Will/trust payout

[al dente]

We're working on our will/trust, and I'll talk to our financial advisor and lawyer as well, but I have a couple questions and I feel like people here always have ideas I hadn't thought about.

1. My H and I discussed the will saying money would pay for college, then some at 21 or 25? And then the rest later maybe 30? Does that seem reasonable or is there something else we should be thinking of?

2. There was also a question on if mortage debt is passed on to who inherits the house or if the estate pays it off first. Currently we have around 300k left on our mortgage and life insurance would pay that off with left over. On the paperwork it said typically passing on the debt is suggested.

[gottadobe]

Also needing to do our wills/trusts this year, so following.
Curious why passing on debt is preferred and would the recipient have to refinance?

[ohgillian]

I hadn't looked at our wills in years, so I decided to look.


For question 1, the following was what our attorney recommended:

Trust pays for education/room/board until age 19, or if a full time student it will pay under age 25.

Trustee has discretion to pay for educational expenses outside of the above (e.g., part time student over age 19 for example)

At age 25, half of the child's share is distributed to the child.

Age 30, balance distributed to the child.


Question 2 - Looking at my will, I interpret it that it's up to the executor whether to pay it off or pass it along.

[indifferentstars]

We did this recently and I found it really hard to decide the answer to question 1 without knowing how much money would be at play (we have one child who is 9. If we both die tomorrow, the total value he would receive is very different than if we have amassed 10+ more years of net worth before it goes into effect, you know?). Beyond the eduction/room/board stuff being written in and discretion for the trustee to make distributions for other purposes, we were worried about the lump sum remaining value and him getting too much too soon without being responsible enough. But, my H also didn't want to make him wait a long time for several small payouts if it was just a relatively low value left.

We were allowed to make plans that vary the payout depending on what the total trust value is. I'm just using made up numbers here, but it's something like:

$20,000 at 18 regardless (a relatively small amount, but enough to buy a car or something like that without needing his trustee's approval. I want him to have a chance to potentially make mistakes with a small chunk of money, then realize his mistake, and learn from the experience before getting a more substantial sum at 21 or beyond. Plus, I figure if he's been orphaned as a minor, he deserves a bit of blow money as a balance for his hardships).

Then if remaining balance is less than $150,000:

50% at 21 and the rest at 25

If remaining balance is $150,001-500,000:

25% at 21, 25% at 25 and the rest at 30

If remaining balance is over $500,0001:

15% at 21, 25% at 25, 35% at 30, and the rest at 35

and so on. I think we have 3 different if/then value scenarios. I didn't know we'd be able to break it down like that and it let us feel a little better about all the unknowns in this unpleasant hypothetical decision making process.

There was also some language included standard by our lawyer regarding the ability for the trustee to temporarily withhold these lump sum payouts if he's having some challenges like drug abuse, gambling addiction, etc. I probably wouldn't have thought of that on my own but it seems like a good inclusion.

[livinitup]

I am not an expert on wills and mortgage but the general rule is that all debts are due to be paid upon death. So, a mortgage would need to be paid. Either the estate has the money to pay the balance or the house would need to be sold to pay the mortgage (thats why the value of the house “secures” the mortgage loan). So, you can use the life insurance money to pay the mortgage and then the house is owned free and clear (+taxes) to whomever inherits it. If there is not enough money in the estate to pay off the mortgage, the houses sells or the inheritor gets a new mortgage (at new interest rates) to pay off the old mortgage and get a new one.

My H and I are both on the mortgage, so if either of us passes, the other can keep the mortgage at our current rate.

So, you don’t “inherit” a mortgage, just the property.

[farmvillelover]

Consider a lifetime trust rather than outright payouts at certain ages. Provides asset protection to beneficiaries as well as planning for contingencies like the premature death of a beneficiary (you control where it goes if the bene hasn’t designated where it goes on their death).
I don’t recommend outright payouts unless the estate is really nominal.

[al dente]

Jan 7, 2023 10:08:36 GMT -5 gottadobe said:

Also needing to do our wills/trusts this year, so following.
Curious why passing on debt is preferred and would the recipient have to refinance?

My financial advisor said the first option of passing it on is a more flexible option where it leaves the money open to be invested/whatever you choose vs the second option the mortgage has to be paid off before any of the estate is payed out so it cuts the cash available down. I feel like I just explained this poorly lol but it made sense when he told me. Also the second option had a note that you have to have enough assets to cover the remainder of the mortgage so maybe some people just don't have enough to even choose it?

