How To Distribute Assets to Beneficiaries?

[Midpack]

Another in a series of questions as we update our trust, and the letter of instruction we write.

Our assets are fairly simple - a house, two cars, the contents of our house, a savings account and 5 Vanguard accounts (taxable, 2 tIRAs, 2 Roths). To me the easy way to settle our estate is to recommend the successor trustee sell the house, sell the cars, sell the contents of the house (estate sale). Then distribute all the cash and investments, and avoid valuing property. I realize there are tax considerations for retirement accounts that’ll have to be factored in.

If we want to simplify things for our successor trustee, and reduce potential conflict among beneficiaries, is that a good approach? Or do most people just dole out property like homes, cars and other property to beneficiaries? We’ll probably have 8-9 beneficiaries, plus descendants.

We’d also like to avoid ongoing trusts for minors, so the successor trustee can close out the estate in 4-6 months, and not deal with ongoing trusts for years. But that would mean no inheritance for minors, not sure that’s what we’d want.

 

[DrRoy]

DW is now dealing with DFIL's estate. He was a very smart, capable person right up to the end at 94, but did not set up his estate well. He had no main trust so everything is in probate. He would not put DW on the checking account even a month before he died. There were other trust situations for minors, but no minors thank goodness. There was a trust for the benefit of his 2nd wife while she lives. The designated trustee was a bank that would charge 1.4% of assets every year as their fee, but they were willing to drop out in favor of DW. He also had assets divided among 6 different financial institutions, with no beneficiaries designated, and DW is still working/waiting to get control of them 2 months later. Consolidation at Vanguard is good.

I think directing your property to be sold is fine, after beneficiaries have a chance to save things that might be meaningful to them. DFIL had a first London printing of Winston Churchill's History of the English Speaking Peoples that we wanted to keep. If you want to give money to minors, I think that you cannot avoid those trusts. Just watch who you have as trustee. I think the estate could still be closed in 6 months. Minor trusts would be independent of the estate by then (but check with the lawyer).

 

[pb4uski]

With 8-9 beneficiaries, that may be the best way.

When DMIL died with 7 kids who were all equal heirs DBIL who was executor had the heirs bid on personal property that they were interested in. Whatever wasn't "sold" to heirs was sold, donated or given away. I don't remember the details of how it worked but I do remember thinking that it was a fair way to do it. When my DM died we just divided up her personal property and it went to whoever wanted it or could use it.

For the real estate, I think typically it is sold and the proceeds divided, but there should be nothing preventing one or more beneficiaries from buying it from the trust if they want it. The trust would save broker commissions and end up with more for the other beneficiaries and it would need to be valued for stepped up basis purposes anyway.

For vehicles, be sure to have them titled to your trusts or have TODs. With DMs car, luckily I added myself as TOD some years ago, otherwise we would have had to go to probate for a $4,000 car which I think would have been a real hassle.

No reason that a minor can't be a beneficiary. Any property that they receive is just managed by an adult until the are an adult.

 

[levindb]

For us, we skipped a generation and split everything among the grandchildren. The children do not have many "needs" at this time, and we expect them to be enjoying their retirement when we pass. The grandchildren could not receive their inheritance directly until the age of 30, and their fathers (our sons) would be the trustees allowing withdrawals for education or medical needs.

 

[Koolau]

Looking back, DW and I both feel lucky that neither of our sets of parents died with any assets and need for probate.

 

[Surewhitey]

Pops died basically broke... Easy. Mom did equal splits with a small amount. She just wanted to make it equitable, but I suspect she will use it for herself (I hope).

We only have 1 DD, so we have it relatively easy. We set her up for the POD on accounts (multiple, like you) and TODD for the house and cars. We trust her to take care of DGK's if she wants to distribute to them eventually. I like to keep things simple, but complete.

 

[Badger]

We have had trusts for some time now. This will be our 3rd update as things change. Fortunately there will only be 2 beneficiaries in the end. Anything that isn't cash, CDs, or IRAs I have suggested to be sold. This is mainly stocks (no tax on the new basis), house (also new basis AND if kept the taxes will more than quadruple. It is worth way more if sold.), cars (they could keep if they want for a second car since the resale is insignificant compared to the rest of the inheritance) and any contents of the house that they don't want.
In the meantime we are gifting $14k/yr to both of them while we are still here.

 

[MichaelB]

With 8-9 beneficiaries, that may be the best way.

When DMIL died with 7 kids who were all equal heirs DBIL who was executor had the heirs bid on personal property that they were interested in. Whatever wasn't "sold" to heirs was sold, donated or given away. I don't remember the details of how it worked but I do remember thinking that it was a fair way to do it. When my DM died we just divided up her personal property and it went to whoever wanted it or could use it.

