Happy Saturday!
Have been looking into this and not feeling good about my understanding.
Situation - mid 80s couple in good health has $500K traditional IRA, just taking RMDs. Recently changed will to leave to 4 grandkids (age mid 20s-mid30s) in a trust (actually 4 trusts, 1 per grandkid). While I'm executor, I don't have details on the trust provisions, however my father has stated he wants it to go for "their retirement and off limits from lawsuits". He has a vision of them retiring gazillionaires because of compounding. On a related note, I have discussed having him convert some to Roths (he's got room in 22% with no state tax, 3/4 beneficiaries are in at least 22% or higher now and have state tax including CA). He dismissed this without discussion as hogwash and no need to calculate since he "knows it will be more without converting".
Question:
With the IRA in a trust and a management fee is owed, is this fee taken out of the trust, ie before taxation? From what I can find I think this is possible. If so, does it count towards the RMD of the beneficiary?
What sort of minimum assets/fees can be expected?
I've found limited published trust fee/minimums. Off the top of my head, one said $500K assets, one was $200K assets (subject to minimum fees), another said no minimum assets but subject to minimum fees that are based on $1M assets. Another said $6K minimum fee with no minimum assets, along with %. It is currently with TIAA and for all I know might be set up to stay there.
My concern/question is how much comes out each year. I'd like to run a simple spreadsheet with some assumed returns and see what happens, but don't know how to account for the fees. Let's say the RMD for the beneficiary is 2% and the fee must come out on top of that, whether taxed or not. Depending on what % that works out to be due to the relatively small principal, there may not be enough critical mass of principal to sustain this. Could there be no distribution to the beneficiary if the fee was 2% and offset the distribution? I recently read Beyond the Grave, which mentions sufficient assets for trusts, but could never find what sort of figure that might be.
Given their age, I don't expect any growth given the size of their RMDs, though my crystal ball of future returns is hazy.
And before anyone asks... I don't have access to the details or the lawyer or the financial advisor (who lives in a really nice house and invites them over to go out on his boat! Nice guy! ). When I've asked questions in the past about details, I get told it's not my business, he's deciding everything and I'll just execute. I have been told they buy life insurance with RMDs since they don't need the money... financial advisor came up with this plan To be honest, I'm sorely tempted to tell him I pass as executor but this will no doubt add stress to an already strained relationship. I'm also a Fido private client who has a good relationship with my advisor. Last time in I mentioned the scenario and he basically said it wasn't enough money to bother doing the trusts.
Anyone with experience along these lines? Put any numbers on the fees/accounting that might get me closer to a spreadsheet that has some potential for reality instead of a SWAG?
TIA for any enlightenment!
Have been looking into this and not feeling good about my understanding.
Situation - mid 80s couple in good health has $500K traditional IRA, just taking RMDs. Recently changed will to leave to 4 grandkids (age mid 20s-mid30s) in a trust (actually 4 trusts, 1 per grandkid). While I'm executor, I don't have details on the trust provisions, however my father has stated he wants it to go for "their retirement and off limits from lawsuits". He has a vision of them retiring gazillionaires because of compounding. On a related note, I have discussed having him convert some to Roths (he's got room in 22% with no state tax, 3/4 beneficiaries are in at least 22% or higher now and have state tax including CA). He dismissed this without discussion as hogwash and no need to calculate since he "knows it will be more without converting".
Question:
With the IRA in a trust and a management fee is owed, is this fee taken out of the trust, ie before taxation? From what I can find I think this is possible. If so, does it count towards the RMD of the beneficiary?
What sort of minimum assets/fees can be expected?
I've found limited published trust fee/minimums. Off the top of my head, one said $500K assets, one was $200K assets (subject to minimum fees), another said no minimum assets but subject to minimum fees that are based on $1M assets. Another said $6K minimum fee with no minimum assets, along with %. It is currently with TIAA and for all I know might be set up to stay there.
My concern/question is how much comes out each year. I'd like to run a simple spreadsheet with some assumed returns and see what happens, but don't know how to account for the fees. Let's say the RMD for the beneficiary is 2% and the fee must come out on top of that, whether taxed or not. Depending on what % that works out to be due to the relatively small principal, there may not be enough critical mass of principal to sustain this. Could there be no distribution to the beneficiary if the fee was 2% and offset the distribution? I recently read Beyond the Grave, which mentions sufficient assets for trusts, but could never find what sort of figure that might be.
Given their age, I don't expect any growth given the size of their RMDs, though my crystal ball of future returns is hazy.
And before anyone asks... I don't have access to the details or the lawyer or the financial advisor (who lives in a really nice house and invites them over to go out on his boat! Nice guy! ). When I've asked questions in the past about details, I get told it's not my business, he's deciding everything and I'll just execute. I have been told they buy life insurance with RMDs since they don't need the money... financial advisor came up with this plan To be honest, I'm sorely tempted to tell him I pass as executor but this will no doubt add stress to an already strained relationship. I'm also a Fido private client who has a good relationship with my advisor. Last time in I mentioned the scenario and he basically said it wasn't enough money to bother doing the trusts.
Anyone with experience along these lines? Put any numbers on the fees/accounting that might get me closer to a spreadsheet that has some potential for reality instead of a SWAG?
TIA for any enlightenment!