Spendthrift Heirs - What To Do?

[Texas Proud]

Have not read the whole thread and do not plan too....


But, I will pass along something one of my sisters tells me off and on... do not try and control your ADULT kids...


Any stipulations you put on the money is your trying to control them.. if you do not want your money to 'go to waste' then do not give it to them.. done.. if you want to leave them something then do so... no strings, no trust no nothing...


Now, if there are grandkids (did not see in my reading) then of course you can leave money in trust for them...

 

[JBTX]

I can see you are upset, everyone is entitled to their own opinions...let's not argue about it..every person is different and is the way they are for different reasons. For example we have a friend in his 70's who is a compulsive spender and the way he talks about his family made me realize this comes from childhood trauma...in his case he can't be helped, that's not a slam it's just a fact.

I’m not sure I’d say I’m upset but if somebody posts are particularly poor and irrelevant post I’m usually going to take exception to it and express an alternative point of view.

The point is the subject was about trusts, and how they can be useful. I was trying to give examples of that. But nothing is perfect. My young adult daughter may very well follow the path that you and Brett describe. There are two different things, setting up a trust and a corporate trustee relationship, and funding the trust. Depending on how the future plays out will affect if and how it is funded, or perhaps modify the trust. Will any of that help? I don’t know. All we can do is make a reasonable try and beyond that we can’t control the future.

 

[JBTX]

Have not read the whole thread and do not plan too....


But, I will pass along something one of my sisters tells me off and on... do not try and control your ADULT kids...


Any stipulations you put on the money is your trying to control them.. if you do not want your money to 'go to waste' then do not give it to them.. done.. if you want to leave them something then do so... no strings, no trust no nothing...


Now, if there are grandkids (did not see in my reading) then of course you can leave money in trust for them...

There is some truth to that, but at the same time the pre frontal cortex is not fully developed until the late 20s, plus many young adults don’t have much life experience, so it isn’t uncommon to set up trusts with a different trustee up until a later age, something like 30. You can have a trusted relative as a trustee, or perhaps the relative and beneficiary as co trustees, then make the beneficiary the trustee at 30. In more extreme cases like ours, a corporate trustee is more appropriate for their entire lives.

 

[OldShooter]

... But, I will pass along something one of my sisters tells me off and on... do not try and control your ADULT kids.
Any stipulations you put on the money is your trying to control them. ...

Perhaps if you had read the thread before popping in you would have realized that much of this thinking is not "to control," it is "to protect." My post #62, for example, and many others.

 

[JBTX]

Perhaps if you had read the thread before popping in you would have realized that much of this thinking is not "to control," it is "to protect." My post #62, for example, and many others.

This is a good point. The purpose of most trusts are to protect, not control. You can create a trust and make the beneficiary the trustee and give the beneficiary full control. As long as the money is in trust it is protect against creditors, lawsuit or spouses in the process of divorce.

For somebody leaving material assets, there is really no reason not to leave in trust, apart from the modest cost of setting it up. Income can be distributed to avoid higher trust taxation, or it can be retained in the trust if and when that protection is needed.

 

[Texas Proud]

There is some truth to that, but at the same time the pre frontal cortex is not fully developed until the late 20s, plus many young adults don’t have much life experience, so it isn’t uncommon to set up trusts with a different trustee up until a later age, something like 30. You can have a trusted relative as a trustee, or perhaps the relative and beneficiary as co trustees, then make the beneficiary the trustee at 30. In more extreme cases like ours, a corporate trustee is more appropriate for their entire lives.

I will agree... way back in the mid 80s I did tax work... one was trusts set up for 2 girls who's father had passed...



The trust were set up where they go a 'small' amount when turning 25... a 'mid sized' when 30 and the rest at 35... no strings... just cash to them...


I do say 'small' in quotes as the small amount was like $50 million each... IIRC the last payment was $150 mill each.. and remember this as an 80s dollar...

 

[Texas Proud]

Perhaps if you had read the thread before popping in you would have realized that much of this thinking is not "to control," it is "to protect." My post #62, for example, and many others.

Not that I agree with my sister but any kind of 'protection' she would consider control.. not that I do... and who knows what the kids might think...



The kids are successful and appear to make enough for what they want... there are a lot of people who are not as financially astute as them.. now, I might have missed if they are big time in debt but I did read a few pages and did not see that...

 

[JBTX]

I will agree... way back in the mid 80s I did tax work... one was trusts set up for 2 girls who's father had passed...



The trust were set up where they go a 'small' amount when turning 25... a 'mid sized' when 30 and the rest at 35... no strings... just cash to them...


I do say 'small' in quotes as the small amount was like $50 million each... IIRC the last payment was $150 mill each.. and remember this as an 80s dollar...

That’s one way to do it, and could make sense for a really big trust for that size. For more modest size 7 figure trusts, I’ve heard estate planning attorneys argue that automatically doling out amounts from the trust isn’t the best course because it leaves those assets unprotected. An alternative approach would to make the beneficiary co trustee for a period then later sole trustee. But I can see how with a $50 million trust one would be hesitant to give too much access at an early age.