For the real estate, I think typically it is sold and the proceeds divided, but there should be nothing preventing one or more beneficiaries from buying it from the trust if they want it. The trust would save broker commissions and end up with more for the other beneficiaries and it would need to be valued for stepped up basis purposes anyway.

For vehicles, be sure to have them titled to your trusts or have TODs. With DMs car, luckily I added myself as TOD some years ago, otherwise we would have had to go to probate for a $4,000 car which I think would have been a real hassle.

No reason that a minor can't be a beneficiary. Any property that they receive is just managed by an adult until the are an adult.

My mum mentioned this approach more than once when we discussed her affairs.She had seen far too much discord among heirs, even when there was little economic value at stake.

One should assume there will be disagreement among beneficiaries, and that will become a burden for the trustee. Suggesting the trustee liquidate everything and allowing beneficiaries to buy back things at market prices won’t satisfy all but it is fair.

 

[ncbill]

I used revocable living trusts for the last few relatives I buried, setup after their terminal diagnoses.

I was also their primary caregiver so the above were for my ease of management as well.

I moved their assets in the trust ASAP so there would be no "we don't accept any POA but our own" down the line.

 

[Mr. Tightwad]

I have a trust that gives one daughter 3 houses and a small brokerage account. Another daughter gets a large brokerage account.

I figured that way everybody gets what they get and can do with it what they want.

 

[Midpack]

I have a trust that gives one daughter 3 houses and a small brokerage account. Another daughter gets a large brokerage account.

I figured that way everybody gets what they get and can do with it what they want.

Sounds reasonable. Again we have a house, cars, contents of house, online savings, joint brokerage account, 2 tIRAs, and 2 Roths - going to a BIL and 8-9 nieces and nephews. So I can't make your approach work...that's why I asked.

 

[HarveyS]

Sell the non-retirement assets as you suggest. If someone wants some piece of personal property they can buy it at the estate sale. Split the IRA's equally among each beneficiary. They can cash out or wait ten years (or what ever current tax law allows) and deal with their own tax issues.

 

[pacergal]

Our wills and trust are set up 50-50 to our two kids. IRAs, brokerage, and savings/checking acct are all POD, and we have discussed with them to sell the cars/house/contents.
We also have encouraged them to contact an estate attorney for any questions if needed.

 

[brett]

I have been the executor of two estates. No issues whatsoever. All in black and white, funds flowing down where they should and where beneficiaries expected.

I am sole executor on my sister's will. Not looking forward to that for the usual reasons. Plus it will be a dog's breakfast.

There will be lots of knashing of teeth, moaning, complaining. Not looking forward to it should the need arise. Perhaps even a contest.

 

[pb4uski]

^^° Has your sister informed her heirs what her will says and why... to set expectations and reduce the chance that the will is contested?

 

[Slim11]

It depends, you have a good basis to start. Sell the big assets. For the personal property, its really not a money thing. Unless you collected a few Picassos along your journey. For me we have some old valuable things that we want passed down in the family. I left these to my daughter with instrutions to not sell them and pass them along to familly. If she can not do this she can contact other familly members and see if they would pass them down. Of course if she needed money these things could be sold. But as a last resort. For my personal belongings, we will do the same as I will for my mom. The familly can look around and just take stuff. To make it organized, get post it notes, people will put there name on what they want. And if your the only one on an item you get it. Most of the time the stuff in your home isn't really worth a ton. I have all my aunts Waterford crystal, lemoge, stangle, tiffany paperweights and an assortment of other crap no one would buy at a garage sale for 5 bucks. I even told people , everything 5 bucks some of it is worth 300. No one wanted it.

 

[marko]

Our trusts specify that after we're both gone, everything be eventually liquidated, taxes paid and the cash be distributed equally to our nine nieces and nephews.

I say eventually because, should my disabled brother survive both of us there is a sizeable amount of cash set aside for his care. He does not inherit. After his passing, after us, the residue of that would be distributed as above.

So in that case, there would be two distributions, 70% in the first round and then, if necessary, the balance.

Tax inefficient? Maybe, but there's more than enough to go around, and more than many of them deserve anyway.

But in answer to OP, yes, sell everything and distribute cash. Keep it simple for the executor and trustees as well as the recipients. Leaving investments, houses and cars is only looking for needless trouble and complications IMO. It's going to be enough of a PITA for someone as it is.

 

[Original Wally]

MIdpack - Molly and I are somewhat in that situation. I started late and have no Roth. To minimize the tax burden to the kids, I have been gradually transferring the IRA to the taxable portfolio AND using the IRA for charitable givings thru QCD. I recognize that I am paying the income tax as I x-fer the IRA to the after tax account. Just being kind to the children. Otherwise, sell it all, convert investment to cash (stepped up basis) and use the remainder of the IRA to fund a charitable gift. << Charity will NOT have to pay income tax on the IRA.

