Time to Re-swizzle the Beneficiaries?

[sengsational]

This only applies in the rare case that DW and I meet our demise at the same time since we are each other's best friend (and primary beneficiary).

Right now, the secondaries are our fathers (both with the understanding the money would be to benefit our two kids), but our youngest just turned 18, so it seems like we could go in and put the kids on there as secondaries. Our fathers are trustworthy and have plenty of their own money, but they ain't as young as they used to be.

So what am I missing here? Any reasons why this would be a dumb idea? The older one is super in control (albeit still in college, but shows lots of responsibility). The young one? Well, lets just say I'm glad she listens to her older sister

Actually, the chance of this ever making a difference is vanishingly small...the chance of us both cashing in at the same time is really tiny, but we might as well get it right.

 

[LOL!]

I thought that it was more typical that children would be the beneficiaries via a trust controlled by a trustee (usually a relative or two) until they reached a certain age such as 21, 25, 35, or whatever. And the trust could release assets at various ages, too, so that the kid doesn't get all the money at once.

As for trustees, they could be a relative or a pair of relatives AND if the children are minors, the guardians for the kids would NOT have to be the trustee.

Example from my will: Assets go into trusts for the kids. Guardians are my sister and trustee is my sister-in-law (they get along well). Kids gets control at age 25.

 

[MooreBonds]

This only applies in the rare case that DW and I meet our demise at the same time since we are each other's best friend (and primary beneficiary).

Right now, the secondaries are our fathers (both with the understanding the money would be to benefit our two kids), but our youngest just turned 18, so it seems like we could go in and put the kids on there as secondaries. Our fathers are trustworthy and have plenty of their own money, but they ain't as young as they used to be.

So what am I missing here? Any reasons why this would be a dumb idea? The older one is super in control (albeit still in college, but shows lots of responsibility). The young one? Well, lets just say I'm glad she listens to her older sister

Actually, the chance of this ever making a difference is vanishingly small...the chance of us both cashing in at the same time is really tiny, but we might as well get it right.

Worst-case scenario: you and DW pass on at the same time while both daughters are in college. Your fathers' inherit the money. How is college paid for? Is anything more than $13k/year from each grandfather considered a 'gift' to your daughter and subject to the gift tax? I suppose they could cut each of your daughters checks for $50k each year to pay for tuition and some living expenses, and just file gift tax returns to use up part of your fathers' estate tax exemptions.

But, as others have mentioned, I would expect it would be FAR better to have a simple revocable trust set up, with your and DW's fathers' set up as trustees, and have your daughters be the beneficiaries. That way, no messy potential gift tax issues on your fathers' distributing money to your daughters. Also, legally, it's cleaner to have a trust set up to own the assets and have daughters as beneficiaries (especially if your fathers' estates already are close to the $5M federal estate tax deduction, but also if they live in states that have a much lower state estate tax deduction limit).

 

[GrayHare]

Note that if these are retirement assets (IRA, 401k) they cannot be put into a trust since the necessary retitling would invalidate their special tax treatment as retirement assets.

 

[MasterBlaster]

Note that if these are retirement assets (IRA, 401k) they cannot be put into a trust since the necessary retitling would invalidate their special tax treatment as retirement assets.

Qualified assets like IRA's and401k's pass directly to your desginated benificiaries outside of probate. No trust is needed or required for such. Their special tax status can, in mnay cases be maintained by the benificiary subject to IRS rules.

 

[sengsational]

Thanks for the discussion so far, but it sort of seems the main question (if making the two daughters, now that they are both 18 or more, into secondary beneficiaries to replace the fathers) was lost in the shuffle.

 

[LOL!]

I discussed this with my 17 and 21 year-old at dinner last night. I told them I did not trust them with inheriting any money because they had not exhibited enough maturity in their own finances. So I told them they would have an aunt controlling the money until they were older. I asked them how old they thought they should be before they would get control.

What did you tell your daughters?

BTW, the kids have ALWAYS been secondary beneficiaries after my spouse. I think it is a bad idea to have one or more parent(s) the beneficiary unless one is childless and has no siblings.

