Transcript:
Easan Arulanantham:
Yeah. And so our next question is a question that came up in one of our reviews this week, …”how do I make my estate last for my children and my grandchildren?”
Tom Vaughan:
Yeah, so this is kind of interesting. It’s something that hits home. I’ve been doing this for 35 years. I’ve had lots of clients over the years pass away. I’ve been able to see what happens when the money gets distributed to the children, and for the most part, it’s pretty good, but not always. I’ve seen some really crazy scenarios. And statistically, we’ve all heard the stat that four out of five people have been spent their inheritance within five years, right? And so what this question is about is, how do I make that NOT happen. If I end up with giving my kids this estate, how do I make sure that there’s still something there for them even later, and they don’t end up spending it all, or even, hey, something for my grandchildren that; the next generation also. And so that I think, a really fascinating concept. Because, a lot of times the clients that I have, their kids are professionals. They’re making good money and what have you, and so there’s not a big fear of them getting this big lump sum. But you never know what’s going to happen when somebody gets a big amount of money. Sometimes, some people kind of get into a spending mode that they weren’t in before, and they end up spending right through that money. One of the ways to do that, and this is something I know I’ve done, which is, essentially you set up a trust, where all the money goes into that trust, and instead of getting a lump sum, they get an income out of that trust. And you it doesn’t have to be everything.
You can have some portion go in, and so you set up a certain amount of withdrawal. Let’s say a 3% withdrawal. You identify a trustee, somebody is going to continue to manage that long term. There’s lots of different options there as far as that goes. And they get money out of that trust every year. And my thought process with my kids is just simply that. I just want to make sure that every year there’s more money coming. That way, if they blow it one year and blow it the next year, maybe eventually they get financially responsible, and they start to use it properly and save it, invest it, or whatever they might do as far as that goes. And so there’s all kinds of different ways of structuring those. But most people don’t do that. I mean, most people just have a trust, where the entire thing passes through is a lump sum, and it isn’t an income that goes out. But if that is a concern, and you’re trying to make sure that somebody has an income for life, you can use annuities, also. I’m not as big a fan of those, for a variety of reasons. But that’s another alternative. But one thing to use potentially is a trust. You just have to structure it right. And a portion, or all of your assets at your demise, goes into that trust. And that trust continues to live, and it could pay your kids and then it could go on to pay your grandkids, assuming there was money left in it as far as that goes. Which is why you want to have a pretty small withdrawal, for the chance that it might be able to continue to be there long term. So that’s how I would address that. But it’s a great question. It’s not easy to do.
Easan Arulanantham:
Yeah, and with trusts, there’s also… in California at least, they only last for 90 years. So, essentially if you want it, you could maybe get to your great grandchildren, but any further is kind of pushing it.
Tom Vaughan:
Yeah, that would be fine with me, honestly. I mean, if I could have an impact that long down, that would be awesome. I would be really excited. I think with a bigger challenge actually is just making the trust last. Somebody’s got to manage it. …Those are the hassles that you have with a trust, and not blow it, on investing and what have you, because you’ve got this withdrawal going on. And you know, so yeah, there’s there is lots of different parameters there to take a look at.