Trust funds or is there a better way?

[farmerbrown]

I’m a farmer and my father in law is asking questions that I have no ideas about. My accounting company dose not deal to much with this kind of stuff so they don’t know what to say.

He wants to sell his farm to me witch I have been leasing for 5 years but he wants to sink 90% of the money for the farm into some kind of account for his 6 grandchildren. There ages are 12 to 5 years old and are looking at 3 different families. The price I would pay for the farm would be about $500,000 so were looking at about 65,000 to 70,000 each.

The sell of the farm would only be about 2/3 of his assets at this time. He has been talking about doing this ever since is brother died 9 months ago and seeing how messed up everything got once the family got done with the mess.

I’m thinking that he would have to set up trust funds for them but every time I do a search I end up looking at info for other countries. Is there a better way to do this?

[FinanceDude]

Ask around and make an appointment to see an attorney that specializes in estate planning. Sounds like right now you have a land contract with your FIL.

Do you WANT the land, and are you willing to pay the $500,000? That's a lot of money. I realize family is involved, but you need to make the decision with your HEAD (logically) rather than your HEART........

Can he live off the 1/3 of the remaining assets? I have personally seen situations where folks do that, and then something happens and all the money has been gifted to other family members......it becomes a sticky situation......

Best of luck whatever you decide........

[dshibb]

See an estate planning attorney. He will most likely recommend a revocable(grantor) trust if your father isn't at risk for estate taxes. If he is, the attorney will most likely recommend an irrevocable trust.

If your father in law wants to devert money towards grandkids college education, I'd say open 529s on them upon sale(that can be placed inside or outside of the trust). Make sure that he does have a way for (a) trustee(s) to take control of the accounts in the event he dies. You want someone to be able to shift money from one grandchildren's 529 to another's if a grandchild decides not to college(for example) without the granchild having a legal claim.

I would make your father in law comfortable about doing this by telling him that his kids(including you) will help take care of him in the event something happened. The man is handing over his money to your kids, I personally believe that you have a duty to him that is at least equal to the dollar amount given. Hopefully that wont ever be a problem though.

[farmerbrown]

Yes the land is leased to my farm and has been for the last 5 years. There is currently about 19 months left on the lease.

My business is now biased off having that land. Yes I want the land and will buy the land as long as it sells at what the farm is worth. I have been trying to buy the farm for the last 7 years. I have gone to the point of going to the bank and getting them to write the check a few times.

He can and will be able to live off his Navy retirement check with out any problems. 8 years ago his wife died. After he fell and lay on the floor for 9 hours before anyone found him he diced to move in with us. He sold off his live stock and went to just cutting hay. After I cut hay on shares for a year I asked if I could lease the land and he let me.



I will talk to him about the 529 but I think he would also like to have a tinny nest egg when they hit 18 / 21.

He knows that we are willing to take care of him at our farm till were no longer able to and we plan on doing it. Yes about half of the money would end up going towards my kids it looks like.

His brother died last year and his estate went to hell when his other brother got a lawyer and fought the estate. There was a will but it ended up being a mess that is still not worked out. He wants to deal with the land now and know that the largest part of it is over with.



So I need to call some estate planning attorneys.

This is starting to sound like less stress then I thought it would be.

[ERD50]

farmerbrown - what exactly is it that your FIL is trying to accomplish?

$500,000 plus another 1/3rd is not going to trigger estate taxes. If it is to avoid "problems with the will", I think he just needs a good attorney to draw up a solid will. I'm guessing, but I suspect that a poorly done trust could be as contestable and as messy as a poorly done will.

529s might be good, but if the kids could qualify for financial aid w/o them, that 529 might make them ineligible. This may or may not be an issue.

My personal view (not knowing all the details) is that he should hold on to the money until he dies - he might need it for something. If he gives it away, promises are nice and all, but I don't know if there is a way to "recall" money from a 529, for example.

W/O estate tax issues, I think this is probably pretty simple though. IIRC, to avoid estate taxes, the trusts must be irrevocable, but if you are just trying to distribute the money below Estate Tax thresholds, and allow control by a parent or other adult, it's probably fairly straightforward. But maybe not needed.

-ERD50

[dshibb]

"$500,000 plus another 1/3rd is not going to trigger estate taxes."
Yeah it wont, but I didn't have enough information as to the working status and earning power of FIL. He looks to be all, but retired. So, I think you can throw the irrevocable trust out the door in terms of estate taxes. But I did forget that a lot of people have been using them to "asset strip" and get access to medicaid/medicare, but since he is ex-navy that probably isn't an issue either.

