Cal-lester <cal-lester[at]comcast.net> wrote:

- quote -

Agreed. But it didn't sound like the original poster intended to give the
trustee DISCRETION over the distributions. It sounded like a prescribed
formula based on age and indexed dollar amounts was to be written into
the trust.

MTW

On 28 Aug 2003 14:15:05 GMT, Michael T Wing CPA <mtwingcpa[at]yahoo.comwrote:

- quote -

Excellent point. Towards that end I would also consider giving
someone (for example, the beneficiary and one other person, who have
to vote unanimously) the right to change Trustees.

Especially with corporate trustees, I've seen instances where some
actions could be considered self-serving - such as limiting
investments to in-house funds that have higher costs than otherwise
available. Or doing more active management of assets.

Giving someone the right to fire that trustee and switch to another
makes for a very cordial trustee. <grin

-HW "Skip" Weldon
Columbia, SC

Michael T Wing CPA wrote:
- quote -

From an Insurance Agent :::::: One of the main features of a
TRUST, is the ability to provide for CHANGE. An Annuitized
distribution from the Insurance Company,applied for TODAY,
may or probably will NOT fit the needs of the child......
Cal Lester CLU


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TTRoberts <ttroberts[at]aol.com> wrote:

- quote -

Actually, what I had in mind was that an annuitized distribution on the
insurance policy could possibly be used INSTEAD OF a trust. That would eliminate
the costs of drafting the trust in the first place, as well as the costs and
hassles of administering trust, should that eventuality occur.

Naturally, we could have a big discussion about the comparative financial
returns on such an annuity option verses a trustee-managed portfolio. But, if
we're going to do that, let's ALSO have a big discussion about the risks and
pitfalls of selecting a trustee, successors and alternates. Since this is a
~financial~ forum, I suppose we're supposed to focus more on the former issue
than the latter. <g> But, if I were in the position of the original poster, I
would be spending far more time considering the trustee selection, rather than
drafting provisions to dictate or limit his discretion. In my experience, you
can't turn a crummy trustee into a good one by simply giving him lots of
restrictions to live by.

MTW

beliavsky[at]aol.com wrote:
- quote -


Most definetly

Can I specify that the assets in a trust be
- quote -

Absolutely. That is the primary of a Testamentary Trust, the
ability to leave SPECIFIC instructions as to how to utilize
the funds in the Estate.

Is it a good idea to specify exactly which
- quote -


Can NOT offer any suggestion on the allocation. I am sure
that someone else will......................

Cal Lester CLU

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beliavsky[at]aol.com wrote:
- quote -

I think a good basic assumption when designing your trust is that you
can put just about any set of conditions you can dream up into it; if it
creates a problem your attorney will tell you. And you'll no doubt work
with one...this isn't a good DIY kind of thing because of the technical
details that need to go into the documents.

What you're describing is a "spendthrift provision," where you place
limits on the amounts available to the beneficiary. $40k per year, $10k
per year plus a bonus based on grades, $1 for every dollar earned, until
age 30, until age 40, until earned income exceeds $30k for three
consecutive years, etc. etc. - whatever you want could probably go in.
I'd suggest going to the attorney w/some ideas and having him/her advise
on potential problems with each.


- quote -

You could express preferences for the money, but probably wouldn't want
to shackle the trustee too much, who will be subject to "prudent
investor" rules anyway. What if tax treatment of munis changes, or
taxable bonds become preferable due to tax bracket? Or better products
become available than Vanguard's? Or for some reason the money suddenly
needs to be managed for a short-term cash need?

If you put something in perhaps it could be confined to something like
specifying passively managed products (sounds like your basic intent?),
but still leaving outs for the trustee if special circumstances transpire.

- quote -

The trust is taxed on undistributed net income. The trust doesn't have
the same sort of exemptions/deductions as an individual and the brackets
are onerous, to prevent you from shielding investment income in
lower-taxed trusts. Distributed income is taxed to the beneficiary,
similarly to partnership income (it also lands on Schedule E of the
federal return). "Income" is a very specific term here, analogous to
"realized income" in your investment portfolio...it's not necessarily
the same as what the beneficiary considers to be income (the
distributions). Distributions in excess of income are analogous to
return of capital by a partnership or REIT - i.e., non-taxable.


- quote -

You've probably covered the basics there and further reading would
rehash the topics or get into technical drafting issues. The American
Bar Association has a book that's supposed to be pretty good, but it's
probably a lot of the same material; ditto Nolo Press. You could always
browse the practice guides at a public legal library if you want more
detailed information. Again though this is a technical area (laden with
details about proper wording, execution, etc) and once you have a sense
of your general need an attorney can take it from there and save you the
hassles of figuring out what combination of trusts makes the most sense.

