Holly cow! My wife and I have been attempting to update our wills and trusts in anticipation of our future deaths. What a deal it is turning out to be. Part of the problem is that we have both been "independent" workers for our careers, meaning that we have no "company" retirement plans from anyone else. In anticipation of the need for retirement income, we have been diligently setting aside as much money as we can to build a reasonable nest egg to get us through our "golden years" (I think the golden years are past, we are now looking forward to the gray years). Since we have no confidence in Social Security being available, or Medicare for that matter, we feel it necessary to have enough to stretch through an unknown number of future years (I guess to the age of 100 at least since both of our parents seem to be pushing that age and life expectancies seem to keep growing). Therefore, there are two tricks - we don't know how long we will live, and we don't know what inflation will do during that time, so it is difficult to know how much to set aside. Our goal has been to set aside enough so we can live on the income of our investments, rather than the principle. The idea being that the investment income will continue for as long as we do if we don't eat up the principle, and the amount of income might track the inflation rate so that if inflation goes up, our investment income should too. And, if it turns out that none of this works, then we will have to just eat up the principle as we go along hoping to skid out across home plate before running out of funds.
So, the approach has resulted in a "sizable" nest egg. Not huge, but more than a million dollars (which would give us a income of about $25,000 a year if we had to live on the principle - not much given the extremely high probability that inflation will erode the spending power of that $25,000 a year).
The result of having a "sizable" nest egg is that if we die early (like today), there will be a sizable estate for our kids. "Sizable" in this instance means larger than the government's allowance for tax free inheritance. We would like to avoid as much of that nasty old "death tax" as we can. In addition, we would like to avoid costly and time consuming probate. Both of these desires lead to trusts - many of them, some of which wink in and out of existence like some sort of subatomic particle. There is also a need for a set of wills that express our desires, and implement that terms of these trusts.
Not being up a intricacies of the ever changing tax codes and trust laws, we have retained the services of a rather high priced attorney to help draw up the necessary agreements and work with our rather high priced accountant to "get it right." We had an existing trust agreement and wills from several years ago, but over the years our children grew into adults, and our parents have grown incapable of playing the role of "trustee" - so we had to update the documents to reflect this situation, and to reflect the current laws and restrictions.
We were given the new version of trust (all 48 pages worth) this week to "review" prior to signing. However, I am finding it totally impossible to review - I can't even read it. It takes me many minutes just to diagram the paragraphs so I can identify the individual sentences - without even worrying about what they might mean. I have not been able to understand even a single sentence in the 48 page document. Actually, that is not quite true, there are a dozen or so sentences that seem to be introductory in nature and therefore meaningless - I think I understand the gist of them. The "important" words are totally meaningless to me. Individually, I think I understand a high percentage of the words - but when strung together in the half page long sentences with an amazingly complex sentence structure, they make no sense.
I thought that maybe I could at least diagram the various linked trusts, and indicate what was in each and how the money flows through the tangled web of structures. That also seems to be impossible. I can't even determine how many trusts will eventually exist, or why. I have identified nine of them so far, but think there might be more. Some seem to be only set up temporarily to allow money to flow from one trust to another, and then they go away. Others seem to come into existence to hold money for a period of time, and then they disappear. Others seem to have a life of their own, never going out of existence, but creating a whole new generation of sub-trusts over time.
It is an amazing document. I wonder if it is actually going to work once it is put into place, and I wonder how much it is going to cost me when I get the bill for this monstrosity. It appears that many thousands of dollars has gone into drafting this thing, I wonder if it is going to be worth any of it. Clearly it won't be worth it to me, I'll be dead before the kick into effect. I hope my kids and grandkids get some good out of this.
I have finally decided that I will just sign the documents and hope that it will all work out sometime in the future. It does not appear to be possible for me to understand even the general outline and flow of trusts and money. I guess I could ask for a detailed description of what it all means, but don't have the time or money to spend that much time going phrase by phrase through the whole thing.
And all of this is to meet the terms of the tax code, which keeps changing over time so I have to keep redoing this whole effort to keep it up to date and viable. I guess it is all part of the stimulus package - full employment for the attorneys and accountants. I guess that keeps the world going around.
2 comments:
It won't work well if you ( or your kids) need several paid genius people to pick it apart to understand it! That's what my dad was talked into and it was an unholy mess! The only one who benefited was the new widow, who had her attorney draw it up, and ended up with pretty much everything. My folks had an A-B Trust in CA and it was pretty simple ( like you, self employed with money socked away) to understand. Worked well when Mom died, cuz everything flowed to Dad. If they died together everything came to me. But Dad did something like what you are describing, trust on top of trust, which flow thru each other for various reasons. As the person who had to hire people to try to figure out this convoluted mess, I would urge you to go simple, if you can.
Since I am one year younger than you, and have just filed for retirement, I have thought of this a lot.
"So, the approach has resulted in a "sizable" nest egg. Not huge, but more than a million dollars (which would give us a income of about $25,000 a year if we had to live on the principle - not much given the extremely high probability that inflation will erode the spending power of that $25,000 a year). "
It isn't really that bad regarding inflation, because the "nest egg" will also be growing with inflation. You should be able to withdraw 4 percent or so each year of the current value and still expect it to last. You will have to make substantial withdrawal from that part in tax sheltered investments in 8 years regardless.
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