First of all, ERD500 you never have a large chunk of money set up in a will for the benefit of someone young with out some form of trust. At the very least you set up a testamentary trust which is only created in the language of the will. This stipulates that a trustee(usually a family member) will manage the kids money for the benefit of the child and then usually has an age of which all the money has to be transferred to him/her. That age usually is something like 24. But usually the trustee will do something like give money for obvious expenses and then an income from 18 to 24. You don't want an 18 year old kid to get 80K in one day. He/she will just go on a big trip, buy toys, a car, etc. They'll just piss it away.

"I'm guessing, but I suspect that a poorly done trust could be as contestable and as messy as a poorly done will."
You guessed wrong. First of all I have never seen a poorly written living (revocable)trust(in the context of contestability). Second, living trusts avoid the costs and hassles of probate. Third, they are much, much, much harder to contest. The only real downside to them is the initial cost, but that wont be to bad in this case. Why? Because one of the prinicpal costs of setting up a living trust is the transfer of specific property and how that property should be handled. In the case of the FIL, its going to 500K in cash. Then all that really needs to be done is open a bank account and a brokerage account. Thats pretty much it. The living trust that your FIL would set up would most likely be a very straightforward one with already specimen documents pre-drafted. He'd come in add some information, and sign some documents. My guess $1 - 2K. If it was me I would go to and get the names of (only)good estate attorney's nearby. I would then call each of them and ask how much they would charge for setting up a non-complicated living trust. If they don't give specifics ask for a ballpark range. And then go with the best deal among those good attorney's. Don't go see one where someone says "he's okay".

[ERD50]

good points/info dshibb - thanks.

I guess another alternative (and again, it all depends on the details), would be to leave it to the parents, and they can dish it out to kids as they see fit (assumes you trust the parents to do this). But there can be advantages to breaking it up into individual trusts - not all the eggs in one basket.

About finding a good estate attorney - I know the "ask for referrals" always sounds good, but what I find is that when it comes to financial matters, most people are clueless, and would not know if their estate attorney is any good or not. Their response is usually based on whether they "like" him/her or not, not on their actual competency. Any other hints on how to locate a credible one?

TIA - ERD50

[dshibb]

And as to the 529s the financial aid issues is of practically no consequence. FAFSA calculations only compute a 5.6% contribution of parents assets. Since the 529s will be owned by grandpa, and the kids will be the beneficiary. There should be no impact on financial aid. Money that comes from the 529 to pay for kids expenses is not subject to tax on the kid. It doesn't even need to be reported. Its just a furnishing of support, exactly the same thing as if OP had to start supporting the FIL(even though that doesn't look it will be an issue).

[farmerbrown]

This will set the stage for where he is at, what he has done, and why he is thinking he needs to do more then what he has done at this time. He dose have a will but who knows how well it was set up…


His fear is that when he dies his brother will come out of the wood work go after his estate. This brother gets a lawyer every time someone dies close to him to try to get what he dose not disserve. When his sister died the sob went after the estate and froze up the estate for 2 years. When my FIL’s wife died he showed his head but was only able to slow down some paperwork.

Right now he has one living brother (the sob), 3 daughters, and 6 grandchildren. After his wife died, he broke his hip and decided to take us up on the offer of living out his life on our farm where he can do more or less what he wants. The agreement came down to him paying $200 a month for room / board and he would lease the farm to me at the going rate (this did not happen).

Once he moved in with us he had is farm house remolded and sold the farm house with a small chunk of farm land. A good portion of this money was split between to 2 other daughters to pay off most of there bills and stuff.

In January he had 2 mutual funds that added up to about $140,000 and $20,000 in bonds at his bank. He gets a check form the Navy every month for about $700 or so. Every month he gets $500 for the lease of the farm. The farm land is worth about $500,000 depending on how you price it. Next year he will start getting a tinny check form SS. He has a life insurance policy for $20,000 I’m not 100% sure on how that’s set up.

He wants everything to go smoothly and that his grand children will get a good size chunk of change so they can start there lives out and go to collage. He doesn’t want the SOB to get anything or to toss a wrench into the works.




There would be some benefits to my buying the farm. For the 2 of us to hold proper insurance on the land it cost all most 4 times the amount as if I owned it my self. The wife and I think the land would do better in the long run then having the money in stocks at this time. We do have IRA’s, stocks, 20 duplexes, the farm, and have cash stuffed in a few banks.

