@oldfort
I am close to two families who considered creating a trust for one heir. One of them did set up a trust for one sibling. This was done to provide for them long term. The parents knew this adult child was not good with money nor is the spouse. This adult child is in his 70’s. They did it also to not have the situation where the sibling was asking his siblings or own children for money.
My husband’s best friend had a terminal illness and went back and forth on what to do with his two kids. One was ultra responsive and the other not anywhere close. His close friends and his estate attorney advised a trust for the one child. In the end he decided to not do that. He figured that if his child went through all the cash it was beyond his control. This child was in his late 20’s when he got the money. He still has expensive taste but he has made some good sound investments with his inheritance.
I think if you want to put money in trust for an adult child, it would be difficult to appoint a sibling to be the one to disburse that trust. Especially if that sibling disagrees with how their other sibling spends their money.
My personal opinion is that the person in charge of disbursing a trust should not be overly emotionally invested.
My husband and his sibling have very different ideas of how to spend money. I have very different ideas than my sibling. Neither my husband or I would want to have control over our siblings spending. My mil has a lot of opinions how her children spend their money, so I don’t know if she’s a good steward of how to disburse her estate either.
No one has ever asked us for money.
I suspect a premarital agreement would take care of the spousal rule for will/inheritance.
A gal I knew signed something, and for 12 years she was caretaker for a guy that lied on the amount of medications he was under and his health. Once he could no longer be at home, he went into assisted living and paid all his bills. He was living in her home, and she should have insisted that her mortgage be paid off. She thought he was going to be like her first husband, and he was not (long-time marriage with husband dying of cancer). She was a very good and kind person, and IMHO he was a lout - used her like an unpaid caretaker and not a wife. He wanted to leave his estate to his children. Of course, they said nice things about his wife - but IMHO they also participated in being unkind to her.
Interesting https://finance.yahoo.com/real-estate/articles/elective-share-most-states-spouse-094956653.html
- Only a prenup or postnup explicitly naming the elective share statute, with full financial disclosure and separate attorneys, reliably blocks the spousal claim.
I think your mom is making the right decision.
Some people set up a pour-over trust (I think that’s what’s called). Upon death of one spouse, after necessary distributions, the remainder transfers to the pour-over trust instead of going to the surviving spouse. The surviving spouse is entitled to withdraw expenses from it. After the surviving spouse passes, it goes to whoever it is directed to.
What keeps the surviving spouse from draining the trust? Serious question … I know nothing about trusts!
Lawyers who bring up all these scenarios so you can prepare for them.
I think there is no true way to protect both the surviving spouse and your children. If you skip your spouse and instead designate a lot of money to your children, then the surviving spouse may end up not having needed funds for LTC. If you designate only your spouse, you are dependent upon your spouse being responsible in both their own spending and passing on inheritance to your children.
not a lawyer, but don’t understand why one cant setup a Trust such that 50% (or pick a number) goes immediately to spouse and, if necessary for living/medical expenses, LTC, spouse can spend down part of the other 50%. Remainder goes to kids.
Similar to a so-called AB Marital Trust.
Finally got back to this. The five reasons from the podcast are (I being Devin Carroll):
There are 5 reasons (that I hear most often) to convert to a Roth IRA. Did I miss anything?
Reason #1: Pay less taxes
Reason #2: Taxes may go up in the future
Reason #3: Protect against the widow’s penalty
Reason #4: Reduce tax burden for kids when they inherit
Reason #5: Create a better tax adjusted portfolio
I’m sure I mentioned this much earlier in this post, but I have three siblings. My father died 20 years before my mother. She had a similar size estate. I also have a sibling who is terrible with money. His choices are unerringly bad – if there is a good choice and a bad one, he’ll choose the bad one without understanding why. He’s a sweet human being but has a precarious grasp on a number of things, money management being one of them. He also had done a lot less well than the other siblings. I approached my other two siblings and sugested that he get a higher percentage of my mother’s estate but that she put in trust. My two siblings agreed. My mother agreed to change the split. She understood but she reluctantly agreed to the trust. both she and my brother were a little mad at me, but all is fine now and my sister is his trustee. I think she has been very helpful more generally to my brother as a result.
I agree with all of those. I don’t see how taxes cannot increase in the future, but of course, we cannot contemplate that in our conversion analysis.
Thanks for following up.
I know NOTHING about trusts, but I have read something similar to what Igloo outlined above, which may be the same as an A/B trust.
NY State. “What keeps the surviving spouse from draining the trust?” Ideally a trustee.
When my mother died in 1992, half of the assets went into “Mom’s Trust”. The trust held real estate (rental properties). My brother was the co-trustee, along with my father. It’s complicated, but my father “raided the trust” with my brother signing off. (I met with my father’s attorney who was appalled that the trust had been raided).
My father remarried — with a post-nup signed about a month after the wedding.
Father and wife #2 had many discussions about what assets she should receive. I was present for some of those discussions.
With the exception of the house Dad and wife 2 lived in, all of the real estate had been purchased prior to my mother’s death.
In the end, Dad’s lawyer moved all the real estate (from mom’s trust and Dad’s non-trust holdings) into an LLC that passed to his kids, in accordance to his will and trust drafted with mom in 1990. Dad also signed an updated will in 2024 that met the original criteria, along with a few lawyer-guided updates.
When they went to assisted living, we sold their house and the proceeds went into a money market account — held jointly between Dad and wife. She outlived him, so the money market is hers. She has SS plus NYS retirement, covering most of her AL expenses.
Has anyone done a Medicaid Asset Protection Trust? Or know anything about them?
I have heard of them being set up. I think(?) Medicaid does a 5 year lookback for this (and gifts?).
So my son is going into his review tomorrow and asked me about 401Ks. Am I better off on the Roth. I said - I’m unsure but on the CC, most say yes.
So I said - if you put $10K aside this year, at 6%, in 50 years, it will be worth $174K.
So - do you pay $3500 today - and then you keep the $174K free and clear.
Or is it better to save the $3500 today and then pay tax as you take it out?
I imagine the answer lies in the 6% vs. inflation return - but I’m not sure, in 50 years, taking out the $174K piece by piece and paying taxes then - isn’t the smarter answer.
It’s very confusing…to me anyway.
I just can’t formulate an answer.
I will also ask on the Bogle Heads why, in a high tax state like California at least, a Roth is better.
it all depends on his marginal tax rate today vs. what it might be in retirement. (Assumed growth rate doesn’t matter, as it applies to both scenarios – Roth vs tIRA.)
I guess that’s the tough thing. It’s an unknown.