Re:Trust / Children / Distribution of assets question
We live in California. We are told having a living trust in California
will avoid probate and a lot of problems.
We have 2 sons. One is just 18 years and the other 14.
Our goal is to have our sons get the money over a period of say 10 to
15 years so he does not blow it at a young age.
Can any one please let us know how we can structure this
We called Schwab etc., the said that they would be trustees for the 15
years and take 1% to 4% of net assets every year...that means in 15
years they will take 60% of the net assets!
Is there a way to create accounts that will allow our sons to be able
to draw a limited amount each year - say x number of dollars each year
or is there any other suggestion from any one that will allow us to
accomplish our goals ?
Please let us know.
This will of tremendous help.
You might consider a will in which the executor will liquidate the
assets and purchase a lifetime annuity for each child. That way the
distribution will provide them with a lifetime stipend that they can't
piddle away in the first few years. Perhaps in a trust, the trustee
do the same thing.
Andy in Eureka, Texas
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OP has 2 children and wants to control distribution of estate assets from
OP is also shocked that Schwab want 1% to 4% of net assets every year to
administer a restricted payout.
OP asks for an "economical solution."
First, my pet peeve - Everybody wants to go to Heaven, nobody wants to die.
Everyone wants help, but no one wants to pay!
Schwab's fee is reasonable considering what you're asking them to do. You
also have to factor in something for a return on the investment. If the
investment is earning at least 4% a year (which can be done fairly easily)
then Schwab gets paid from earnings and only the corpus is getting
distributed. If the investment can do better than 4% then it should stay
ahead of the curve.
It is a skewed perception to think that Schwab, or anyone else, is going to
get 60% of an investment for managing it - you have simply ignored any
return and that isn't fair to whomever might manage this for you.
You might consider a restricted payout, available with many annuities. This
limits the amount of money they'd get over a period specified by you before
you die. BUT this won't be free either - the annuity company will charge a
Another option would be a trust - BUT then you'll need a trustee and the
trustee may need a financial advisor. This could easily cost 4% a year -
again, not free.
You could ask a relative to oversee things, but I strongly discourage this.
Putting one relative in charge of another is a S***storm waiting to happen.
Family dynamics come into play that can damage relationships beyond repair.
You also didn't mention the amount of money involved. If you're talking
about $100K split between two children your options are going to be
different than if you're talking about $100M.
Some other things to consider:
Probate is nothing to fear. Frankly I encourage probate, it puts creditors
on notice that they only have a fixed amount of time to file a claim against
Probate also costs about the same, or less, for the average size estate.
When you factor in the costs of having a good trust document drafted and
periodically reviewed, and add in the costs associated with retitling assets
in the name of the trust, and consider that almost everyone winds up in
probate anyway because something got overlooked, you'll find that except for
a few specific situations - people with out of state real property and the
wealthy (who can afford to pay for representation), trusts are generally
most costly than probate. AND even with a trust you'll still need a trustee
to oversee a restricted payout. So in the long run the trust could eat up
more of your money.
Trusts almost never avoid estate tax issues, so even if you avoid probate
you may still have an estate tax issue.
Another option you might consider is replacing the assets you intend to
leave to your kids with a high dollar insurance policy - for two reasons:
1 - insurance passes outside of probate (and usually outside of estate
2 - most insurance companies can easily (and cheaply) accommodate a
You may find that buy using your investments to purchase life insurance you
can leave a larger legacy AND avoid probate and estate taxes cheaply and
But once again, it won't be FREE - you'll to meet with a planner who can
help you structure things in the way most beneficial to YOU. That means
they will need to spend some time getting to know you before they can make
any recommendations about what you should do - whether you ultimately buy
anything from them or not.
If all you want is advice (and I'll not get into the pros/cons of fee only
services versus commissioned sales) then you can expect to pay a fee for the
If you don't want to pay a fee, you can expect to pay some sort of sales
Either way, its going to cost you SOMETHING.
Gene E. Utterback, EA, RFC, ABA
I presume that 4% of assets would be paid year after year no matter
what the investment return might be. If stock market returns were like
they have been recently, that could deplete the capital rapidly. In the
first case, the trustee would be receiving $4000 in the first year, if
there were no investment returns at all. In the second case, the
trustee would be receiving 4 million the first year. I find it hard to
believe that the investment advice and paperwork involved would be
worth that much. A fee-only financial planner together with an
accountant might be a better choice.
It is certainly possible to structure a will so that the beneficiary
will receive the money in installments or in several lump sums spread
over a period of years, instead of all at once. What is important is to
find an executor, perhaps another family member, who will handle those
provisions without charging an exorbitant fee.
A living trust can be a good idea in some cases, but 1% to 4% of net
assets is a large price to pay just to "avoid probate," and, also, in
my opinion, too much for investment advice. In the case of a living
trust, too, it is wise to have a family member as trustee, or someone
who will handle it for a reasonable fee. At any rate, by the time both
spouses die, the kids could be old enough and responsible enough to
receive it all at once. If not, a fee-only financial planner together
with an accountant should be sufficient to insure that things go
smoothly when family members are no longer available.
"Gene E. Utterback, EA, RFC, ABA" writes:
What structure would you use for this? It seems to me that you
probably still need a trust to make it work. If the policy is
owned by the parents, the value is part of the estate. If the
policy is owned by the kids, there's no restriction on what they
can do with it (other than the parents saying they'll stop
funding it if the kids blow it). To have the control that these
folks want and the estate tax protection, it seems like you are
suggesting an ILIT - which still requires a trustee, again
preferably a third-party one, though the trustee's duties may
be a lot more simple - pay the insurance premium annually, and
if the insurance is set up with a structured payout later on,
pass along those payments. That should be a lot cheaper than
active ongoing management of a trust, but it's still a bit of
That's certainly the truth. And anything which *seems* to be
free, one should probably be very suspicious of. Nobody can
afford to give this level of service and advice for free - they
need to be paid somehow and if you don't know where the money's
coming from you can count on the fact that it's still coming
from you and probably more than you think.
Plain Bread alone for e-mail, thanks. The rest gets trashed.
Find a young attorney and consult with them. In my experience talking
with an attorney is an exercise. Make them answer your questions in
outline form within the space of an hour. If they haven't the mental
capacity to do so, then find another. Estate planning attorneys get
paid because the area is complicated by legislation and the search for
loopholes in tax laws (which are few and far between and only
marginally reduce taxes owed). Setting up a will typically doesn't
cost more than a few thousand (or even a few hundred), but attorneys
get paid for settling estates, advising the executor who typically
knows little about estate laws. There is nothing to prevent you from
getting a second opinion on a completed will.
The percentage active management fee declines with the amounts
involved. If you bought 20 year T-bonds there would be no need for
active management, no chance for poor investment selection, and a good
banker or your estate attorney could be appointed as administrator or
trustee with simple instructions to disburse a set amount or a set
percentage annually. Make sure you have account statements, settlement
and other specified fees in writing, and the statements, contract and
billing copies, delivered to the hands of your heirs or trustee.
If you are planning on dying soon, have a talk with your kids about
money management. They could still blow their annual disbursements the
day they get them. I would suggest, considering your sons' ages,
allocating an amount towards a down payment on a house.