I do like what I read about living trusts but still need to do some more reading and to show him the info.

I sent an email to my lawyer to see who he suggests I go to see. His office deals in other stuff but I’m sure they would know who to go to.

Thank you for the time you have spent so far with me.

[Buddha44]

You seem to be comfortably under the threshold, depending on what year you make the transfer, but I would at least make sure that the estate attorney you are using is aware of the GST (generation skipping tax) if your FIL is making transfers to the grandchildren or a trust in which the grandchildren are the beneficiaries.

[dshibb]

It doesn't appear that the GST will be a problem even if the exemption wasn't bumped up after 2011. FYI exemption is slated to revert back to 1mil in 2011. Anything over that is subject to estate tax and an even higher rate if it goes to grandchildren. So, make sure that his total assets stay under that 1 million mark. If it starts coming close he should start gifting money away to the family to keep it under.

I'm pretty sure that you can put a clause in the living trust that says that it isn't in any way shape or form contestable by said brother. If he tried to bring suit, the judge would throw it out. Also keep in mind that your father maintains control of a grantor(living) trust so that he can decide to use money, property, etc. that is in there while he is alive. So he can effectively shield all of his assets from his brother by putting everything in there and use the assets and money that he wants. He then just has an agreement as to how the remainder of the money and assets are to be used after he dies.

[farmerbrown]

We go to talk to some one latter today. I know he will not set anything in stone for at least a week but will be good to pick his brain.

[farmerbrown]

FIL, wife, and I had the meeting with the planning attorney. He laid all his stuff on to the table. The attorney had the wife and I lay our base finical out on the table to. Currently FIL is estimated right over 1.3 million. My FIL Has stuff that is not in his will and that my wife and I know nothing about.

The attorney wants him to have a meeting with his daughters to talk about some of the finances. He is suggesting selling his land, splitting $350,000 between the 3 of them, setting up a living trust, and the opening 6 - 529’s and use them to keep his total assets between 800,000 and $850,000. A living trust would also be set up.

Were still working thought all the information we were given.

There is a clause that can be added to keep his brother nose out of everything.

We have meetings with the attorney and a tax adviser next week.

It looks like everything should be wrapped up by the end of the month.

[dshibb]

That looks like pretty solid advice to me. And this is all really good to hear.

Also you seriously have to be one of the most proactive people I have ever met on a forum. I can see why your family has been so successful.

[farmerbrown]

Quote:

Originally Posted by dshibb Also you seriously have to be one of the most proactive people I have ever met on a forum. I can see why your family has been so successful.

If you could only see the mess that our stuff is in and the mess that my wife’s rental business is in right now you would say something different.

I run a huge “natural” beef cattle operation and have 2 part time and 2 full time employees.

My wife owns 20 duplexes, has 15 in different stages of construction, and has 10 more that are scudded to start construction as those are finished up. She currently has 3 full time employees and is trying to get everything settled into her new offices.

She runs her company and I run mine.
We have 2 kids 10 and 13.
Our will is 9 years old and is so out of date it is not funny.

[Dennis]

FYI? I went thru this kind of thing ( Leaving $ to Grandkids vs Us Kids) with my parents, etc.. yrs back..


And I & my siblings took Offense to them doing this...Why?

and these are just a Few of the What if's..:

1. What Guarantee is there Your Direct Kids won't be needing $ in their Lives?
2. What Gives you the Right to Go Over-ruling to spoiling on raising our kids?
3. Once they know they have $ comming in their future, they will not strive to succeed as much..You want your Grandaughters to be Paris Hiltons?
4. A Foundation that is Supervised by Your Children would be More Inorder..
that inturn has directions and guidence to help Everyone in the family , not just the Grandkids..in order of Need..
5. Everything from Serious Illness to Divorces to a Multitude of other things can ( and do) happen...to even your Grandkids becomming Drug Atticts and using that $ to further their drug habit..and we ( parents) would have no control over it..

And keeping it very confidental until they are in their 60's is very important..

yes, See an Experience and Older Estate Attorney & a CPA to get more Ideas that have not been taken into consideration..and other Options to consider..

and expect it to cost 2-5% or more of the Total Amt. involved.. to set up and manage..

We just set up our own Portfolio of Investments and Appointed An Executor to manage it , along with supervision by others...to overse it..along with certain guidelines as well..taking in alot of the 'What If" scenerios..

