Passing on assets and wealth ?

[frayne]

Forgive me if this topic has already been covered but I did a search and did not find anything along the lines that I was looking for. Specifically what is the best way to pass on assets and wealth. Most here have put a lot of blood, sweat and tears into getting FIRE'd. But how much planning have you put into place to pass on assets to heirs once you take the dirt nap ? Is a will sufficient, does one need a trust and if so, what kind of trust, etc. ? As much as I hate to admit, I am pretty ignorant when it comes to this topic. Would appreciate any advice from the wise sages of the forum as to thier respective approach to passing on wealth and assets.

For a starting point, say one has $1 million is stocks, funds, cash and $300K worth of hard assets, is married with one adult child who is married and has two children. The main concern is making sure the grandkids get a good eduction.

[JOHNNIE36]

frayne, we went through this just a year ago. One thing to note is that it is not how much you have that you want to pass on, but how you want it distributed. In our case, there are certain people that we want to specifically bypass and to make certain that those we want to inherit our assets are afforded those wishes. A will is important but can be challenged in a court of law. We didn't want that to ever come about so we went with a trust. And, as in our case, it would make a difference as to who would pass away first, the trust takes that out of the equation. Our trust was not complicated and the attorney onlly charged us $1000. Well worth the expense in my estimation.

[braumeister]

I'll be interested in the responses here, but AFAIK, one good way is to designate accounts as "payable on death (POD)" which is about the same as assigning a beneficiary to an IRA. That should bypass legal challenges which might arise in probating a will.

[Original Wally]

Frayne, we, too, struggled with that issue. And, as in Johnnie36's case, there are specific individuals that we want to see funds go to.

First, at the high level, we hope to live long enough and follow our spending plan (which includes LOTS of travel) so that, when the time does come, the amount of remaining estate is smaller. Worst case scenario is the proverbial bus with our name on it TODAY. For a lot of reasons.

Another issue I have been working thru is who gets WHAT. Because not all assets are equal. Some - 401(Ik), 457 plan - come with a tax burden attached. Others - real estate - would have to incur a huge sales commission to convert to cash. So the instuctions in Trust become more complex than really needed, in order to provide a level playing field for the heirs.

Thankfully neither of us have any prior marriages and children - the three kids and grands are all our own. That simplifies matters. Our children, however, have more... ummm... "complex" lives. So there is the issue of step-grand children and so on. And one child who may not be able to have children. And another who is married to a foreign national, lives in Europe and whose children attend a completely different school "structure" than here in the States. So it really get complicated.

Agree that education for the grands is priority #1.

But HOW do you do that and make it fair? Three kids... #1 has two sons. #2 is the one childless and may remain so. Or adopt. #3 has daughter and two sons and a step daughter. Do we split 1//3 to each KID. Do we "reward" the ones who have kids by providing education to the grands ... which implicitly "punishes" #2 who is childless? We really struggle with what is "right". I think I am leaning towards a "family meeting" next time #1 is over for a visit... and lay out what we finally decide, along with the reasoning. I would rather it NOT happen upon death as then the kids may resent each other. I would rather hash it out NOW.

As I said.. hopefully we live long enough and FUN enough that they can fight over the last $5

[LOL!]

Each state has different laws, so what one person reports may not apply if you live in a different state. We live in Texas.

For us, we have wills and so-called A/B testamentary trusts (see e.g. http://www.hg.org/article.asp?id=20993) so that we won't have to pay estate taxes. Otherwise, the surviving spouse gets control of everything and after that the kids get everything split even-steven. IRAs, 401(k)s, 403(b) have primary beneficiaries as the spouse and then secondary beneficiaries are split evenly among the kids. It is really not complicated at all.

As for POD accounts, my deceased MIL did this. It was awkward to her children because they knew she wanted everything split evenly, but the POD accounts were all over the map in value. The heirs had to agree to distribute other assets non-evenly in order to have things come out evenly.

