Estate planning: passing wealth to kids

[WhenIsItTime]

I desire to pass majority of my wealth to my kids. Considering starting in their late 20's primarily to see how they handle it.

Any experience to share going down this path? GRAT's? Annual gift tax exemption? Trust stipulations?

 

[Souschef]

I am passing our wealth slowly to our sons. When I take my RMD, the total is divided 3 ways:
Estimated taxes
Charitable donations (QCD)
Gifts to sons up to $16 K each
Also when I sold my rental, I divided up the proceeds among our sons.

 

[38Chevy454]

The type of the assets you are considering is important in regard to taxes. Step-up basis is significant to consider. Also your state laws may have effects that are probably best to talk with an estate attorney in your area.

 

[OldShooter]

Our wealth will mostly pass after our deaths although we are "helping' on various things as they come up. For three minor grands whose dad passed in 2020, there will be two educational trusts and a special needs trust. For older son, there will be a fairly vanilla trust that will ensure that the money is professionally managed and his ability to make financial mistakes will be limited. He knows this and is grateful for it. Schwab will be the trustee for all four. Trusts for the grands will be updated as they get older and get through college.

DW was an SVP and business unit manager in a megabank Trusts & Estates department, so we are believers in using trusts to protect money being bequeathed to family. The risks are endless, beginning with spendthrift behavior and divorce/remarriage.

As an example, there was a post here a few months ago describing a scenario where an Eddie Jones advisor was working with a trust beneficiary to get the trust dissolved so (surprise!) Eddie could take control of the money.

A well-written trust also deals with emergency needs like serious illness where home care is desirable and with disposition of the trust corpus upon the death of the beneficiary.

After hearing from SGOTI to the extent you want, you should consult with a trusts & estates specialist attorney and, possibly, a CPA. This is not an area for amateurs.

 

[WhenIsItTime]

Our wealth will mostly pass after our deaths although we are "helping' on various things as they come up. For three minor grands whose dad passed in 2020, there will be two educational trusts and a special needs trust. For older son, there will be a fairly vanilla trust that will ensure that the money is professionally managed and his ability to make financial mistakes will be limited. He knows this and is grateful for it. Schwab will be the trustee for all four. Trusts for the grands will be updated as they get older and get through college.

DW was an SVP and business unit manager in a megabank Trusts & Estates department, so we are believers in using trusts to protect money being bequeathed to family. The risks are endless, beginning with spendthrift behavior and divorce/remarriage.

As an example, there was a post here a few months ago describing a scenario where an Eddie Jones advisor was working with a trust beneficiary to get the trust dissolved so (surprise!) Eddie could take control of the money.

A well-written trust also deals with emergency needs like serious illness where home care is desirable and with disposition of the trust corpus upon the death of the beneficiary.

After hearing from SGOTI to the extent you want, you should consult with a trusts & estates specialist attorney and, possibly, a CPA. This is not an area for amateurs.

I have some tax expertise, but limited in deep understanding of estate tax strategies.

I've struck out initially on tax and legal advice. Surprisingly to me, I might have been out of their league, or more likely they should be out to pasture. Pinging SGOTI for better questions to ask in round 2.

Thanks for trust content examples. Have those area contemplated and deciding nuances within.

 

[WhenIsItTime]

The type of the assets you are considering is important in regard to taxes. Step-up basis is significant to consider. Also your state laws may have effects that are probably best to talk with an estate attorney in your area.

Mostly traditional financial investments (stocks, ETF's).

 

[OldShooter]

I have some tax expertise, but limited in deep understanding of estate tax strategies. ...

Actually, that is the easy stuff. The hard stuff is things like family dynamics, unforeseen but not impossible events, potentially "unequal" treatment of beneficiaries for reasons that make sense to you, ... For this, you need an old bear advisor that has seen it all, or most of it, and can guide you through the minefield.

For example, it is not uncommon for a poorly designed trust to simply specify that a beneficiary gets a chunk of the money at 25YO, a chunk at 35, and the balance at 45. Easy to understand, easy to administer, but what happens when the beneficiary ends up needing daily in-home health care at age 29? Auto accident, cancer, early onset Alzheimer's , ... There are lot of low probability events to fear. In this case the (deceased) grantor would certainly have wanted to support the beneficiary in his time of need, but the trustee's hands are tied. He/she cannot disburse any money for another six years.