Thank you to everyone else as well there were some great points brought up that I hadn't thought about! I'm having both my meetings tomorrow and feel like I have a better handle of things to ask and go over now.

[awkwardpenguin]

farmvillelover , at what point do you recommend setting up a real trust vs. using a testamentary trust? We have the latter, and I'll admit I approached estate planning as "it's unlikely this is going to be used" because the likelihood we die simultaneously before the kids are 18 is low.

Edited to add: we're well below the estate tax threshold in our state.

[farmvillelover]

Jan 18, 2023 10:52:13 GMT -5 awkwardpenguin said:

farmvillelover , at what point do you recommend setting up a real trust vs. using a testamentary trust? We have the latter, and I'll admit I approached estate planning as "it's unlikely this is going to be used" because the likelihood we die simultaneously before the kids are 18 is low.

PDQ *.

I think it depends on your state. For instance, TX has a quick probate process so setting up a Testamentary trust may not take long or cost too much. In CA it’s a horrible idea bc probate is insanely expensive and drawn out here so a living trust makes more sense. But for various reasons, if you have decently substantial assets now (with life insurance) and/or expect to have a good amount later (even without life insurance), I like a living trust. It provides a way to do lifetime/generational/asset protection planning for your beneficiaries. I’ve said it before, I’m not a fan of outright distribution trusts unless the overall estate is pretty nominal. Message me if you want to discuss. I’m not on here much

[al dente]

Ok now I have one last question! Do you have the trustee and guardian as the same person? It makes sense, but it also makes me nervous having only one person in charge of all that money. We chose my cousin as guardian, and while I like her and I guess trust her with my kids lol I also am not super close and I feel like you just never know?

[tacokick]

You don’t have to have the trustee and the guardian be the same person. In fact, I think they often advise against it.

[al dente]

Jan 19, 2023 20:38:06 GMT -5 tacokick said:

You don’t have to have the trustee and the guardian be the same person. In fact, I think they often advise against it.

ya I know it doesn't have to be the same person. Our lawyer kept saying it is commonly the same person though since it's easier for them. Which had me kind of ehhhh and then going back and forth on what to do.
He was kind of wierd though and when we were talking about different ages to distribute money was saying how most people leave it up to the trustee since they should be someone you trust. Which I def want hard lines on that because they may not even be minors at that point but I don't want like a 21 year old getting all the money immediately because the trustee feels bad and that they are technically an "adult". Or to cause bad blood between the trustee and our kids since death and money don't bring out the best in people.

[tacokick]

Jan 19, 2023 23:35:58 GMT -5 al dente said:

Jan 19, 2023 20:38:06 GMT -5 tacokick said:

You don’t have to have the trustee and the guardian be the same person. In fact, I think they often advise against it.

ya I know it doesn't have to be the same person. Our lawyer kept saying it is commonly the same person though since it's easier for them.

That’s interesting because two of my friend’s advisors said the exact opposite—it should never be the same person because it’s too much of a conflict and pressure on one person (or couple).

My dad’s lawyer said the same thing when I was chatting with him out of idle curiosity during one of our many trust and estate meetings. He was also very pro setting exact timelines for money even when it came to my able-bodied but irresponsible adult (30s) brother’s potential inheritance because my dad didn’t want him to get a lump sum lol He was like, set it up so he gets some every five years.

Is this, too, regional?

[al dente]

Jan 19, 2023 23:54:36 GMT -5 tacokick said:

Jan 19, 2023 23:35:58 GMT -5 al dente said:

ya I know it doesn't have to be the same person. Our lawyer kept saying it is commonly the same person though since it's easier for them.

That’s interesting because two of my friend’s advisors said the exact opposite—it should never be the same person because it’s too much of a conflict and pressure on one person (or couple).

My dad’s lawyer said the same thing when I was chatting with him out of idle curiosity during one of our many trust and estate meetings. He was also very pro setting exact timelines for money even when it came to my able-bodied but irresponsible adult (30s) brother’s potential inheritance because my dad didn’t want him to get a lump sum lol He was like, set it up so he gets some every five years.

Is this, too, regional?

Interesting! Well thank you that is all how I was leaning and then after talking with the lawyer was feeling like I may be totally off base since he was saying basically the opposite. But I think what you're saying makes way more sense.
Its prob just who were using TBH, it's through my husband's work. The biggest thing is I do not ever want my kids to go to my Hs family, who on paper look ok and I could see a judge sending them there if there was nothing in writing. But we discussed how that will be explicitly stated that they won't get the kids (or any money) so I can rest easy about that.