Multi-generational planning

what makes you think you would even LIKE those people?

"Gil Faver" > to start. Any pointers?

I'm sure there are some current Rockefellers that the old man, were he alive today, wouldn't LIKE either -- but somehow he set it up so that they've all got money.

I ain't comparing my small mound of beans to the Rockefeller mountain of beans -- but I'd like to setup something for future generations ... whether I actually like them or not.

I've done a bit of googling and it looks like what I'm after is called a "Dynasty Trust".

Anyone ever dealt with one of these?

I've thought along those lines, but now I think I should try to spend more of my own money. There will still be plenty left for the family.

But, I will be watching this thread with interest.

I just recalled "the rule against perpetuities" which says you cannot tie up your money forever. It is limited to a "life in being" plus 21 years. Of course, the "life in being" can be a set of lives, of people currently living, so if your first choice dies early, your trust need not suffer unduly. I would pick all family members currently living, especially the 2 year olds. But, that plus 21 years brings you out to about 100 years, not beyond. For that, you would be at the mercy of some future trustee deciding your plan was a good one, and creating another such plan to get the next 100 years in.

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South Dakota is one of only six states with no rule against perpetuities. If a dynasty trust is set up in South Dakota, it can theoretically last forever without any estate, gift or generation-skipping transfer taxes! South Dakota has traditionally been the jurisdiction of choice for these trusts, not only because it has no rule against perpetuities, but also because it has no state income tax.

The term is called "dynasty trust". A "trust" is a legal entity which is not person, but can own assets. It has a manager(s) and benificery(ies). [ A corporation is a special type of trust. ]

Many governments limit the duration of a family trust to a century or one generation past living generations, so they can eventually tax the assets. But if you google the term dynasty trust there are lawyers claim that one can exceed these limits based on new laws or some other scheme. I'm under the impression that some rich families make a new trust when the old one goes out of existance, but that requires the agreement of the beneficeries.

This quest came up when a guy who wanted to freeze themselves near death and control and invest their assets until some future resurection time.

Sgt.Sausage wrote:

My only trust experience is the one I set up for my child at birth. The purpose was to get money out of my estate, firuging that as time went on there'd be a chance of exceeding the exemption and having estate taxes. So, now I'm able to gift the trust $24K/year, and separate trusts (all set up at the same time, but different entities) own our life insurance. The caution that I'd give you is that gains in a trust quickly get taxed at very high rates. Go to IRS.gov and look for Form 1041, the 1040 for trusts. The point of the taxation is that trusts aren't meant to avoid income tax, per se, but allow for current gifting and probate avoidance. The trust I have is irrevocable and distributes any gains each year to the child to be taxed at the individual (not trust) rate. With enough offspring on your list, you may be able to have the trust distribute those gains/dividends to pay for college or just as a general distribution from the trust. If you plan to set up something permanant, just consider the exact 'rules' you want followed. You want the decendents to benefit, that's great, but do you want a generation of lazy slackers in 60 years? (not suggesting your genes are slacker material). I'm just suggesting that my view is that providing an education and seed money to start a business may be a priority. You want the trust to pay only at retirement? I suppose you can do that, too. Just a thought. JOE

One challenge with the "dynasty trust" is who will be declared co-trustees and when. Managing the investment of a large amount of assets is of course a large responsibility. A bank and some descendants are often chosen as co-trustees. Pros of the bank being a co-trustee: (1) Short of a nuclear holocaust, the bank (or its successor bank if, say, a merger occurs) will always be there; (2) a suitably qualified, trust-experienced individual or individuals (employees of the bank) will participate in decision-making; (3) banks offer some impartiality to family squabbles. Cons: Banks will take on the order of 1% of the assets' value each year for fees for their services as co-trustees. As for descendants being co-trustees: Too many, and it may be hard to gain consensus on an important investment decision. Also, conflicts of interest occur with descendants being co-trustees, since they're managing the trust's assets so that the assets last--that is, for growth--but also in part for their own income.

I recall general references to the Joseph Kennedy children, grandchildren et seq. drawing from some sort of a family trust. It must technically be a "dynasty trust," as you found. I believe I read this alleged Kennedy trust is at least in part currently managed by one of the grandchildren (the Chicagoan, who stays out of the news). But the elder Kennedy knew he was going to have a guzillion direct descendants, and he raised his children with a certain ethic and familial glue. It does not sound like you are going to have this. ISTM your wife and you are left having to have a lot more faith that the trustees of your assets will operate in the interests of your descendants.

