pompanobeach]

one unknown ( yet ) is that going to be $4 mill cash , or $4 mill earning say 8% a year after fees and costs .

you may easily have done all the hard work and only need a latter day Abe Lincoln

Thank you OZ!

 

[MrsHaloFIRE]

I gave a rare degree in trust management, we were trained to be trust officers at banks to manage exactly this type of setup. And we were instructed to not do this type of thing to children. Kids tend to shape their early adult behavior if they know they have easy money coming . The risk in the scenario you describe is they never learn to save knowing tgey have an always renewing income stream. This can lead to acquiring bad habits very young. Only thing worse to do is to start that easy income earlier. An allowance for a 30 year old. These are the people that tend to develop drug and alcohol habits and do not develop work habits. Unless this is a crap ton of money (you decide what a crap ton is) I would chop it up and disburse it at your demise. Only exception being if any of these children has special medical needs. A trust is ideal for this. YMMV on this. Some "trust babies" are fine and do great things. Others have their liquor store bills sent to the trust dept to be paid. Just some ideas from me

 

[pompanobeach]

I gave a rare degree in trust management, we were trained to be trust officers at banks to manage exactly this type of setup. And we were instructed to not do this type of thing to children. Kids tend to shape their early adult behavior if they know they have easy money coming . The risk in the scenario you describe is they never learn to save knowing tgey have an always renewing income stream. This can lead to acquiring bad habits very young. Only thing worse to do is to start that easy income earlier. An allowance for a 30 year old. These are the people that tend to develop drug and alcohol habits and do not develop work habits. Unless this is a crap ton of money (you decide what a crap ton is) I would chop it up and disburse it at your demise. Only exception being if any of these children has special medical needs. A trust is ideal for this. YMMV on this. Some "trust babies" are fine and do great things. Others have their liquor store bills sent to the trust dept to be paid. Just some ideas from me

Wow! Thank you so much! This really opened my eyes. I think you are correct. They can split whatever is left. I will hopefully leave them something in writing expressing my desires but then it’s up to them! Thank you!

PB, Fla

 

[pjigar]

I gave a rare degree in trust management, we were trained to be trust officers at banks to manage exactly this type of setup. And we were instructed to not do this type of thing to children. Kids tend to shape their early adult behavior if they know they have easy money coming . The risk in the scenario you describe is they never learn to save knowing tgey have an always renewing income stream. This can lead to acquiring bad habits very young. Only thing worse to do is to start that easy income earlier. An allowance for a 30 year old. These are the people that tend to develop drug and alcohol habits and do not develop work habits. Unless this is a crap ton of money (you decide what a crap ton is) I would chop it up and disburse it at your demise. Only exception being if any of these children has special medical needs. A trust is ideal for this. YMMV on this. Some "trust babies" are fine and do great things. Others have their liquor store bills sent to the trust dept to be paid. Just some ideas from me

A trusted manager has been a lingering concern for my special need child. I am planning for mine and his retirement but what worries me is no-one I trust would be around when my son will need a trusted manager. Your comment seem to suggest that big banks can act as trust manager. Is that true?

 

[utrecht]

Vanguard has Trust management services. There is a fee of course, and its not cheap by most of our standards but its a lot cheaper than any bank would be.

 

[Oz investor]

as with all FAs , you would have to assess that yourself ,

for those with a deep interest
you could look at the current Royal Commission into banking and while the misdeeds are shocking , you must remember this is just ( ugly ) human nature let go unchecked for over a decade .. and the high-moralled whistle-blowers were as much a victim as the poor client . there were warnings but some management just didn't want to know

toxic culture risk lives in these decisions

 

[stephenson]

Your generalization about their gen is a bit too general ....my kids and many, many, many of their peers save and talk about saving and investing. Where the issue will arise, I believe, is for those who used to have retirements from manufacturing companies, and, who didn’t replace that needed income with 401k contributions. But, again, not everyone is the same.

 

[pompanobeach]

Hi Stephenson. You are correct. I didn't mean to lump the entire generation!

 

[pompanobeach]

Thank you for the info!

