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  • Creating a trust?

    Helping family with estate planning. Their situation

    Male 85
    Female72
    assets: ~ 1 million + 350K house no mortgage (not including individual IRAs which they have decided will be left to their respective child upon death)
    they live modest off <40k year + social security
    No debt
    Remarried widowed couple so each person has 1 of their own children and no kids together.

    Goal: They want it such that when one person dies the other has dividend income to survive off of. However once one person passes they want it such that no more than 50% of the wealth can be used. They have both worked hard and want to make sure that when they die their child does not loose the wealth they created. They want me, a 3rd party, to be the trustee...

    Question: Is a trust the best way to do this, and others who have gone through this what are your thoughts?

  • #2
    I think a trust is fine but what is the ~1m you talk about? If it's a taxable/brokerage account that is FAR better to inherit than an IRA because in the former the heir wouldn't have to pay taxes but in the latter the heir would pay at his/her tax rate. So they should spend down those IRAs instead of the ~1m. They have to spend down the IRAs anyway because of RMDs but if their tax bracket is low and they live in a low/no income tax state, they should leave the ~1m alone and spend beyond their RMD from IRAs

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    • #3
      Trusts are very customizable tools and generally are far better than other options for asset management, especially when supporting the surviving spouse while still gifting to first marriage children is the priority. As JBME stated, you'll want to consider tax effects when deciding how and when to best use your financial resources. While the couple can save on administration costs by having a lay trustee who is willing to work for free, they should have a professional estate planning attorney help set up the trust so its terms are properly tailored to their situation. They should decide what kind of clauses should describe how distributions will be made to the surviving spouse, who backup trustees should be, and so on. Depending on the state they are in, they may need to plan for estate or inheritance taxes too.

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      • #4
        Standard A-B trust and identify the best tax efficient for each bucket. That'll protect 50% to the future. At least that's what I'd do to KIS and protect the biological child.

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        • #5
          Talk to local lawyer. Trust, Wills, POA are about $1k.

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          • #6
            Would they spend on long term care?
            Would they allow spending needed by the other spouse? $40k + SS will not cover home assistance.
            Whose money covers burial etc.? What happens if one of the children pass away? Buried in here is that the child of the surviving spouse is getting screwed. Two final expenses and further depletion. Built in guaranteed. Not sure if that is really the intent , it won’t result in a 50/50 split at the first death. Based on age, the 85 year old’s kid will be way ahead. Maybe that is the intent.
            For sure. the kids will note it.
            If mom lives to 95, it could be $500k to $10k.
            Not sure that is the intent, but high probability.

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            • #7
              Ok, my questions start here:

              1) Able to live off <$40k/yr +Social Security : how much in “dividends” are needed to make surviving spouse whole (I.e. replace the lower social security that will be dropped)?

              2) what are the retirement account balances? Are they aware of the SECURE Act creating an accelerated withdrawal as compared to previous stretch provisions for non-spousal inheritors?

              3) What is the $1m in? Have they discussed “who’s” asset the house is (or how to split that)?

              there’s a lot more detail necessary to even know if the restrictions are logical to impose on one another let alone the most efficient/proper way from what we have here. Provide some more insight if possible..
              Founder, Coastal Wealth Planners- Fiduciary Tax-Sensitive Retirement Planning & Wealth Management www.coastal-wp.com email: [email protected]

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              • #8
                Thanks this was all helpful

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