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Old 05-15-2009, 12:34 PM   #21
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The trust is just a variable annuity wrapped in an irrevocable trust. I'm in the insurance business, and for your 13 and 10 year olds don't do it. Its only a decent option for kids under the age of 10. But even then, a correctly written indexed universal life policy(**max non-mec funded**) is vastly better than a variable annuity. For many reasons, principal among them the disbursements are tax free through a process called wash loaning. Which essentially converts it into a Roth IRA type vehicle with no contribution limit. The variable annuity is taxable at retirement, and on the website the person said that the Roth is better, but that a kid at 1 years old isn't going to be earning an income for them to be allowed to put money in one.

Instead just employ the two of them and give them a generous income(under your control). This is a very effective tax arbitrage strategy that a lot of people do. You have a business subject to higher taxes your kids are subject to lower tax rates. So, if you pay the kids out of your business you can take a deduction against your high tax rates and the kids pay a lower one creating tax arbitrage. Then since the kids are under 18 you can take control of the excessive amount(I would let them keep a reasonable amount of it for doing work) and just spend it on normal things that you would otherwise have paid for the child--clothes, food, etc. Since the children now have significant income, open a Roth IRA and contribute the max on their behalf every year. This is the most effective strategy for children over 10. If you were planning on doing this with fathers-in-laws money just have him gift the 10K(5K each) to you every year and you will just use the business as the effective conduit. The more you pay them and commit tax arbitrage the more taxes you'll save, but keep it within reason because you don't want the IRS questioning you. Traditionally you are fine if you pay them no more than 150% of what an average person would make doing the work. Feel free to inflate the hours they work significantly.

I see now that both of them are already employees, good.

I think that if he is going to set up massive funds for your kids education, I wouldn't be to pushy on the rent. But thats just my opinion.
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Old 05-15-2009, 01:08 PM   #22
Dryer sheet aficionado
Join Date: Oct 2008
Location: Rockford
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There is a good book on the subject written by two attorneys.
Beyond the Grave revised edition: The Right Way and the Wrong Way of Leaving Money To Your Children (and Others) (Paperback)[ $17.95 on Amazon dot com

They even discuss the children's feeling that are being skipped.
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Old 05-15-2009, 01:10 PM   #23
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"They even discuss the children's feeling that are being skipped."
Maybe Dennis should read it then.
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Old 05-15-2009, 01:16 PM   #24
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I'll tell you right now, there is only two things I want in place before I retire many years down the road. The first is to have my private lake, the second is my carefully designed legacy trust. But my trust will be vastly different than anything that currently exists out there and could end up requiring a team of lawyers and Actuaries. There would end up being a lot of formula written in the thing. And I'm well aware of the fact that it could end up costing 100K to write. I'll try to do most of the math myself as to cut down on the cost, but it will still be expensive regardless.
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Old 05-15-2009, 07:01 PM   #25
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The 13 year old works for me and the 10 year old works for her mom. They get paid the same amount as the others doing about the same work. There hours do get some what inflated but not much. They have Roth IRA’s with fidelity and max out every year. The money they earn only goes to there IRA, “allowance”, CD’s, and there bank account. When they want to make a purchase that there allowance savings will not cover then they come to use and plead there cases to us; the higher courts are tuff and love to say no.

We do not use them as a tax shelter like most family businesses do. We have already had a few rounds with the IRS so we do not push the limits any more. We had 2 different accounts with a single accounting company. From time to time we would loan each other money and some of the paperwork was not filed or something and it led to us getting red flagged a few times in one year. We were told that after an audit you have a better chance of getting another one for the next 7 years.

The comment about the rent was pointed back to haha about how much I pay for the farm land.
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Old 05-15-2009, 09:27 PM   #26
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In that case, if you wanted to do more for the kids in terms of retirement a trust like the one stated above isn't a bad idea. They would be better served by a max non mec funded indexed universal life policy than an variable annuity, but I will also say that an irrevocable trust for only $300 up front cost is a pretty good deal. And also at least for about 10 years the IUL has to be max funded for good performance. The variable annuity gets the same performance whether one payment goes in or a series of them over the years.
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