 

[ncbill]

Actually, that is the easy stuff. The hard stuff is things like family dynamics, unforeseen but not impossible events, potentially "unequal" treatment of beneficiaries for reasons that make sense to you, ... For this, you need an old bear advisor that has seen it all, or most of it, and can guide you through the minefield.

For example, it is not uncommon for a poorly designed trust to simply specify that a beneficiary gets a chunk of the money at 25YO, a chunk at 35, and the balance at 45. Easy to understand, easy to administer, but what happens when the beneficiary ends up needing daily in-home health care at age 29? Auto accident, cancer, early onset Alzheimer's , ... There are lot of low probability events to fear. In this case the (deceased) grantor would certainly have wanted to support the beneficiary in his time of need, but the trustee's hands are tied. He/she cannot disburse any money for another six years.

I "trust" you're joking.

In the above circumstance the beneficiary with the support of the trustee would petition the court & the court would authorize their request to distribute additional funds for HEMS needs...yes, there are legal expenses involved.

 

[marko]

I "trust" you're joking.

In the above circumstance the beneficiary with the support of the trustee would petition the court & the court would authorize their request to distribute additional funds for HEMS needs...yes, there are legal expenses involved.

Exactly.

As trustee of my disabled brother's trust I'm in the process right now of petitioning the court for expanded powers in order to have considerably more flexibility in managing his assets/trust without (long, drawn out) court approval.

 

[OldShooter]

I "trust" you're joking.

In the above circumstance the beneficiary with the support of the trustee would petition the court & the court would authorize their request to distribute additional funds for HEMS needs...yes, there are legal expenses involved.

Maybe. I have heard that example from professional trustees more than once. But the point is that trusts involve a lot of thinking through potential scenarios and options and that many difficulties can be avoided by good drafting. Even if a trustee went to court in a case like the example, as you observe it costs money unnecessarily. IIRC the megabank billed out DW at $250/hour, paid from the trust, for things like this. That's in addition to lawyer fees.

 

[Car-Guy]

We started gifting each year to the DD some years ago. The years we exceed the annual exclusion limits, I simply file tax form 709. When we are gone, she gets it all. Pretty simple for us.

 

[target2019]

I desire to pass majority of my wealth to my kids. Considering starting in their late 20's primarily to see how they handle it.

Any experience to share going down this path? GRAT's? Annual gift tax exemption? Trust stipulations?

I have some tax expertise, but limited in deep understanding of estate tax strategies.

I've struck out initially on tax and legal advice. Surprisingly to me, I might have been out of their league, or more likely they should be out to pasture. Pinging SGOTI for better questions to ask in round 2.

Thanks for trust content examples. Have those area contemplated and deciding nuances within.

Mostly traditional financial investments (stocks, ETF's).

Yes, you could find that any given adviser is not interested in your accumulated assets. With a thread like this you can gain a lot of valuable advice about the specifics. For example, I found that we did not need anything complex. Having your beneficiaries straight helps a lot.

Even if you go with an adviser, it's very beneficial IMO to read a few books on the subject. That way you can evaluate the solutions that are presented to you.

A book I read last year changed my views on passing on wealth later. It is certainly more fun to enjoy a family experience now rather than passing and not giving your family the experience.

With younger adults you could be more cautious in the beginning. Beyond helping with college loans in their 30's, we did not do much else. Now they are in their 30's, and it is easier for us to be more comfortable with significant gifts each year.

BTW, there is an ignore user button that helps. YMMV.

 

[athena53]

I'm 69 and almost 8 years post-retirement so I'm finally starting to get comfortable with the idea of giving some of it away now. My net worth excluding the house (about $300K equity there) has increased on average by 3.6%/year since retiring, there's really not much more I want to spend it on and now I'm getting a $1,700/month bump in SS going to my own record from Survivor benefits.


In some ways my situation is simple. My son, age 37, is my only child and he and DDIL live frugally and responsibly. The marriage seems very strong. OTOH, they have a tendency to give money away- to people they know who are genuinely down on their luck and to their church (I like the church- there's no arm-twisting going on and I support my own church generously). DS loves his job and claims he wants to work till 70. No guarantees there and I've pointed that out. They're saving but I have no idea how much, with 3 small children.

So...

I put a lot in the kids' 529 accounts. It shelters the investment income from taxes and DS and DDIL can't use it for anything else.