I trust you have also heard of charitable trusts that can be set up to initially pay income to charities but then ultimately dissolve and pass to, say, grandchildren or I guess grandnieces/nephews.

You also do not have much idea whether your nieces and nephews will even have children. So you do need to come up with alternate beneficiaries.

I am sure you are en route to an estate attorney and are wisely trying to prepare a little in advance. Good luck.

(2) a suitably qualified,

That sounds good, but actually some banks will put the assets under management disproportionately into their own in-house financial products, with poor performance in the long run. Losses that occur because of bad investment decisions on the part of the bank employees are over and above the 1 percent (or more) of assets taken out year after year. Not all banks are unscrupulous, but finding a good one can be risky business.

Devil's Advocate here. You believe you're a better person for having provided for your own education. Do you believe you're a better person for providing for your own retirement? Do you believe your sibling's offspring would appreciate the value of doing so also?

Have you considered setting up this fund for those who start life a whole lot less fortunate? I'm not suggesting that you fund several generations of "slackers", but there are kids who could/would contribute to society with just a little leg up. This is certainly not an idea of handing them money. Would your community benefit from having a "foundation" that would provide scholarships for trade schools, for instance?

Elizabeth Richardson

I see your point ...

I am, for some unknown reason (any psychoanalysts out there?) hooked on the idea of somehow "keeping it in the family". This is totally irrational -- we'll both (wife and I) be long dead and gone, so what does it matter?

Maybe some sort of compromise is in order -- part for charity, part for the family. I don't feel any sort of personal "debt to society" that needs paying back, nor do I feel particularly charitable ... but wanting to "keep it in the family" somehow doesn't sit right either ... Sort of wrong, but not really "wrong" per se -- just doesn't seem right.

I need more thinking on this one.

This is all, right now "pie-in-the-sky" -- I'm 37 years old and have (hopefully) many decades to consider how this will be done. We're due for an update on the will, which was last done over 10 years ago, and I've really been thinking about what to do with the nest-egg. 10 years ago we weren't in a position to worry about such things. We didn't have much of a nest-egg at the time.

It is, after all, quite possible that it will be entirely wiped out before we even get to implement this idea and in that case, it won't matter.

Hmm, that would be the last thing I'd think of. The desire to "keep it in the family" even if not direct decendents seems to be a natural impulse to me. Far be it for me to judge your motives. Given your ages, I'd just continue to think about your goals and the possible unintended consequences. As another poster suggested,. knowing money is coming may have an impact on one's motivation to work. If I knew I had to make it to 62 to get a windfall, and not save for retirement beyond that, I might just check out right now. But as I has to plan when I wrote my will after the birth of my child, I had to think about how to divide any money on the chance I take my wife and kid with me in an accident. I included enough relatives that the impact to any one would be minimal. Either way, this exercise gets you thinking. JOE

yes, it sure does. I just got back from three weeks in Italy, thinking about just what to do with my money. Unfortunately, I came to no firm conclusions, so I am likely to return to Italy to continue the thought process.

Does this make your trip tax deductible? :)

-Will

have you given thought to any of the following:

funding a college scholarship at a nearby institution? donating $$ to science/ research? creating a charitable foundation yourself?

one example might be look at nieces and nephews, and what they are "interested" in, then create a scholarship based on interests. In this case you would be paying for family's education (as opposed to retirement), and the standards to reach "higher education" might help weed out the slackers.

But this assumes someone needs a college education to get ahead, and I know that is not true in all parts of the country- helps, but is not the best predictor.

FWIW, I'm more inclined to pay for decendent's educations han for their retirement. I could also see funding some kind of disability insurance, but wouldn't worry too much about their retirements.

Another thing worth considering is putting some of the money into something like a donor-advised charitable gift fund and giving the group of descendents (or one of them as a spokesperson) the power to make those suggestions. ie:

See my previous post re: donor-advised charitable funds - the money (or that portion) has to go to real charities, but the successors get the opportunity to participate in the decision making as to where the money goes.

This is the time to start!