Estate Planning and Distribution Structure

[Lewis Clark]

My wife and I need to update our wills and are struggling a bit with deciding where to leave our assets, assuming long term care doesn’t consume our assets.

We have no children. We have one sibling who doesn’t really need our money. Some of our parents are still alive, with ages in their upper 80s. They probably won’t be around when we die but we want to leave them something if they are alive.

We have several niblings (a word I recently learned about, referring to nieces and nephews). We would like to leave them something, though we are not yet sure how much.

There are several charities we definitely want to support. There are also a few other charities we may want to leave something to, if we have enough remaining assets, but we cannot make up our minds on which ones or how much.

One disadvantage of a will or trust, in my understanding, is that the beneficiaries are fixed unless we get a new will or trust.

Question 1: Is there a vehicle that could contain our assets and make it quick and easy to update the beneficiaries, without having to update the will or trust?

Question 2: Would it be possible, or reasonable, to achieve our goal by making the beneficiaries POD/TOD on a dedicated brokerage account? Updating POD/TOD beneficiaries is generally simple. One problem would be that the growth could cause our desired distribution structure to get out ot kilter.

Question 3: Obviously, we have no idea what our assets will be when we die. The structure we think we might want is what I describe below. Has anyone ever done anything like this? Does anyone see any problems with the structure?

We prefer a structure like this, rather than just listing percentages of the total estate, because supporting some entities is more important to us than supporting other entities. We prefer to fully support our higher priority entities before leaving any money to lower priority entities.

These are not the real numbers, but I’m using numbers to help make the structure clearer.

1. If our net worth is between $0 and $500,000, split the money among this small list of entities (people or charities), with each entity getting the indicated percentage.

2. If our net worth is between $500,000 and $1,000,000, divide the first $500,000 as explained in paragraph #1. Then divide the remainder among this list of entities, with each entity getting the indicated percentage.

3. If our net worth is between $1,000,000 and $1,500,000, divide the first $1,000,000 as explained in paragraph #2. Then divide the remainder among this list of entities, with each entity getting the indicated percentage.

4. If our net worth is greater than $1,500,000, divide the first $1,500,000 as explained in paragraph #3. Then divide the remainder among this list of entities, with each entity getting the indicated percentage.

Thanks in advance for your feedback!

 

[badatmath]

I"m a fan of POD/TOD. The other items strike me as overly complicated so I can't really say so I'll wait for someone else to swoop in with a marvelous idea.

I wish there were more easy to change ways to update the beneficiaries other than POD/TOD or life perhaps life insurance but if they exist I dont know aobut them.

I think you just have to assume an estate plan is not once and done - more of "now and revisit in x years'.

Also you may want to consider if the survivor remarries and changes the plan is that going to be okay or do you need a different vehicle for this (trust)?

 

[Slim11]

You can use benificarys on your accounts. But the problem is no one ever updates them. Especially if your at your end of life. Something like you want, that changes with net worth a trust is probably your best bet. More expensive now , but will do what you need and want. Otherwise you can just update a will, and add to it. But your also married, so you need a will or trust or beneficiary to give your assets to your wife and then after that distribute it. But , if you die before her its decided by her and vise versa, so you need two documents. And even then its dependent on who out lives the other one.

 

[FlaGator]

I *think* as long as the % per beneficiary is constant as the assets increase, POD/TOD should work, as long as the primary beneficiary is the other spouse, and subsequent beneficiaries are updated after the first of you passes. But you may have something else in mind, such as different allocations as the assets increase.

You're probably looking at some estate planning time and fees to get this right.

 

[pb4uski]

....One disadvantage of a will or trust, in my understanding, is that the beneficiaries are fixed unless we get a new will or trust. ...

It is very easy to amend a trust to change the trust's beneficiaries. We just amended my aunt and uncle's trust to change beneficiaries from 3 charities and 2 individuals to 6 charities and 2 individuals a month ago. After my uncle and I agreed on what changes he wanted, I drafted the amendment (two pages including signature sections) and emailed it to the lawyers who wrote the trust. The lawyer made a couple minor edits and once the lawyer and I had the amendment finalized my aunt and uncle went to the lawyers office and signed the amendment. Easy peasy.

Their amended trust has 8 beneficiaries... 6 charities and two individuals. They also have his and her IRAs. We set it up that the IRAs go to the charities and the amount that the individuals get from the trust are adjusted upwards to reflect the fact that the 6 charities are beneficiaries of the IRAs. So at the end of the day each will receive 1/8th of the total, but Uncle Sam won't get anything because the IRAs are being distributed to the charities.

 

[VanWinkle]

I am also struggling with the trust or TOD/POD question. All of my accounts are set up with beneficiaries or TOD/POD designations. 4 kids and 25% to each, no complications. I have a will, but have been considering a trust. I'm just not sure why I need a trust.

 

[Koolau]

We too are struggling with these questions and are kinda stuck by inertia.

 

[HarveyS]

"4 kids and 25% to each, no complications."
What if one or more pre-decease you? A will or trust could handle this. Not sure if TOD would.