 

[stephenson]

Sorry ...one of my pet peeves [emoji846]. Older people (me, us, etc) tend to believe things are not like they used to be, and especially that younger gen is different. In general, it is correct ... but, in a different way. My experience has been that my kids’ gen is smarter, better educated, taller, faster, more interested in different sides of the various stories of our world, far more likely to listen to other perspectives, and more team oriented.

 

[googily]

Wow! Thank you so much! This really opened my eyes. I think you are correct. They can split whatever is left. I will hopefully leave them something in writing expressing my desires but then it’s up to them! Thank you!

PB, Fla

Just chiming in as someone without kids but with a number of nieces and nephews (and a couple siblings who will be short of funds when they are old). Originally DH and I were going to go in a way similar to yours, trusts with age restrictions (except for education or a house), especially when we started thinking "what if we die tomorrow and these heirs get a boatload of money much earlier than we thought?".

Then we started thinking a) it's just too complicated and too much trouble, b) we won't be here to know how it's spent anyway. Let them make their mistakes, or not. Some of the kids and siblings will know what to do, and the others won't. Or maybe by then they will.

And now it's just me, and I'm going to do my best to do what we really wanted to do with our money, which was/is spend it all and bounce the last check.

 

[pompanobeach]

Thank you Googily!! I like that!

 

[trumpeting_angel]

Maybe everybody gets a simple retirement savings book for the next holiday. Probably won’t have much influence, but it could make a curious young person turn toward savings.

 

[GrayHare]

Kids tend to shape their early adult behavior if they know they have easy money coming . The risk in the scenario you describe is they never learn to save knowing tgey have an always renewing income stream.

+1

If you establish such trusts, avoid telling the beneficiaries as long as possible.

 

[OldShooter]

A few comments below. We have had testmentary trusts for both our kids for many years and my wife retired as an SVP and business unit manager in a megabank trusts & estates division.

1. Distributing a periodic fixed amount is not generally a good idea, because the trustee has no way to react to unanticipated situations. Suppose the beneficiary gets cancer and has less than a year to live? A fixed payment would not be enough to provide nursing support or to meet other possibly expensive needs. A more normal trust would include boilerplate direction to the trustee, authorizing "HEMS" payments; health, education, maintenance, and support. Flexibility, IOW. Additionally you can add instructions. Our trusts say to the trustee: "It is not our intention that our son will not have to work for a living prior to normal retirement age." Not suitable to the OP's situation but illustrative of what can be done: "Trustee is authorized to pay to beneficiary annually an amount equal to the amount beneficiary has earned and documented by providing IRS Form W-2s." You can also provide instructions on how the assets of the trust are to be invested.

2. Special needs trusts are, well, special. If the special needs person is likely to become eligible for government support, the trust must be written in a way that keeps the govenment from being able to require that the trust be completely paid out before the government support begins.

3. Contingencies need to be addressed, like what happens to the assets of the trust if the beneficiary dies? How is the trust handled if the trustee resigns or is unable to perform his/her/its duties? In our state there is the notion of a "trust protector." (https://www.americanbar.org/publica..._pp_v31_1_article_huber_trust_protectors.html)

3. This is indeed intricate law and not to be practiced by SGOTI. Anyone thinking about this (and many should) needs to consult a specialist with expertise in the grantors' state laws. It will cost a few $K, but what is that as a fraction of the assets you are trying to protect and manage?

4. We recently named Schwab as trustee for our kids' two trusts. DW vetted the Schwab trust agreement and fees and Schwab was much more attractive as a manager than was the megabank where she spent her career. YMMV, of course.

 

[wolf]

Another consideration. What about nieces/nephews who are married? If related relative passes (blood), do you want your inheritance to go to the surviving spouse?

Do your nieces/nephews have children. Same question. Suppose your relative passes before you. Do you skip surviving spouse and have their children inherit. (who probably will not know who you are ha).

Can be complicated.

 

[DrRoy]

Thank you. DrRoy. But curious on what do you think about the idea itself?

I have some of the concerns that others have replied with. You have the most information and are really the only one to determine what is best. Another option is to donate your estate to a charity that you believe in, instead of or in addition to your relatives.