Comments on: Who Is Going To Spend Your Beneficiaries’ Money?

By: Welcome to the Carnival of Personal Finance | Mighty Bargain Hunter

Welcome to the Carnival of Personal Finance | Mighty Bargain Hunter — Mon, 20 Apr 2009 07:36:29 +0000

[...] Pilgrim asks, “Who will spend your beneficiary’s money?” Just setting up a trust isn’t enough. He explain what else is [...]

By: Neal

Neal — Wed, 15 Apr 2009 15:35:05 +0000

Chuck,

I appreciate your concerns. Since I’m not an estate planning attorney, I’d suggest you’d talk to your attorney. I think getting the wrong advice on this one could be very expensive.

By: chuck wintner

chuck wintner — Tue, 14 Apr 2009 22:23:23 +0000

Would like to know more about trusts and tenants in common. How can I will my children my assets, without also willing them my liabilities? I understand that a trust would subject them to my liabilities. Is that so?

By: Neal

Neal — Tue, 14 Apr 2009 14:28:45 +0000

Yes. Great question. I’ll likely write about this in the future. The 529 can be a great tool to help control the money and reduce estate tax. Also, the grandparents – or any trustee – can name successor trustees so the plan can continue even after the trustee dies.

Great question.

By: lori

lori — Tue, 14 Apr 2009 14:07:31 +0000

I have found this to be very interesting. What about 529 plans for the schooling? Can’t these be set up while the grandparent is still alive and have inheritance transferred to it upon death?

By: Aaron

Aaron — Tue, 14 Apr 2009 13:47:43 +0000

I’ve had many experiences like this. Usually they involve second marriages later in life. For example, Ellie & Chuck were neighbors for many years.

Ellie’s husband passed leaving her quite wealthy. Her money was placed in a trust for her benefit and then to her children.

Chuck’s wife passed several years later.

They connected and married after her demise. Chuck & Ellie sold their homes and purchased a new place as joint tenants.

Then they decided to revise their trust documents. In this case, the trusts allowed to support the other spouse but had no restrictions on what “support” was.

Unfortunately, Chuck got cancer very soon after doing the trust and passed quickly. They were married for entire nine months.

Ellie survived him for over 15 years. Over the years, she _never_ too a dime out of her trust for her support for anything she wanted to do for her children. She cut off communication with Chuck’s family.

When she passed, she had consumed almost all of Chuck’s assets he earned before they were married, effectively leaving his heirs with nothing as in inheritance while leaving a couple million for her daughter and granddaughter.

Something about that just rubs me wrong.

Another case involves Janet who’s first husband of 40 years and father of their three kids passed. She remarried shortly after to Jack. Janet’s kids were somewhat sharp and realized they needed to protect their mom’s assets if they were to have any hope of an inheritance. They established an irrevocable trust that allowed Janet and Jack access to the income from the trust. Janet passed soon after creating this document.

Jack became the trustee but knew he could only have the income from the trust. So Jack would purchase bonds with high interest rates and large premiums. For example, he would buy a bond with $10,000 face value for $12,000 because it had a higher interest rate. That higher interest would be paid as income which he would extract from the trust effectively extracting an extra $2,000 from the trust that he wouldn’t have been allowed to take out otherwise.

Over the course of several years, Jack managed to decimate the principal of the trust leaving almost nothing for Janet’s children.

I wish I could say this is the only case I’ve seen, but it happens over and over.