 

[pb4uski]

.....use the remainder of the IRA to fund a charitable gift. << Charity will NOT have to pay income tax on the IRA.

This is how my uncle's estate plan works. Five 20% beneficiaries - two individuals and 3 charities. The 3 charities get the IRAs and there are commensurate adjustments to what the two individuals get.

So if the total estate is $1m and the trust is $700k and IRAs are $300k then each charity gets $100k from the IRAs and $100k from the trust, and the remaining $400k in the trust is split between the two individuals... so each beneficiary gets $200k and Uncle Sam gets nothing.

 

[Sunset]

MIdpack - Molly and I are somewhat in that situation. I started late and have no Roth. To minimize the tax burden to the kids, I have been gradually transferring the IRA to the taxable portfolio AND using the IRA for charitable givings thru QCD. I recognize that I am paying the income tax as I x-fer the IRA to the after tax account. Just being kind to the children. Otherwise, sell it all, convert investment to cash (stepped up basis) and use the remainder of the IRA to fund a charitable gift. << Charity will NOT have to pay income tax on the IRA.

It would be more tax efficient to be gradually transferring the IRA to a Roth, instead of a taxable account.

That way you don't pay tax on growth, and the kids get it all tax free.

 

[Original Wally]

"It would be more tax efficient to be gradually transferring the IRA to a Roth, instead of a taxable account.

That way you don't pay tax on growth, and the kids get it all tax free."

Yes - but this way uncle still gets zero and we are able to leave what we want to several charities. Kids still do ok.

 

[DrRoy]

We have 2 adult sons that share an apartment nearby. We expect that when they inherit from us they will just move into the house and own the contents too. No idea if they are interested in our collections from our travels.

 

[Koolau]

We have 2 adult sons that share an apartment nearby. We expect that when they inherit from us they will just move into the house and own the contents too. No idea if they are interested in our collections from our travels.

When my mom passed, the only things Sis and I inherited was mom's silverware (Sterling) and her "good" china and stemware. Sis wanted the silverware and I tried to sell the china to no avail and I gave the stemware to my niece. Sis got the only thing of real value and that was for the silver content only. Collections may or may not have value or even sentiment attached.

So, had there been anything I had to pay taxes on, I would have considered that a "win" in terms of inheritance. It would have meant there was something of value.

Honestly, I was happy that mom had just enough to end her days in the relative comfort of a good nursing facility where her needs were attended to until the end.

 

[SecondCor521]

Midpack, I would encourage you to think about the issue of control. What is really important to you to have done with your assets after you're gone, what is merely preference, and what do you just not care about?

I think your executor and/or trustee will generally have to follow the terms of your will and/or trust documents, even if those terms end up being suboptimal. This can happen if your situation or tax / estate / inheritance laws change between the time you write those documents and the time you pass away. In my parents' case, my Mom passed away 17 years later, and my Dad is still alive 26 years later, and a lot has changed in those intervening years.

With the number of heirs and assets you have, it could easily be tricky. But what I tend towards doing is putting what I absolutely require in my will (because I want it to be followed), then put general advice and suggestions and recommendations for my preferences in my "Letter of Instruction" which is not binding but is available for reference if it's helpful to my executor.

 

[Midpack]

^^ I think we're on the same page. I've probably started too many threads re: our trust and I've learned a lot since my first post. I blew this on an earlier thread, but hopefully makes more sense this time. If all survive us and remain eligible (no contest):

	BIL Successor Trustee	BILs Niece #1 Successor Trustee
BIL	20%	unable to serve
Niece #1 (BILs)	13-1/3%	@ 23.1%
Nephew #1/Niece #2 (BILs)	13-1/3% each	@ 15.4% each
Other 6 nieces/nephews	6-2/3% each	@ 7.7% each

If any don't survive us or become ineligible, share will adjust proportionally per above. Our intent in the end is BILs son/daughters will get exactly 2X the $ benefit of the other 6 nieces and nephews. And the Successor Trustee will get exactly 3X the $ benefit (after expenses). That's about all the Trust itself will say.

Other thoughts I've added to our Letter of Instruction.

Hope it all goes well with the estate attorney next week. I'm a little concerned how he will restate the table above in words that match our intention. The existing trust just says everyone shares a predeceased or ineligible beneficially equally between themselves - that's not what we intend. It seems much of what he writes is deliberately obtuse instead of just being direct, but I am sure he has his reasons. IMO a table or spreadsheet would be much clearer, but I gather attorneys and judges prefer words…