I give them "experiences"- little things like dinner at a good (but kid-friendly) restaurant that's out of their normal budget, taking the kids for haircuts at Shear Madness, getting a hotel room when I visit so the 2 older girls can explore it and enjoy the pool. Soon, I hope, I can take the 2 older ones on 2-night plane trips to Chicago, which I did with the older one before COVID. When their little brother is older I want to take the whole family someplace- maybe Costa Rica.

Last year I did give them $18,000 and I should be able to do at least that much this year. One check was to DS and one to DDIL so neither exceeded $15,000.

Then, when DDIL's father died recently and they discussed plans for her mother to move near them (which her parents had planned before her Dad got colon cancer), DS told me that he'd told DMIL they could help her with a down payment. Ummm, I think I know where that will come from.

So... I have to accept that I cannot give with strings attached and tell them they MUST invest it in XYZ. It will probably decrease what I hand over now but when I leave this earth they should have plenty for a comfortable retirement and the kids won't have college loan debt.

 

[Teacher Terry]

Athena, I have never understood parents taking money from their kids unless they are destitute and have no other options. The MIL has to know that the kids can’t afford it. I am all for helping one’s kids if you can afford to. If she doesn’t have a down payment on her own she should rent within her budget.

 

[MrsHaloFIRE]

We have an incentive trust an place to match our daughter's income up to a certain age to avoid her waiting at the mailbox for a check.

 

[WhenIsItTime]

I'm 69 and almost 8 years post-retirement so I'm finally starting to get comfortable with the idea of giving some of it away now. My net worth excluding the house (about $300K equity there) has increased on average by 3.6%/year since retiring, there's really not much more I want to spend it on and now I'm getting a $1,700/month bump in SS going to my own record from Survivor benefits.


In some ways my situation is simple. My son, age 37, is my only child and he and DDIL live frugally and responsibly. The marriage seems very strong. OTOH, they have a tendency to give money away- to people they know who are genuinely down on their luck and to their church (I like the church- there's no arm-twisting going on and I support my own church generously). DS loves his job and claims he wants to work till 70. No guarantees there and I've pointed that out. They're saving but I have no idea how much, with 3 small children.

So...

I put a lot in the kids' 529 accounts. It shelters the investment income from taxes and DS and DDIL can't use it for anything else.

I give them "experiences"- little things like dinner at a good (but kid-friendly) restaurant that's out of their normal budget, taking the kids for haircuts at Shear Madness, getting a hotel room when I visit so the 2 older girls can explore it and enjoy the pool. Soon, I hope, I can take the 2 older ones on 2-night plane trips to Chicago, which I did with the older one before COVID. When their little brother is older I want to take the whole family someplace- maybe Costa Rica.

Last year I did give them $18,000 and I should be able to do at least that much this year. One check was to DS and one to DDIL so neither exceeded $15,000.

Then, when DDIL's father died recently and they discussed plans for her mother to move near them (which her parents had planned before her Dad got colon cancer), DS told me that he'd told DMIL they could help her with a down payment. Ummm, I think I know where that will come from.

So... I have to accept that I cannot give with strings attached and tell them they MUST invest it in XYZ. It will probably decrease what I hand over now but when I leave this earth they should have plenty for a comfortable retirement and the kids won't have college loan debt.

I'm sure the grandkid college support is much appreciated by your son. That is a meaningful gift that the kids will appreciate throughout their life.

 

[WhenIsItTime]

Yes, you could find that any given adviser is not interested in your accumulated assets. With a thread like this you can gain a lot of valuable advice about the specifics. For example, I found that we did not need anything complex. Having your beneficiaries straight helps a lot.

Even if you go with an adviser, it's very beneficial IMO to read a few books on the subject. That way you can evaluate the solutions that are presented to you.

A book I read last year changed my views on passing on wealth later. It is certainly more fun to enjoy a family experience now rather than passing and not giving your family the experience.

With younger adults you could be more cautious in the beginning. Beyond helping with college loans in their 30's, we did not do much else. Now they are in their 30's, and it is easier for us to be more comfortable with significant gifts each year.

BTW, there is an ignore user button that helps. YMMV.

I'm fortunate to have enough wealth to make my kids rich. That is not necessarily my intention, but I hope to give them an appropriate upbringing to match with financial boost to choose a career separate from income levels and live comfortably. I realize that presents its own problems, but am headed down that path. I spent my career chasing money and while it worked out, I will advise them to have a more balanced set of goals.

