Leaving money to kids in a trust (or not)

[LookinAround]

What is the name of your state? Illinois

I have a total four great-nieces/nephews with ages ranging from 5 to 9. (Two sets of parents each with two kids). I’m updating my living trust and considering leaving each of four the kids’ money in their own trust. It'll likely be 125K to 150K each. Is it worth it?

• I’d name the parent as trustee (don't think a need for additional expense of corporate or lawyer for trustee)
• That would leave each the parent with the responsibility of tax smart investing for a trust to minimize those high trust taxes. Might that be an extra challenge above and beyond normal investing? Each parent would also have to file 2 tax returns, one for each kid’s trust
• Or do I advise the parent/trustee to simply distribute all trust income each year to avoid trust taxes? Is that better? Or does that miss out on the advantages of getting compounded returns? Of course, parent/trustee would still have to file tax returns for each trust

Or do I simply give the kids money to their parent and state my wishes on how would like it spent (10K on graduation or age 25, another 10K at 30. Parents can use $$ for kids education. Kid to receive any balance remaining at age 35 )

I know a trust also has creditor protection and not part of any divorce proceeding (IMHO extremely low probability of a divorce) Is it worth putting 150K into a kid’s trust? Or just give it the their parents to be used on their behalf?

 

[LdiJ]

What is the name of your state? Illinois

I have a total four great-nieces/nephews with ages ranging from 5 to 9. (Two sets of parents each with two kids). I’m updating my living trust and considering leaving each of four the kids’ money in their own trust. It'll likely be 125K to 150K each. Is it worth it?

• I’d name the parent as trustee (don't think a need for additional expense of corporate or lawyer for trustee)
• That would leave each the parent with the responsibility of tax smart investing for a trust to minimize those high trust taxes. Might that be an extra challenge above and beyond normal investing? Each parent would also have to file 2 tax returns, one for each kid’s trust
• Or do I advise the parent/trustee to simply distribute all trust income each year to avoid trust taxes? Is that better? Or does that miss out on the advantages of getting compounded returns? Of course, parent/trustee would still have to file tax returns for each trust

Or do I simply give the kids money to their parent and state my wishes on how would like it spent (10K on graduation or age 25, another 10K at 30. Parents can use $$ for kids education. Kid to receive any balance remaining at age 35 )

I know a trust also has creditor protection and not part of any divorce proceeding (IMHO extremely low probability of a divorce) Is it worth putting 150K into a kid’s trust? Or just give it the their parents to be used on their behalf?

I would likely do a trust myself in that circumstance. It would not save tax to pass the income through to the beneficiaries because then the kiddie tax would kick in. Unless of course Congress fixes that.

 

[t74]

What a generous gift!

If you have an attorney doing your trust, ask his advice. If not, since this is $500-$600K I suggest you consult an attorney or your CPA about best tax options now and over time. There may be other options that would benefit you and them more (such as 529 or prepaid tuition plans). Given that there may be estate tax law changes coming, what is a good plan now may not be so in the future.

You may want to consider that there may be more children born in the future to either or both of the families. Please consider whether the parents are really capable of making investment decisions of this magnitude; I know that when my children were that age I would have needed direction and assistance finding a good financial advisor.

This is a very pleasant problem to have. You are very special to consider this!

 

[Taxing Matters]

You'd want trusts to leave the funds to minor kids. I suggest having an estate planning attorney draft the trusts for you. The trusts likely can all be patterned the same, so the cost for all of them should not be much more than a trust for one. You might want to leave the trustees with the flexibility to determine what, if any, distributions should be made prior to when the kids are entitled to all of it (e.g. at age 35 or whatever). While some tax may be saved with distributions to the kids to avoid the trust paying tax in some circumstances, bear in mind that saving tax should not be the only, or even main, consideration here. While it should be considered, you also want to think about what will best maximize their overall return on the investments, what distributions will best benefit them (giving distributions to teens, for example, may just result in the teen blowing the money on something stupid), and allow for the fact that tax laws may change.

 

[zddoodah]

I have a total four great-nieces/nephews with ages ranging from 5 to 9. (Two sets of parents each with two kids). I’m updating my living trust and considering leaving each of four the kids’ money in their own trust. It'll likely be 125K to 150K each. Is it worth it?

I don't really understand the question. More accurately, I don't understand the point of asking the question to anonymous strangers on the internet.

That would leave each the parent with the responsibility of tax smart investing for a trust to minimize those high trust taxes. Might that be an extra challenge above and beyond normal investing? Each parent would also have to file 2 tax returns, one for each kid’s trust

I'm not sure why you would create separate trusts for each sibling. The smarter thing to do would likely to be to create one sub-trust for Child A and B (who are siblings, and with their parent(s) as trustee(s)) and a separate trust for Child C and D (who are siblings but not siblings to A and B).

Or do I advise the parent/trustee to simply distribute all trust income each year to avoid trust taxes? Is that better?

These sorts of assessments cannot be intelligently made by folks who know nothing at all about the factual situation.

Is it worth putting 150K into a kid’s trust?

Again, I don't really understand this question. Also, you seem to be of the opinion that $150k is not a LOT of money, which makes me wonder if you're in the market to adopt an adult child.

Given your apparent net worth, you would be well-advised to consult with a local attorney who handles estate planning and wealth management.

 

[adjusterjack]

I don't understand the point of asking the question to anonymous strangers on the internet.