[sunnysideup]

I agree you should consult with a lawyer since state laws can impact this decision.

[BUM]

I too have wrestled with the grandchildren education issue. Lots of different viewpoints. I figured 20 years from now college tuition rates will be astronomical. A megatrend professor buddy thinks open access online college courses will cost peanuts. Worldwide anyone can get educated. Its not getting the degree that will be key, its which major, and what the job opportunities will be. Can't fund that with a legacy. Something else to think about...

[Animorph]

Mom said handling Dad's estate through their trust was very simple. I'll have to wait quite a while longer, I hope, to see if that's true. We have a trust set up also, but that'll be someone else's problem.

[obgyn65]

I will keep an eye on this thread since I am also interested in this topic. I already know that a trust may make sense in my case but would like to hear from other participants' experiences also.

[Chuckanut]

I am passing on my wealth while alive through gifts and taking kids on trips with me.

[bondi688]

Quote:

Originally Posted by obgyn65 I will keep an eye on this thread since I am also interested in this topic. I already know that a trust may make sense in my case but would like to hear from other participants' experiences also.

I thought you said you are single and marriage is not quite in your plan. So why are you interested in a trust? Are you thinking of a charitable trust.

[growing_older]

I will be following along eagerly. For my case, just kids and no grand-kids yet, a simple will with an optional trust in case one is still a minor seemed sufficient. Then everything I can identify is POD to them equally, so hopefully one of those two safety nets will insure they get everything.

I couldn't find anyone near me who did trusts for $1000 and since I'm still well under the federal estate tax amount, I am figuring I'm safe until rules change again. Trusts I was quoted were $2500 and up, with most in the $3000 to $4000 range. One was $8500. That didn't seem worthwhile, but if the inheritance is messed up, I guess I could regret it, or they could.

[obgyn65]

Yes.

Quote:

Originally Posted by bondi688 Are you thinking of a charitable trust.

[Khufu]

Quote:

Originally Posted by obgyn65 Yes.

If the heirs are a spouse and/or children, the Roth IRA is the best vehicle since it is tax-free for life.

[bondi688]

Quote:

Originally Posted by obgyn65 Yes.

That is very admirable. In that case, you ought to start to get to know the trustees you eventually will pass the responsibility of managing the trust. There are stories about abuse by trustees charging very high fees for their own benefits, some stole from the trust. And how the trust will do also depend on their ability to manage and invest the funds.

I remember this old news story from MA
Former Trustee Agrees to Repay $4 Million to Massachusetts Charitable Trust | PND | Foundation Center

and this item recently in the news
Ex-San Diego mayor Maureen O'Connor admits taking charity funds | todaysthv.com

The size of your estate and trust will unlikely to rival those of the Cabots and the founder of Jack-in-the-Box. If you have a small trust, one place to start getting information from is the brokerage companies where you have put your investments. Both Fidelity and Vanguard have a division that handle Trusts.

[MooreBonds]

Quote:

Originally Posted by obgyn65 Yes.

Since you're looking at charitable trusts, have you looked into the various Donor Advised Funds out there? there have been a few threads on the ER forum about these (I have one setup with Vanguard Charitable - same Vanguard we know and love, with some of the same funds, but separate legal entity).

The big benefit is that if you contribute to a DAF in the current year, you take the income tax deduction as a charitable contribution in the current year. Then, you can let the funds grow tax-free for as long as you wish, and even have contingency plans set up for automatic distributions after your passing (like you can say "give x% of the balance every year to these charities", or "spend down the entire account across x years after I die", etc.).

The only 'requirement' (AFAIK), is that a donor advised fund account must have at least one distribution to a 501(c)(3) organization at least once every 7 years.

When I set mine up about 6 years ago, the only main players were Vanguard, Fidelity and T Rowe Price. I think Schwab (and maybe a few others) have since got into the game, and there have been some nice changes among the other players (more investment options, lower expense ratios, etc.)