IF my wife and I die while my kids are in their late 20's, and IF they choose to blow through the first wave, and IF they end up with major health issues, there will be plenty for health and living support.

I am leaning towards a GRAT to escape future estate taxes. That brings the money transfer into play very likely while my wife and/or I am still alive. Need to decide the trust constraints. Possibly becomes the test fund.

 

[Sunset]

OP - Hope it works for you.

My Uncle and Aunt were always available to give to my cousin.

Over the years:

They gave him cars, bought a house for him, bought a business, paid his bills, and left him a trust fund (which he planned to break once his dad died).

So he had zero motivation to do anything, his free College tuition was blown on excessive drinking and partying, and it went downhill from there.

He laughed at me, working all summer so I'd have tuition money.

Hopefully, giving the easy life to your kids doesn't kill their motivation to succeed.

 

[Bamaman]

My stepdaughter is a successful accountant, and she's very responsible with money. Her brother was in a drug haze from age 16 to 46, and he's never saved for his retirement. The stepdaughter is very close to us, and my wife feels she deserves more of an inheritance than her son who we seldom hear from.

Our 34 year old daughter has behavioral issues, and she has absolutely no money sense. We've spent her inheritance raising her 10 year old daughter. And child custody battles and keeping her out of jail have cost us a small fortune.

Our biggest difficulty is deciding what's an equitable split of assets between the first 2 kids and our daughter and grandkids. The accountant daughter would have to take our granddaughter if something happens to us, but the assets are there to finish raising her.

We've considered a Special Needs Trust to pay minor bills for our youngest daughter--like health insurance, utility bills and car insurance. But she's otherwise on her own. A Special Needs Trust needs to set the payouts in stone--to keep our daughter from badgering her older sister for money. Our granddaughter's share of the Special Needs Trust will need to be dispersed later in life separate of her mother's funds.

These are the hard decisions we're having difficulties making. It's bad enough that we have two houses, 5 cars, a RV and a boat to liquidate. And just liquidating household goods and selling real estate would be very difficult with our executor 200 miles away. And making RMD's is another issue to address. Obviously I need a tax attorney.

 

[athena53]

Athena, I have never understood parents taking money from their kids unless they are destitute and have no other options. The MIL has to know that the kids can’t afford it. I am all for helping one’s kids if you can afford to. If she doesn’t have a down payment on her own she should rent within her budget.

Thanks for your concern. I don't know if she'll actually accept it- they just made the offer. DS tells me that she's OK financially- FIL left some life insurance, she has a little house in Middle of Nowhere, IA that Realtor.com tells me is worth about $120,000 and they both worked hard at modest jobs all their lives. DFIL was substitute-teaching till he got too sick and DMIL works in a nursing home but is about to retire. They live(d) frugally.

That's just the way DS is. Given that his father, my Ex, was a totally selfish spendthrift, I am grateful. I'm 69 and DS is 37. If I have 20-30 more years on this earth, I should depart just about the time he nears retirement age (if he wants to retire). They'll inherit enough for me that retirement will be an option.

 

[WhenIsItTime]

OP - Hope it works for you.

My Uncle and Aunt were always available to give to my cousin.

Over the years:

They gave him cars, bought a house for him, bought a business, paid his bills, and left him a trust fund (which he planned to break once his dad died).

So he had zero motivation to do anything, his free College tuition was blown on excessive drinking and partying, and it went downhill from there.

He laughed at me, working all summer so I'd have tuition money.

Hopefully, giving the easy life to your kids doesn't kill their motivation to succeed.

Maybe we know the same guy? One of my good friends from high school had the same upbringing. In his case, I never met his parents. They were great financial providers, but were never around.

My wife and I each paid our own way through college. She had academic scholarships and work. I worked 40-50 hours a week to make it happen debt free. We earned our money. Having worked for it brings me great satisfaction.

We intend to actively manage the college/launch process course correcting as necessary.

 

[WhenIsItTime]

My stepdaughter is a successful accountant, and she's very responsible with money. Her brother was in a drug haze from age 16 to 46, and he's never saved for his retirement. The stepdaughter is very close to us, and my wife feels she deserves more of an inheritance than her son who we seldom hear from.

Our 34 year old daughter has behavioral issues, and she has absolutely no money sense. We've spent her inheritance raising her 10 year old daughter. And child custody battles and keeping her out of jail have cost us a small fortune.