-Tad

Michael T Wing CPA mtwingcpa[at]yahoo.com , you wrote:

<< <i> Also, I wonder if it ~might~ be possible to specify an irrevocable
annuity settlement as part of the beneficiary designation on the
insurance policy itself. (I'm not sure if that can be done...perhaps
others will comment.) </i> >
Yes, one can do that kind of thing. But, as you would tend to recommend some
flexibility for a trustee's investment directives, such an annuity settlement
wouldn't offer much flexibility. Some kind of annuity arrangement could work
nicely for the income part. But for capital appreciation, other arrangements
should be done. . . .huh?

beliavsky[at]aol.com, you asked:

<< <I> My wife and I have a baby boy, and if we both died there would be more
than a million dollars in life insurance benefits, in addition to
financial assets in the six figures. We are going to write a will
naming my parents as guardians.

I believe that in Pennsylvania and many other states, the guardian
would manage the assets until he is 18, at which time he would take
posession. We prefer that he take possession at age 30 or later and
receive annual distributions from age 18 to 30 of about $40 K in
today's dollars. I think I can accomplish this with a "testamentary
trust", and I intend to see a lawyer who does estate planning. For now
I am more concerned that my son not get too much money too young than
in minimizing estate taxes (which may or may not be going away).

Am I on the right track?</I> >
Yes, it sounds like you're on the right track. To be sure that things are set
up properly, you need to see that lawyer about the will, trust and the
guardianship arrangement. The sooner you get it done the better.
Procrastination gets people in difficult situations. ;-)

<< <I> Can I specify that the assets in a trust be invested in a certain way,
for example "50% each in a mutual fund tracking the Wilshire 5000 and a
national municipal bond fund holding investment-grade bonds"? Is it a good idea
to specify exactly which
funds, for example "Vanguard Total Stock Market Index Fund" and "Vanguard
Insured Long-Term Tax-Exempt Fund"? I understand that funds are sometimes
closed and would make sure to specify a general asset allocation in case
particular funds are not available.</I> >
I don't know about your state's laws, but in some states the money held in
trust has to be handled somewhat conservatively. But that has a lot to do with
the purpose for the money being held in trust. But, you can have a lot of
control over how the trustee handles the funds. If you putt too tight a
handcuff on, it may be impossible for the trustee to achieve the main
objectives in the trust. If you specify a specific investment and don't allow
for contingencies, what happens with that specific investment no longer exists
(the investment known as "Vanguard Total Stock Market Index Fund" may not exist
at some point in the future)? So, it's a good idea to allow for some
flexibility to achieve your main objectives when conditions change. You're
lawyer should be able to help you set something up that would achieve your
income and capital appreciation goals.

<< <I> In general, how are trusts taxed -- like individuals?</I> >
Trusts are taxed on retain earnings and actually taxed different than
individuals. The tax tends to be much higher than that for an individual
(often why tax advantaged vehicles are used when money is only to be held in
trust for a time). But it's my understanding that earnings paid out are
reported and under the recipients tax return (the "kiddy tax" would not be
applicable).

<< <I> I have read The Complete Book of Wills, Estates & Trusts by Alexander
A. Bove and would appreciate other reading suggestions.</I> >
You might find the Estate Planning by Jerome A. Manning a good read.

<beliavsky[at]aol.com> wrote:

- quote -

Since your trust might have to stand up for close to 30 years, and
investment trends/techniques change over time, I would probably
recommend AGAINST putting any specific investment directives into the
trust document itself. If you want, put your investment thoughts in a
separate letter, updated from time to time, and deliver it to the
trustee (or "file" it with your will and other important papers). Such
a document would not be BINDING on the trustee, but most likely efforts
would be made to comply as closely as reasonably possible.

Also, I wonder if it ~might~ be possible to specify an irrevocable
annuity settlement as part of the beneficiary designation on the
insurance policy itself. (I'm not sure if that can be done...perhaps
others will comment.)

MTW

My wife and I have a baby boy, and if we both died there would be more
than a million dollars in life insurance benefits, in addition to
financial assets in the six figures. We are going to write a will
naming my parents as guardians.

I believe that in Pennsylvania and many other states, the guardian
would manage the assets until he is 18, at which time he would take
posession. We prefer that he take possession at age 30 or later and
receive annual distributions from age 18 to 30 of about $40 K in
today's dollars. I think I can accomplish this with a "testamentary
trust", and I intend to see a lawyer who does estate planning. For now
I am more concerned that my son not get too much money too young than
in minimizing estate taxes (which may or may not be going away).

Am I on the right track? Can I specify that the assets in a trust be
invested in a certain way, for example "50% each in a mutual fund
tracking the Wilshire 5000 and a national municipal bond fund holding
investment-grade bonds"? Is it a good idea to specify exactly which
funds, for example "Vanguard Total Stock Market Index Fund" and
"Vanguard Insured Long-Term Tax-Exempt Fund"? I understand that funds
are sometimes closed and would make sure to specify a general asset
allocation in case particular funds are not available.

In general, how are trusts taxed -- like individuals?

I have read The Complete Book of Wills, Estates & Trusts by Alexander
A. Bove and would appreciate other reading suggestions. Thanks.