FedRetired50
Recycles dryer sheets
I've seen discussions here about the pros and cons of giving different percentages to siblings, with the general consensus that it causes problems. This isn't that discussion, my 2 daughters will be getting 50/50 of the remainder of my estate. Likely close to a half-mil each. My question is about pros and cons of setting up different distribution times in a testamentary trust.
In this case, 23 y/o daughter appears to be fiscally responsible and otherwise responsible about her life; she's 2 years into a career already making 6 figures, and will finish her BS in about a year. If I disappeared tomorrow I'd be comfortable with her getting some earnings annually, maybe 2.5% max, and 50% of principal at ages 25 and 35. Ideally a really nice down payment on a house before starting a family with her fiance, and a boost to her own FIRE plans later. Not that I'm dictating what she does with it, that's just what I think she would do. I don't think it would be squandered.
Then there's my 25 y/o daughter that still lives with me, has been fiscally irresponsible, has never worked full-time, and while she's finished 2/3 of a BS (AA + 1 semester at a 4-year), she hasn't worked on it for a few years. I've sat down with her and worked through multiple iterations of a budget that would let her be financially independent in the short-term (including moving out). And I've walked her through a plan on how to save to be financially independent in the long-term. Likely not FIRE for her, but 65 is better than never. All of this has made it clear that she needs to work full-time (and then some, to pay off a debt) and finish off the degree which would allow her to boost her income even more. I have no doubt that an immediate distribution at 25 and one later at 35 would be quickly spent. And annual earnings distributions will be smoke in the wind.
I've considered multiple options. Each has pros and cons, especially the last one.
Option 1: 2.5% annual earnings paid annually, and I say the heck with it and stick with 50% principal distribution at ages 25 and 35. This is completely equitable, and allows the youngest to get access to the money sooner to the benefit of her family. But likely stunting the growth of the oldest.
Option 2: 2.5% annual earnings paid annually, 50% principal distribution to both when the youngest turns 25 (oldest would be 27), second distribution to both when the youngest turns 35 (oldest would be 37). This appears equitable, and arguably is, but is also a way to delay the payout to the oldest by 2 years, hoping that some additional life wisdom will accrue. But again likely stunting the growth of the oldest.
Option 3: 2.5% annual earnings paid annually, 50% principal distribution to both when the youngest turns 30 (oldest would be 32), second distribution to both when the youngest turns 40 (oldest would be 42). This appears equitable, and arguably is, but is also a way to delay the payout to the oldest by 7 years, hoping that even more life wisdom will accrue. Unfortunately it also delays the first distribution to the youngest by 5 years, when she could have used it for that house. Punishing one to hopefully help the other.
Option 4: Nuclear option. 2.5% annual earnings paid annually, 50% principal distribution when the youngest turns 25 and the oldest turns 35, second distribution when the youngest turns 35 and the oldest turns 45. Obviously not equitable and likely to cause strife. But, maybe still necessary to give the oldest a chance to find their financial acumen. Maybe.
How have you, or think you would, handle this?
In this case, 23 y/o daughter appears to be fiscally responsible and otherwise responsible about her life; she's 2 years into a career already making 6 figures, and will finish her BS in about a year. If I disappeared tomorrow I'd be comfortable with her getting some earnings annually, maybe 2.5% max, and 50% of principal at ages 25 and 35. Ideally a really nice down payment on a house before starting a family with her fiance, and a boost to her own FIRE plans later. Not that I'm dictating what she does with it, that's just what I think she would do. I don't think it would be squandered.
Then there's my 25 y/o daughter that still lives with me, has been fiscally irresponsible, has never worked full-time, and while she's finished 2/3 of a BS (AA + 1 semester at a 4-year), she hasn't worked on it for a few years. I've sat down with her and worked through multiple iterations of a budget that would let her be financially independent in the short-term (including moving out). And I've walked her through a plan on how to save to be financially independent in the long-term. Likely not FIRE for her, but 65 is better than never. All of this has made it clear that she needs to work full-time (and then some, to pay off a debt) and finish off the degree which would allow her to boost her income even more. I have no doubt that an immediate distribution at 25 and one later at 35 would be quickly spent. And annual earnings distributions will be smoke in the wind.
I've considered multiple options. Each has pros and cons, especially the last one.
Option 1: 2.5% annual earnings paid annually, and I say the heck with it and stick with 50% principal distribution at ages 25 and 35. This is completely equitable, and allows the youngest to get access to the money sooner to the benefit of her family. But likely stunting the growth of the oldest.
Option 2: 2.5% annual earnings paid annually, 50% principal distribution to both when the youngest turns 25 (oldest would be 27), second distribution to both when the youngest turns 35 (oldest would be 37). This appears equitable, and arguably is, but is also a way to delay the payout to the oldest by 2 years, hoping that some additional life wisdom will accrue. But again likely stunting the growth of the oldest.
Option 3: 2.5% annual earnings paid annually, 50% principal distribution to both when the youngest turns 30 (oldest would be 32), second distribution to both when the youngest turns 40 (oldest would be 42). This appears equitable, and arguably is, but is also a way to delay the payout to the oldest by 7 years, hoping that even more life wisdom will accrue. Unfortunately it also delays the first distribution to the youngest by 5 years, when she could have used it for that house. Punishing one to hopefully help the other.
Option 4: Nuclear option. 2.5% annual earnings paid annually, 50% principal distribution when the youngest turns 25 and the oldest turns 35, second distribution when the youngest turns 35 and the oldest turns 45. Obviously not equitable and likely to cause strife. But, maybe still necessary to give the oldest a chance to find their financial acumen. Maybe.
How have you, or think you would, handle this?