 

[Rogers3346]

I would set up Trusts for spendthrift inheritors... if not they will squander it. You may want to put a cap per year on the amount they can withdraw as well. Just a thought. If they are in their 40's they need to be allowed to fail and fall hard- while you are alive- so you can have the opportunity to help the learn some ways to figure out how to cope with the experience. By always "leaving" children from their bad decisions - will hurt them more than anything else - especially after you die and no one will be willing to lend them a hand and they won't know what to do... at least while you are alive you can help them learn where they went wrong and how to work out a solution, including feeling the consequences of their actions (by helping in a VERY minor sense - no one wants them to starve- but being hungry sometimes isn't such a bad thing)....

 

[Rogers3346]

oops sorry in my previous reply to help the = to help them and
leaving = saving and

 

[brett]

Our daughter was not in the least bit 'financially savvy' for many years. She wanted all the name brands, etc.

But,,,her husband went into business for himself she knew enough to realize that she needed to become savvy.

So she spent time understanding the basics, learning from others, asking questions. And then asking more questions. Not certain where all of her knowledge came from over the course of getting into business and having four children but she did. To the point where she can do profit margins in her head.

She had two choices. Put the effort into understanding financial issues or ignore it all and 'hope' or 'pray' that everything worked out for her. She realized door two was a fast elevator to the financial basement for her and her family. Fortunately she took the first option. She had a duty of care toward her children.

She did the exact same when it came to understanding family insurance matters, the pros and the cons of different policies prior to working with an insurance agent. And all of the other day to day things like home insurances, com contracts, etc. To the point where she called me nine months ago and recommended that I renegotiate our com contract. We did, down from $181 to $114 per month with an enhanced service and option level.

It is not that difficult to become even a little bit financially savvy. Lots of web sites, lots of books in the library, and perhaps even some more astute friends or blogs to turn to for advice and learnings. Far better than doing nothing and claiming ignorance as an excuse for doing nothing. It just takes a little bit of interest in one's own financial well being and a little effort.

It certainly beat the other option of burying her head in the sand, and expending zero effort.

 

[Texas Proud]

That’s one way to do it, and could make sense for a really big trust for that size. For more modest size 7 figure trusts, I’ve heard estate planning attorneys argue that automatically doling out amounts from the trust isn’t the best course because it leaves those assets unprotected. An alternative approach would to make the beneficiary co trustee for a period then later sole trustee. But I can see how with a $50 million trust one would be hesitant to give too much access at an early age.

Just to be clear, they were $300 million each... the $50 mill was just the first payment..


As for trusts, remember that they are taxed at a very high percent... there is a downside to a trust... OH... and also trustee fees..

 

[Buckeye]

I am an only child. My wife's older sister could use some help - that's a good idea.

And could she use it now rather than later? I'm always thinking about this for possible heirs but we don't have as much of a cushion as you do.

 

[JBTX]

Just to be clear, they were $300 million each... the $50 mill was just the first payment..


As for trusts, remember that they are taxed at a very high percent... there is a downside to a trust... OH... and also trustee fees..

Yes trust tax rates are high, if you leave it in the trust. You can always choose to distribute the income at the beneficiaries tax rates, or leave it in the trust at higher tax rates but with trust protection. The optionality is the benefit. When you are getting to amounts that high both will be at the top rate anyway so it makes little difference. Distribute to fill up lower brackets and keep the rest in the trust.

 

[Texas Proud]

If someone goes the trust route be aware that there are different ways to manage the trust... I will give 2 extremes that I saw...


One trust was to give current income to a beneficiary and the remainder to someone else... the trustee was favoring the current beneficiary by investing in high income producing securities and taking capital losses.. they carried those losses forward... they were substantial...


The other is to invest for long term growth... in securities that do not throw off current income... that leaves more money to the remainderman...


Of course there is the whole spectrum in between...

 

[dknighd]

Over 40 years ago I married a single mom and her 3 kids, 5, 7, & 9 at the time. (We had none together, and i have none from any relationships). All of a sudden (!!!) we are in our 70's, long retired, enjoying a NW of 5MM+ or so. Problem is that all 3 kids are devoid of money/saving/investing/management skills and might be called spendthrifts. All have good jobs, but nothing but debt to show for their hard work. (We tried teaching them and apparently failed.)

Don't give up, they still have time to learn. They might have more skills than you realize. I'm sure my parents questioned some of the things I did. It is natural. Parents always think they are smarter just because they have lived longer and have more money than their kids.

Time to re-do our estate plan. Leaving each one a $2MM inheritance is reminiscent of the many stories of lottery winners squandering all their winnings and then declaring bankruptcy. Wife and I are, naturally, both emotionally involved. Would welcome any thoughts on how to make inheritances a blessing and not a curse.

I have thought about this. I gave my kids a moderate amount of money when my Mom died. My Dad is still alive. It was a no strings attached gift, but I did encourage them to use it wisely. And they did. Kids will surprise you sometimes


You might consider giving some of your money to your kids now. See what happens.


