How do you advise your estate to act?

[bizaro86]

Hello,

 

My wife and I recently had our first child, and are meeting with our lawyer to draw up new wills. Previously, if we both died all of our assets went to charity, but now obviously we'll want them to pay the costs of raising our son. When I added up the value of our (significant sized new term) life insurance and investments in equities and real estate, it would be enough to meet that goal, and likely have significant excess.

 

What type of arrangements would you use for dispersing the money? The relatives we've selected as potential guardians are not wealthy, and would need the money or our child would be a burden. However, I'm a bit uncomfortable saying "here's a 7 figure check and a bunch of real estate and equity investments, have at 'er."

 

I'm curious how other forum members hve dealt with this issue. I'm thinking of having our assets go into a trust with a fixed payout to the guardians, and the remainder to our son at 22/30. How much is reasonable for that? 50k per year, 100k per year? Would you select a trustee and give them discretion or fix an amount and have it adjust for inflation.

 

Also, some of my investments are significantly illiquid and complicated to manage (real estate and microcaps/special situations). Would you have everything liquidated? I have a realtor I would trust to treat my estate fairly on the RE side, but nobody who could run my brokerage accounts with anything other than "rebalance these 3 index funds yearly" type instructions. Any thoughts on how much flexibility to give people and how much is too much?

 

I don't want to tie hands from beyond the grave, but I also don't want my son to end up being fought over by relatives as some sort of sick lottery ticket.

 

Anyway, this has been a long rambling post, but any thoughts, opinions, or anecdotes of how you've done your own estate planning would be appreciated.

[CorpRaider]

Never a bad idea to gather experiences and opinions, but if you're consulting with an attorney who specializes in estate planning (or devotes a considerable portion of their practice to the area) they should be able to help you with some of these issues.  Life insurance is often used to provide liquidity when an estate has a material amount of other illiquid assets, such as a closely held business, for example. 

[argonaut]

Trust with co-trustee...PM me for more info.

[bizaro86]

Never a bad idea to gather experiences and opinions, but if you're consulting with an attorney who specializes in estate planning (or devotes a considerable portion of their practice to the area) they should be able to help you with some of these issues.  Life insurance is often used to provide liquidity when an estate has a material amount of other illiquid assets, such as a closely held business, for example.

 

For sure. I've got a lawyer lined up for next week, who I expect will be able to advise on the mechanics of what type of structure is best, etc.

 

I'm more looking for suggestions on what to ask for.

 

As an example, if I ask for 40k per year to go to my kid's guardians, vs 100k per year, vs the income off the principle, I'm sure the lawyer would be able to execute any of those requests. My biggest concern is balancing how much control to give to any one person.

[bookie71]

What if an unusual expense or emergency such as a major illness should come up, need to give some leeway to trustee. 

[Aberhound]

In regards to the charity remark you still want a charity provision in the will in case your children and issue predecease you and your wife. How about funding a scholarship for university students who read the top 20 value investor books suggested on this site starting with The Intelligent Investor?

 

For the will my Grandad had this problem then set up a trust and hired the then best investment firm in New York. They preserved the capital but did not match the market. So a co- trustee with someone who can check performance and change to another firm might keep the investment manager more diligent. Perhaps the co-trustee can be in charge of liquidating non-public market investments except for real estate which is generally safe to leave in the trust.

 

Two of my friends with more wealthy families both set up trusts with income to their children with a gift-over to their grandchildren. The structure worked well for all families over the decades. The trust gives lump sums to adults every 5 years until age 35 or so plus pays for university and funds an interest free mortgage with no payments to buy a house when you get married if the house is kept in your child's or grandchild's name. The income from the remaining capital goes to your children with a gift-over to your grandchildren of the remaining capital when all your children have died. The only possible improvement I have thought of is to add a provision to pay the income tax bills of your children and grandchildren to deter waiting for the money. Capital will concentrate to the more diligent over time and the incentive to work is restored. Equality seems to dissipate family wealth. Many families use plans and guides successfully to concentrate wealth in the hands of the most capable who then provide for all.

 

Over the years I have noticed unusual investments do better for many families. Owners of sugar estates have kept their family wealth intact for hundreds of year. Timber worked very well for the Hindenburg family in Germany starting 1875 when many others were wiped out by the chaos. Salt mines will do well. I have seen a tea plantation run itself since it was set up in the late 1800s. Those Victorians were brilliant. They put certain Indian families with a different language in a remote part of Bangladesh. Olive oil and blueberry do well if you leave profits to managers if they plant certain acreage each year. Nut trees do well similarly. The hard part is to avoid corrupt locations like Southern Italy or Greece and now California with the water intentionally drained from reservoirs to protect fish etc.. If you read the Palm oil thread you might see how tropical agriculture will do well if agricultural shortages develop. Coconut plantations could be the value buy if you investigate the additive you can purchase to make biodiesel. You want a product which has many uses like sugar to better ride out gluts. Salt for instance can be used for roads or high value healthy salt depending on your deposit. For all farm and timber properties make sure you secure good water and the rights to it. Consider what cheap power will do to values if you have water. The strange thing now with agriculture and forests is that values are mostly based on cash flows while trees and blueberries add predictable intrinsic value which is not reflected in prices. Twenty years later many such properties increase more in intrinsic value each year than the original cost. The same will be true 20 years from now for well selected properties.

[bizaro86]

What if an unusual expense or emergency such as a major illness should come up, need to give some leeway to trustee.

 

Hadn't thought of that, thanks!

[Ham Hockers]

Is your life insurance in a trust now?

[bizaro86]

Is your life insurance in a trust now?

 

No, its not. I'm planning on doing a testamentary trust as part of the will.

 

I live in a no probate cost/no estate tax jurisdiction, so some of those considerations are lessened.

 

I'd be interested in hearing thoughts on structure, however, as I'm always open to doing things a better way.