We also have a Gift Trust MFund at Fidelity as well in it..@ 5k Trust for Kids
;0)

[dshibb]

1) Your not entitled to your parents money after they die, they can leave it to who they want
2) An amount that is to be paid after they turn 18 has absolutely nothing to do with you, it is between them and their grandparents. At that standpoint you have no say as to it "spoiling" them
3) You can't stop someone from giving them money if they truly want to. All you can do is try to raise them well so that it doesn't impact them that much/they put it to good use
4) "Everyone in the family" You just want control. And invariably you would determine that the need was in you(the direct children)
5) Now your just going to extremes. If you were good parents the likelyhood of them becoming a drug addict is pretty slim.

All together this just seems like your bitter that your parents didn't leave all their money to you(the direct kids).

But I do hope that your parents appointed a trustee to help manage the funds to the benefit of the children including control on how that money is to be distributed to them, in the event they died. Usually though most states have laws forcing the trust to give the heir the remainder of the assets by a certain age(usually around 30).

And I believe that farmerbrown's FIL will have a trustee(most likely farmerbrown himself) appointed to manage the money for the benefit of the children. And probably a clause as to how to how to manage the money if the FIL died before the kids turned 18 and didn't want them to get a huge sum on their 18th birthday. Usually its like an agreement to pay "necessary expenses" plus monthly income until the trust money runs out by age 25 or something.

[haha]

Quote:

Originally Posted by farmerbrown Every month he gets $500 for the lease of the farm. The farm land is worth about $500,000 depending on how you price it.

I am sure that you know your local market, but how can land that leases for only ($500+12)==$6000 be worth $500,000? $6000/$500,000 is only a return to land of 1.2%. Have rents become that low?

Ha

[dshibb]

Because its his son-in-law for probably one reason.

Another thing Dennis, if his father in law went to much in the direction of passing money back to FarmerBrown and his wife right after the transaction, the IRS would come after them for it not being "an arms length transaction". Even though there are very easy ways around that. But that is another reason why its a good thing that money is being set up to pass to the grandkids.

[farmerbrown]

Dennis I can see your point but he looks at it a lot differently. The wife and I don’t need or want his money, but my farm NEEDS his farm land as a supporting farm like it has been for the last few years. Her rental company COULD USE the estimated $900,000 that it will have out on loans by the end of the year.

I will go look at the 5K trust for kids tonight.

He looks at it this way. He paid off his other 2 daughter’s houses, cars, fix everything that needs fix, sent them on a real good vacation, and gave them some money to do with what they want a few years back and now then they should not need anything down the road. If they were shelling out $1,500 a month to pay for there cars and house then they can be putting 1,200 a month into something for the long term now with out a problem.

I don’t think that giving kid’s money will spoil them. I think it has to do with the shitty parenting that has been done for the last few generations. I think you need to step back and look at the parenting that leads our children to be spoiled rotten drug users.

My 13 year girl old is already learning about work and money. She is one of my part time employees and her day starts at 5 am just like mine. She gets a percentage of her money and the rest goes into an account that’s off limits to her. She wanted her 90 cc go cart last year she paid for it her self. You should have seen the look on her face when she pulled the pile of 100’s and 20’s out of her pocket and counted it out to the clerk.

My 10 year old girl hangs out with her mom and helps with the duplexes. She gets a percentage of what she makes and the rest goes into an account that’s off limits to her also. She’s into remote controlled cars and she saves up her money and she buys them as she can afford them.


HaHa

I know I don’t pay the going price for farm land rent. If you have looked into the rent of farm land then remember that most of the time you only lease it for part of the year not all year like we do. There is also an issue of fertilization, property up keep, and a bunch of other stuff that gets over looked when you sign crop land leases and I’m responsible to keep up with it not the land owner.

There is a property about 30 miles away that I could rent for 3.2% of what’s it worth. I could go in there and use the land for 5 years and when I was done it would need 4 to 5 years of work to get it back to where it would be worth it for someone like me to rent again.

Do you know what the going rate for room and board is? It includes everything down to your laundry being done and put up, high speed internet, full satellite TV with DVR, home phone, cell phone, and much more. He dose have to pick the kids up form school every Friday and hang out with them till about 6:00 when we get home but no other pushes to take the kids so we can do stuff. I’m thinking we should charge him more than $200 a month for room and board what do you think?