The minimum account opening balances and minimum additional contributions at the time with the companies were between $5k and $15k. Feel free to PM me for add'l details or questions.

[Lsbcal]

Quote:

Originally Posted by frayne ...(snip)... For a starting point, say one has $1 million is stocks, funds, cash and $300K worth of hard assets, is married with one adult child who is married and has two children. The main concern is making sure the grandkids get a good eduction.

First, I like the "dirt nap" comment. A little black humor there.

First you take care of yourself and spouse. We have a revocable living trust which gives the surviving spouse full control. Hopefully one spouse does not change the trust when they get old and stupid but that is always a risk. Ours in simple, we just leave it all to our one son. There is a provision to only give him it in segments until he reaches a mature age. The rest will be managed by Vanguard Trust with inputs from him.

I'm not too worried about this since we are in good health and he's finally reaching a mature point where he "might" make smart choices. But you cannot manage it from the grave.

Just want to mention that adorable grandchild might just go through a terrible period of instability in the early years after he/she comes of age. One needs to give some latitude to a trustee to guard against really obviously bad choices in the younger years. I'm pretty sure had our son been 18 and received a lot of money, it would have been badly managed. Something to think about.

Good luck with your lawyer and don't loose too much sleep on this one. You can always change your minds and patch up the trust/will with codicils as conditions change.

[devans0]

I am fortunate. Default settings from my state fit nicely with what I will do anyway. A workout to clarify who gets what percentage based on their needs and your values is the tough part. Get that straight, then a lawyer will be able to draw it up.

My/ our choice is an "I love you" will, with survivor spouse getting everything. If we go out together in a Titanic cruise, it next goes to our one child.
We also have one grandchild, so getting her funded to a Roth IRA and 529 will be a future step. The income hurdle will take some interesting turns for a granddaughter and may not happen. Take photos of a darn cute kid and pay her a salary?
Imagine if we had started compounding at three. At twenty three, she would have a fully funded retirement start that would exceed what she would put in, if she contributed the maximum for the rest of her life.

If I had more problem choices, I would pass the bulk to the succeeding generation and entrust them to continue to do the same.

[MBAustin]

Quote:

Originally Posted by MooreBonds Since you're looking at charitable trusts, have you looked into the various Donor Advised Funds out there? there have been a few threads on the ER forum about these (I have one setup with Vanguard Charitable - same Vanguard we know and love, with some of the same funds, but separate legal entity). The big benefit is that if you contribute to a DAF in the current year, you take the income tax deduction as a charitable contribution in the current year. Then, you can let the funds grow tax-free for as long as you wish, and even have contingency plans set up for automatic distributions after your passing (like you can say "give x% of the balance every year to these charities", or "spend down the entire account across x years after I die", etc.). ...

MooreBonds - We've been considering something like this as well. Question - do the "contingency plans" have to be in your will or trust or are the instructions kept with the DAF (easier to change, etc.)?

[MooreBonds]

Quote:

Originally Posted by MBAustin MooreBonds - We've been considering something like this as well. Question - do the "contingency plans" have to be in your will or trust or are the instructions kept with the DAF (easier to change, etc.)?

Because the DAF is technically not 'your' money anymore (it's controlled by the DAF), you have to have the contingency plans set up with the DAF when you open your account, and have designated a successor 'advisor' prior to your death. Whether you are allowed to list multiple successor 'advisors' is probably up to the individual DAF.

Of course, you can list multiple 'co-advisors' on your DAF while you're alive, and just keep the grant suggestions up to you (my mother is listed on the account as a co-advisor, or whatever the legal term is that they use....I do all of the grant making, but she's already setup as a full advisor in the event I predecease her, so she can continue things more easily).

There might be some DAFs that allow you to designate the successor information in a will or trust, but I'm guessing they'll want that info already on file when you open up the account.