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OK, I Want a Trust but Who Should be the Trustee?

Home Estate Planning OK, I Want a Trust but Who Should be the Trustee?

  • Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I am in my early thirty’s.  I am afraid of what would have happened to my life if I received millions even just a year ago.  However, over the past several months I have been following the WCI network and became much more savvy with personal finance.  That is just when my transformation happened.  It could happen at any age.  You know your children better then any one else here.  Are they saving in a way appropriate for their age and their means?  Are they living at or above their means?  Are they open to learning about personal finance and investing?  If you gave them 10K now how would they use it?  I do not think maturity comes at any particular age.

     

    Also, I liked your comment about the last check bouncing.  🙂

    #155700 Reply
    Liked by Larry Ragman
    Avatar FIREshrink 
    Participant
    Status: Physician
    Posts: 1007
    Joined: 01/11/2017

    I am not a lawyer, of course, but lawyers are well versed in these issues. The trust qualifies as a generation skipping trust. That avoids estate taxes to the grandchildren under both state and federal law. When the original grantors die, no estate tax is avoided. It is the next generation which can avoid estate tax, because they never take possession of the assets in the trust. They are only entitled to receive income from the trust, while the beneficiaries are the grandchildren. However the trustee is given substantial discretion and can, in fact, withdraw more than the income. In our case, since we have no need for the money, I distribute the income to a separate brokerage account which is invested solely for the benefit of my children. The money is taxed at my rates, not trust rates, because the trust distributes all income (does not retain earnings). I am in a high tax bracket but not the highest, and have no state income tax (one of the reasons our estate tax is rather punitive), so compared to trust tax rates there is a small advantage.

    The point is you don’t know where your kids and other heirs will live, nor what the laws will be at that time. Under current law federal estate taxes will sunset on Jan 1 2026 at which time the federal exclusion will drop to $5 million, and federal estate taxation will become an issue again for some physician families. A well written trust protects the assets against caprice and avarice, whether on the part of the beneficiaries, their spouses, creditors, or governments. You can write your trust so that the trustee has broad discretion and if it is in the best interests of the beneficiaries, can always distribute some or all of the principal.

    #155736 Reply
    GOAT GOAT 
    Participant
    Status: Physician
    Posts: 4
    Joined: 01/09/2016

    Hi Larry,

    I love your question and the answers.  I have skimmed this long thread so I apologize if I’m repeating previously raised points.  I’m in a two physician household and I’ve spent a lot of time reading about estate planning and transfer of wealth (and its pros and cons).  Some basic points that I think are important: 1) it IS possible to leave your kids heaps of money and have them be well adjusted 2) spend time teaching your kids about money and wealth preservation early when they still want to listen to what you have to say (and do it on the regular) 3) if you don’t go with an institutional trustee as the primary, at least write into the trust that you would like to have the trustee use an institutional trustee for help 4) most importantly both you and your heirs must be able to articulate your values so in some form or another write your values into the trust.

    I have set up a suite of vehicles for estate planning, asset protection, and wealth transfer including:  living trust, FLP, ILITs, and IRA Inheritance Trusts.  Expensive…yes ($10K).  Worth it…totally.  I initially had family members set up as trustees with a local bank as the back up institutional trustee.  I contacted he local bank to ask how they would handle the finances if they were to become trustee and there response was to dump my current advisor, move everything under their umbrella, and charge high fees.  FULL STOP!  I started to look for other INDEPENDENT institutional trustees and found Sterling Trustees in South Dakota.  They have FIXED FEES (not AUM) and WILL NOT change your advisors or investment philosophy.  You should check them out.  There may be other fixed fee independent trustee firms out there as well but I have not found them.

    As for educating your heirs and educating yourself on how to have them well adjusted enough to receive the money at whatever age, look into these books:

    A Wealth of Possibilities by Ellen Miley Perry

    Trustworthy by Hartley Goldstone and Kathy Wiseman

    Preparing Heirs by Williams and Preisser

    Raised Health Wealthy and Wise by Edwards Pitt

    Raising Financially Fit Kids by Joline Godfrey

    Silver Spoon Kids by Gallo and Gallo

    #185671 Reply
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 550
    Joined: 07/12/2017

    State dependent. Where I live it has to be a blood relative, a stare resident or a corporate entity registered in the state. Can’t just pick anyone (like an out of state in-law)

    #185700 Reply
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 550
    Joined: 07/12/2017

    **** state resident.

    #185702 Reply
    Avatar bean1970 
    Participant
    Status: Physician
    Posts: 550
    Joined: 07/12/2017

    And scratch that…those are the executor requirements.

    #185705 Reply
    Avatar Larry Ragman 
    Participant
    Status: Other Professional
    Posts: 617
    Joined: 08/30/2018

    GOAT, additional thoughts much appreciated. In the end my needs should not be quite as complicated as yours (I think one RLT should do it) but it is clear that the choice of trustee is critical. I saw bean1970’s reply as well, so when I get down to picking the trustee I’ll have to do some in-state research.

    #185711 Reply

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