That's exactly the purpose of these forums. So that people can ask questions of anonymous strangers.

Duh.

 

[zddoodah]

That's exactly the purpose of these forums. So that people can ask questions of anonymous strangers.

Duh.

No duh, Sherlock. It is, however, pointless to direct "is it worth it?" to a bunch of anonymous strangers.

Is that really the only thing you have to offer in this thread? To clutter it up with an idiotic comment with any attempt at all to offer anything to the OP?

 

[TrustUser]

here is just a thought for you. make one trust. put the grandkids as the beneficiaries. each of them with equal shares, if you like. trustee can be whatever group of parents you choose. buy a nice residential house for 500-600 (whatever you want to give to the grandkids).

distribute all the income to the grandkids. most of the wealth will be going to property value increase. so may as well let the kids enjoy something each year. and then it makes trust filing somewhat simple if all income is distributed each year

 

[LdiJ]

here is just a thought for you. make one trust. put the grandkids as the beneficiaries. each of them with equal shares, if you like. trustee can be whatever group of parents you choose. buy a nice residential house for 500-600 (whatever you want to give to the grandkids).

distribute all the income to the grandkids. most of the wealth will be going to property value increase. so may as well let the kids enjoy something each year. and then it makes trust filing somewhat simple if all income is distributed each year

They aren't grandkids, they are grand nieces and nephews. In addition, if your advice were to be followed, how would maintenance, property taxes and insurance get paid on the property?

 

[Zigner]

so may as well let the kids enjoy something each year. and then it makes trust filing somewhat simple if all income is distributed each year

...because no family ever fights over a "shared" piece of property.

 

[quincy]

I don't really understand the question. More accurately, I don't understand the point of asking the question ...

... I'm not sure why you would create separate trusts for each sibling. ...

These sorts of assessments cannot be intelligently made by folks who know nothing at all about the factual situation.

Again, I don't really understand this question. ...

... you would be well-advised to consult with a local attorney ...

Good information.

No duh, Sherlock. It is, however, pointless to direct "is it worth it?" to a bunch of anonymous strangers.

Is that really the only thing you have to offer in this thread? To clutter it up with an idiotic comment with any attempt at all to offer anything to the OP?

I am not sure that what you offered in your first post (or second post) is any more helpful than what adjusterjack offered.

 

[Taxing Matters]

here is just a thought for you. make one trust. put the grandkids as the beneficiaries. each of them with equal shares, if you like. trustee can be whatever group of parents you choose.

Having several co-trustees is a set up for conflict. I'd recommend just one trustee.

And picking one parent to handle a trust for all the kids invites charges of favoritism especially if that parent's kid benefits more than the others. So there are potential downsides to that. There are ways to deal with those problems, but you want to be aware of them at least so that you can address them.

 

[TrustUser]

hello all,

i was a highly trained systems analyst, by profession. so you better know that i usually have solutions to problems. so let me address some questions

1) the property is owned by 1 trust. so taxes, maintenance, etc. is all paid by the trust. there is income and expenses. the profit is what i was suggesting would be paid to the kids, whatever relation they are

2) favoritism - which is why i suggested any combination of trustees (figuring at least 1 from each family, but maybe all 8)

3) multiple trustees - does not have to be a problem. but it does mandate that there must be a way of making a final decision. what i would probably do is say that every decision is decided by the majority of trustees. in the case of a tie, you can name a particular way of doing it. or simply flip a coin.

the reason i am suggesting one trust and one property is that one trust is less work to do than 4 trusts, in terms of taxes, etc. it also allows one to have a very nice property to rent out. and one property is less work to do than multiple properties. in fact, most of the time, if you have 2 properties, you have twice as much work. and probably more than that. because the less valuable properties are also very often the ones that need more tlc.

and let me tell you one thing i have learned about that - you want to be renting out properties to upper middle income people - way less headaches. way less work for the trustees. and way less for them to argue about, in the first place.

and then put in the trust some specific language about selling the property. such as allowing one beneficiary to sell his share to the rest. and if there can be no agreement, when to sell the property, etc.

certainly some thought needs to be put into it, to take care of the situation. like i have said many times, most any trust on the internet suffices if all one wants to do is have it act as a "glorified will". in other words, distribute everything upon death of the grantor. it is more involving when the trust outlasts the grantor.

that is already a given, in this situation. i was responding, based upon the situation that a trust/trusts were gonna be created.

and this was a suggestion, something i wanted the op to think about. and yes, it is probably how i would handle the situation, from the description of the situation, as i see it.

i am sure that all of you have your ideas, and suggestions - which is good. it gives the op plenty to think about, to arrive at a decision that is best for him.

 

[TrustUser]

one thing i wanted to add - i am from california, where 600K is probably near the absolute bottom end of upper middle income, and probably really more like regular middle income.

if one can buy a nice upper middle income like house for 150K, well then i might just have 1 trust per family. in my neck of the woods, 150K buys an outhouse in a nice neighborhood - LOL

 

[Taxing Matters]

Yes, in most parts of the country one can buy a home for less — sometimes considerably less — than a comparable home in California. The high cost of housing is one reason why I'm glad I don't live in that state.

Holding a rental property may not be the best choice. Rentals require a fair bit of active management, something that the parent/trustee(s) may not want to deal with. Other investments may return more with less effort than rental properties. I personally would not dictate to the trustee what investment he or she must make with the funds given to the trust.