I've pretty much decided I do not care what happens to our money once we die. As long as our kids do not have to take care of us financially I'll be happy enough. That was a "gift" mom and dad gave me. That is a "gift" I hope my kids appreciate. The hidden message in that "gift" is to be able to take care of yourselves.

 

[Out of Steam]

The will can simply give the desired amount(s) to the decedent's desired charities. Note that charities should specifically receive TIRA money where possible because they will benefit from 100% of the money tax-free.

By the time I'm 85 or older, I will trust my daughter more than I do to pick the appropriate charities. Seeing the will and estate solicitations we already get from charities, it should be nice to say that someone else will be in charge.

Our retirement assets are mostly in employer plans (TIAA and others). Unless we keep replenishing the pretax IRAs from the employer-based accounts, we'll probably dissipate them. I've already had to move funds to fund Roth conversions.

 

[dknighd]

I would never leave my kids with the responsibility of picking charities.
Just give them the money, if any, and let them decide what to do with it.

 

[brett]

What amazes me is people who spend hours researching which car to buy, which TV to buy but will not spend even half of the same time doing a little research in increase their basic financial knowledge and skills.

At some point people need to be accountable for themselves and stop with the nonsense that they 'do not understand' money. It is a lame excuse. They are really saying I am too lazy and too disinterested to bother to learn or even to listen.

Besides, other people around me may do it for me or bail me out of financial jams me out on a regular basis.

A consumer loans officer once told me that there are people out there who will actually co sign loans for children or relatives in the full knowledge that they have a history of default. They co sign the loan in anticipation of assuming the liability at some point.

They are enablers who despite their good will are actually making the situation worse IMHO.

Our two children will each eventually inherit a healthy sum. But we are not under the delusion that they are 'entitled' to it and neither are they. They are responsible for themselves and know that they have to muddle through life, figure things out, and be responsible for themselves and for their actions. Or their inaction as the situation warrants. It is what adults do.

 

[Katiek]

Would they be the type to follow instructions if you left them, but just don't know what to do? Or would they end up using all the money because they think they know what they're doing, even if they don't?


I had one relative who had kids who were hard working professionals but not knowledgeable about investing. He left a letter to each kid with some advice about leaving the investments in the accounts he had and to have dividends deposited to another account they should spend. None of them would "raid" the account but left to their own devices, they might have just put the whole amount in their checking account and spent it without realizing.


Do you have a fee only advisor that could at least meet with them a few times ? While I don't normally think an advisor is necessary, if they're the type that would follow a plan if there was one, it could be a good idea in this case. But if you think they'd ignore any advice and just splurge, this doesn't help.

 

[steady saver]

So many great ideas here. I confess I stopped reading at page 3 because I have an appointment to get to, but if OP has the interest and the adult children are willing, what about helping to educate them now? I have one son who is very interested in investing and one who isn't at all. Luckily the one who isn't at all is pretty frugal (he makes way less than his brother). But he just doesn't have an interest and is, I think, intimidated still by the whole thing. I helped them both set up Fidelity accounts in college and have continued to help them by making suggestions and by more or less doing more handholding with the one son. They don't know what they don't know. (I know I sure feel that way about myself lots of times!).
Old Shooter has some of the best advice, I think, and have tried to pass that on - mainly about getting a broad based index fund and just sticking with that. Having automatic deposits if possible. Perhaps matching what they are able to deposit/invest.
Also, DH and I have really taken to heart the idea of giving them money now - either cash or experiences, etc. We're still working on that as we, ourselves are still trying to navigate spending, as opposed to saving.

OP, your children are lucky to have you.

 

[dknighd]

What amazes me is people who spend hours researching which car to buy, which TV to buy but will not spend even half of the same time doing a little research in increase their basic financial knowledge and skills.

To me that is a sign they care about how they spend their money. Which is a good thing.

 

[brett]

To me that is a sign they care about how they spend their money. Which is a good thing.

Absolutely great consumers.

But perhaps no so much when they sign up for 21 percent credit on that TV that they cannot afford and do not need. Oh my, we can just about make those monthly payment commitments for the next few years. Who cares if the finance charges over time exceed the cost of the television.

Or finance a new vehicle when the current car loan exceeds the trade in value of their current vehicle. No problem. Roll both loans together....just sign up for an eight year car loan.

Rinse and repeat in three years when the new vehicle fever hits them again. After all, we deserve a new vehicle.

 

[dknighd]

Absolutely great consumers.

But perhaps no so much when they sign up for 21 percent credit on that TV that they cannot afford and do not need. Oh my, we can just about make those monthly payments.

Or finance a new vehicle when the current car loan exceeds the trade in value of their current vehicle. No problem. Roll both loans together....just sign up for an eight year car loan.

Rinse and repeat in three years when the new vehicle desire hits them again.

You have to figure they will figure it out. Just like you did

 

[brett]

You have to figure they will figure it out. Just like you did

The consumer loan stats indicate that either they do not figure it out or do not care.

These folks are a salespersons best friend. Especially the vehicle salesperson who gets commission on the car, on the car loan, and on any extras that get tacked on to the car like protection or extended warranties. They are fish in a bowl.

As long as the monthly payments work.......