 

[Lewis Clark]

I *think* as long as the % per beneficiary is constant as the assets increase, POD/TOD should work, as long as the primary beneficiary is the other spouse, and subsequent beneficiaries are updated after the first of you passes. But you may have something else in mind, such as different allocations as the assets increase.

You're probably looking at some estate planning time and fees to get this right.

I agree about probably needing to see an attorney. Hoping to do some research to educate myself in advance of that.

 

[Lewis Clark]

"4 kids and 25% to each, no complications."
What if one or more pre-decease you? A will or trust could handle this. Not sure if TOD would.

This might depend on the financial institution involved.

 

[HarveyS]

This might depend on the financial institution involved.

What I meant was if one pre-deceases you, does it become 33.3% to each living kid, or does the deceased persons spouse/partner/children get that share?

 

[Lewis Clark]

What I meant was if one pre-deceases you, does it become 33.3% to each living kid, or does the deceased persons spouse/partner/children get that share?

I understand what you meant. I think it might depend on the financial institution on whether their POD/TOD form is flexible enough to do what the account holder wants.

 

[ncbill]

Mostly TOD to beneficiaries also with a simple will for us right now.

For older relatives with terminal illnesses where I ended up being their primary caregiver I setup revocable living trusts.

While they were still competent enough to assist me if I had trouble using their attorney-drafted POA to transfer assets into the trust.

Though fortunately I never did run into the "we only recognize our institution-specific forms not a general POA" problem.

Don't forget the privacy aspect of a trust versus a (public document) will.

If you have significant assets do you really want everyone to know exactly who is getting those assets?

 

[badatmath]

What I meant was if one pre-deceases you, does it become 33.3% to each living kid, or does the deceased persons spouse/partner/children get that share?

If one predeceases you just change the beneficiaries. You can change them at at time for free.

 

[VanWinkle]

"4 kids and 25% to each, no complications."
What if one or more pre-decease you? A will or trust could handle this. Not sure if TOD would.

I agree and that is why I am considering a trust. I could change the TOD/POD if one of the kids pre-deceases me, but will I remember or be able to remember?

 

[RunningBum]

What I meant was if one pre-deceases you, does it become 33.3% to each living kid, or does the deceased persons spouse/partner/children get that share?

Depends on whether you designate "per stirpes" or not.

 

[walkinwood]

For charitable giving, you could use a Donor Advised Fund like Vanguard Charitable. Leave your money to it. You can set up (and easily change) the beneficiary charities that will benefit when you pass.

That's our plan.

See this link for more info.

https://www.vanguardcharitable.org/contributions/deferred-giving

 

[pb4uski]

"4 kids and 25% to each, no complications."
What if one or more pre-decease you? A will or trust could handle this. Not sure if TOD would.

It would handle it. Some financial institutions allow the customer to specify whether TOD beneficiaries are per capita or per stirpes. With per capita, if a designated beneficiary predeceases the customer then the account goes to the remaining beneficiaries. With per stirpes, if a designated beneficiary predeceases the customer then the account goes to that beneficiaries bloodline. (oversimplifies, but that is the jist of it.) I think the default is per capita.

 

[OldShooter]

These threads always puzzle me. Lots of agony about setting up a POD/TOD-based contraption that is error-prone, requires hands-on maintenance and .... why? Trusts can't anticipate and handle every possibility, but can easily be structured to deal with many possibilities like deaths, minors coming of age, incapacity of beneficiaries, divorces, ... etc. Our estate plan includes creation of several irrev trusts but doesn't rely at all on POD/TOD gyrations. It does, however, have the ability to deal with many of the common issues as discussed here.

 

[pb4uski]

I dunno. I think that POD/TOD can be effective as long as they are reviewed periodically... at least annually and more often if the owner is mortally ill. It doesn't need to be very complicated in a lot of situations.

 

[OldShooter]

I don't disagree, but you make my point for me: " ... as long as they are reviewed periodically... at least annually and more often if the owner is mortally ill. ... " When the owner is "mortally ill" do you really think dealing with some old paperwork will be top of mind for anyone? Not in my world, anyway.

 

[pb4uski]

Well if you had a trust and had to change beneficiaries then you would have to amend the trust to reflect the change, right? I don't see much difference other than with a trust it can be done with a single amendment but it would need to be notarized. OTOH, changing beneficiaries can usually be done online with a dozen or less clicks so depending on how many accounts are involved, it could be easier/faster.

From personal experience, I prefer the trust route since as trustee I still have account access after the financial institution is notified of the account owner's death.

 

[HarveyS]

Took this opportunity to review my beneficiaries. Lo and behold my DD was married and changed her name. I needed to make updates.
FWIW, Bank of America states "If all POD beneficiaries pass away before the last account owner, the account owner should update or designate new POD(s) for the account. If that doesn’t happen, the account will be handled based on other governing documents like a will or trust, or revert to the rules for the state." No per capita or stripes for BofA (as far as I saw).
Merrill allows for a selection on what happens if a beneficiary pre-deceases you.