 

[GrayHare]

Well, posters have indicated it can be dumb to give a young person a heap of money before he or she has established his or her own earnings. Next, options were mentioned: a trust for non-retirement assets. Retirement accounts are problematic since they cannot be put in trust.

 

[sengsational]

I discussed this with my 17 and 21 year-old at dinner last night. I told them I did not trust them with inheriting any money because they had not exhibited enough maturity in their own finances. So I told them they would have an aunt controlling the money until they were older. I asked them how old they thought they should be before they would get control.

What did you tell your daughters?

BTW, the kids have ALWAYS been secondary beneficiaries after my spouse. I think it is a bad idea to have one or more parent(s) the beneficiary unless one is childless and has no siblings.

I told my daughters that they would have to knock us both off at the same time and get away with it in order to get the money, hehe. Seriously, I told them (while their grandfather was there), that if DW and I went down in a plane together that my dad would have our savings for their benefit.

Well, posters have indicated it can be dumb to give a young person a heap of money before he or she has established his or her own earnings. Next, options were mentioned: a trust for non-retirement assets. Retirement accounts are problematic since they cannot be put in trust.

I agree, but if they blow the money and I'm not around to see it, I'm ok with it

But I didn't think I could put a minor as a beneficiary! That was an implied starting point that maybe wasn't valid? The whole idea was ... now that they are both adults, I can skirt the whole bunch of complexity and gift tax issues by just cutting out the middle men (the grandfathers). Not sure I would have put the under aged kids as secondaries anyway, even if it was allowed. But are you sure that's allowed?

 

[Sarah S]

I have a minor child as a beneficiary. Was told it was fine to do. She is beneficiary for several accounts at different institutions.

 

[kaneohe]

Note that if these are retirement assets (IRA, 401k) they cannot be put into a trust since the necessary retitling would invalidate their special tax treatment as retirement assets.

Apparently there are special trusts that can continue to stretch IRAs (and I assume 401Ks, converted to IRA if necessary). They must be carefully written and must not contain non-persons (charities/estates) as potential beneficiaries). How to Stretch Out an IRA

 

[kaneohe]

I agree w/ those who suggest a trust for the beneficaries might be a better idea than bequests to parents , even if they are completely trustworthy. There is a risk that your plans might go awry if the parents pass away..............what do their wills/trusts say will happen w/ their assets............(your former assets)........maybe only a portion or maybe none might go to your kids. Or suppose they get into an accident and are liable for damages and have to declare bankruptcy?

 

[Hopeful]

I agree w/ those who suggest a trust for the beneficaries might be a better idea than bequests to parents , even if they are completely trustworthy. There is a risk that your plans might go awry if the parents pass away..............what do their wills/trusts say will happen w/ their assets............(your former assets)........maybe only a portion or maybe none might go to your kids. Or suppose they get into an accident and are liable for damages and have to declare bankruptcy?

+1 I agree

 

[Sesq]

All my accounts go to a trust for the benefit of my minor children (if my wife pre-deceases). I have not looked into whether my kids will qualify for a stretch IRA treatment, and while it would be beneficial, its more important to me that they don't come into all the cash at 18. I wouldn't pay it up to my parents, as though they could be well intentioned, their potential nursing home admin may not be.

 

[LOL!]

Stretching an inherited IRA is rather trivial and a trust is not needed to do that. One just cannot screw up some things early on and must take RMDs every year if one did not inherit from a spouse.

 

[kaneohe]

Probably the trust was suggested, not because it was necessary for the stretch, but to prevent the young adults from blowing their inheritance all at once.

 

[MRG]

Whatever you do get you children on the will/trust. If you fear a child not being able to handle the money, then delaying/limited access might be the way to go.

No matter how the elders are today sometimes things change for elders. I know, my 95 year old father with severe dementia just disinherited my sister and myself, he can't even tell us why.

According to his attoury 'he had times of lucidity'.

Sound mind my a€€.

MRG