Our biggest difficulty is deciding what's an equitable split of assets between the first 2 kids and our daughter and grandkids. The accountant daughter would have to take our granddaughter if something happens to us, but the assets are there to finish raising her.

We've considered a Special Needs Trust to pay minor bills for our youngest daughter--like health insurance, utility bills and car insurance. But she's otherwise on her own. A Special Needs Trust needs to set the payouts in stone--to keep our daughter from badgering her older sister for money. Our granddaughter's share of the Special Needs Trust will need to be dispersed later in life separate of her mother's funds.

These are the hard decisions we're having difficulties making. It's bad enough that we have two houses, 5 cars, a RV and a boat to liquidate. And just liquidating household goods and selling real estate would be very difficult with our executor 200 miles away. And making RMD's is another issue to address. Obviously I need a tax attorney.

That is a complicated situation. I think part of this process is that there is no perfect answer. My kids are in grade school still, so haven't reached those complexities. I do think about the burden of luxuries (2 houses, cars, boats) and whether it makes sense to simplify sooner than later, but for now will just try not to accumulate more.

 

[Lewis Clark]

... Our biggest difficulty is deciding what's an equitable split of assets between the first 2 kids and our daughter and grandkids. ...

"Equitable" is in the eye of the heir. If assets are not divided equally someone will feel they were dealt with unfairly. And it might happen even if assets are divided equally.

There is no requirement to divide your assets equitably. You should leave them to whomever you want, after considering all of the factors that matter to you.

 

[ERD50]

Originally Posted by OldShooter ...
For example, it is not uncommon for a poorly designed trust to simply specify that a beneficiary gets a chunk of the money at 25YO, a chunk at 35, and the balance at 45. Easy to understand, easy to administer, but what happens when the beneficiary ends up needing daily in-home health care at age 29? Auto accident, cancer, early onset Alzheimer's , ... There are lot of low probability events to fear. In this case the (deceased) grantor would certainly have wanted to support the beneficiary in his time of need, but the trustee's hands are tied. He/she cannot disburse any money for another six years.

I "trust" you're joking.

In the above circumstance the beneficiary with the support of the trustee would petition the court & the court would authorize their request to distribute additional funds for HEMS needs...yes, there are legal expenses involved.

I agree with ncbill here, I think OldShooter has a tendency to over-state some of these 'complication'.

It's easy (and common in my limited experience) to allow for this in the trust. The ages and % are stated, with an exception for things like medical or education, at the trustees discretion. It's not that complicated.

I just looked at my parents trust document. Similarly, it spells out dispersing the thirds to g-kids at ages 22, 26, 30, but the trustee is responsible for the amount still in the trust, to be used for "out of the income or principal, may provide for the support, welfare and education...". I'm certain that the NOLO book has similar wording.

I still recc getting the NOLO book on trusts. You may (or even probably) will want to go to a pro (and hope he/she is as good/better than the group knowledge/experience of the NOLO staff), but with the knowledge gained from the NOLO book will get you started and to ask the right questions, and maybe also figure out if the "pro" is actually an "expert", or just someone who is going to fill in the blanks on the software they bought (not much different from buying the NOLO book and filling it in yourself).

https://store.nolo.com/products/wills-trusts

https://store.nolo.com/products/make-your-own-living-trust-litr.html

And to understand it from the executor/trustees view:

https://store.nolo.com/products/the-executors-guide-exec.html

-ERD50

 

[OldShooter]

I agree with ncbill here, I think OldShooter has a tendency to over-state some of these 'complication'. ...

I'll plead guilty to a degree. Complications are probably not common but they are real. Mitigating circumstances are DW's and her staff hundreds of trusts and telling me the many horror stories when she came home at night.

It's easy (and common in my limited experience) to allow for this in the trust. The ages and % are stated, with an exception for things like medical or education, at the trustees discretion. It's not that complicated. ...

Yes, that escape clause is the "HEMS" that @ncbill mentioned. Health, Education, Maintenance, and Support. Better to have it in the document than to go to court to get it approved.

... maybe also figure out if the "pro" is actually an "expert", or just someone who is going to fill in the blanks on the software they bought ...

Yes, that's a real concern. Another of DW's repeated horror stories involved a specific attorney who held himself out as an expert but where her legal staff just shuddered when an estate came in where he had done the work.