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How our Estate Plan is Structured

Written by Nickel - 19 Comments

Now that we’ve had a chance to put our estate plan together (finally!), I though that I’d share some details on how we set things up. Hopefully this will help others who are trying to figure out the same sorts of things. Or maybe it will inspire those who have been putting it off (like we did for too long) to finally get things taken care of. Anyway, I digress…

As far as our wills go, everything is pretty straightforward. My wife is my primary beneficiary, and vice versa. In the event that something happens to one of us, the other one gets it all. But the real driving force behind all of this was our desire to make sure that our kids will be taken care of if anything were to happen to the two of us. Thus, we named guardians to take care of our kids in our absence, and we also set up a testamentary trust to hold our assets on their behalf until their old enough to handle things on their own.

Before I go any further, I should probably set the stage… We have four young kids ranging in age from two to nine years old. While we’re doing everything we can to raise them right and make sure they have good heads on their shoulders, we don’t really want them inheriting a substantial (at least to them) sum of money with no strings attached the moment they hit 18.

While this sounds simple enough, there are actually a lot of things to consider when trying to make things as fair as possible between our kids. Fortunately, our attorney has been through this numerous times before, and was thus able to provide a good bit of advice on the ins and outs of setting things up.

So here’s what we did… (The legalese spans several pages – this is just a synopsis.)

If both my wife and I ‘pre-decease’ our children, then our ‘Residual Estate’ will go into a testamentary trust. The Trustee (whom we selected) is allowed to disburse funds as necessary for the benefit of our kids (e.g., healthcare, education, or general support). Once our youngest child hits the age of 21 (at which point he’ll be done with college, or very nearly so) the trust will be divided into four equal subtrusts. As soon as they turn 25, they receive 20% of their subtrust free and clear. At age 30, they’ll be able to collect 30% of the funds remaining in their subtrust. And at age 35, the balance of their subtrusts will be distributed. Because our oldest will be 28 and our second oldest will be 26 when our youngest hits 21, they will both get their first 20% free and clear when the subtrusts are created.

The point of all this isn’t to control out kids from beyond the grave. Rather, we just want to be sure that there are checks and balances in place in case one or more of our kids turns out to be less responsible as a young adult than we’re hoping. The Trustee will, of course, retain the flexibility to disburse funds from their subtrusts as he sees fit (over and above the set payouts). Thus, they’ll be able to (for example) tap into their subtrust to get married, buy a home, start a business, etc. But they won’t be able to take it to Vegas and put it all on red. Hopefully they wouldn’t want to, but you never know.

If these any of these sorts of ‘encroachments’ occur on behalf of our older kids before our youngest hits 21 (and thus before the trust is split), that amount will be deducted (with simple interest) from their ultimate share. In other words, our oldest can’t snooker the trustee into bankrolling his latest (and greatest!) business venture at the expense of his younger brothers.

So there you have it… The ins and outs of our estate plan. We also had the attorney draw up durable general powers of attorney, healthcare powers of attorney, and living wills. But since those are fairly standard fare, I won’t go into details about them here.

Published on January 5th, 2007 - 19 Comments
Filed under: Planning

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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19 Responses to “How our Estate Plan is Structured”

  1. 1
    SAM Says:

    How much does it cost to set something like this up?

  2. 2
    nickel Says:

    The total bill was $600. The wills and trust were $450 (that covered both my wife and my self) and the powers of attorney, etc. ran another $75 for each of us. We actually found a guy that would do the wills for $100, but I didn’t get a good vibe from him, and I’m not interested in cutting corners when it comes to things like our kids’ future.

  3. 3
    NCN Says:

    THIS is a good post! Informative, well-written, to the point… My wife and I have Wills but you’ve “inspired” me to go to my attorney and go the “extra mile”… Great stuff,
    NCN

  4. 4
    Matt Says:

    Just out of curiosity, why did you decide not to simply split the trust balance four ways at your death, and then administer the four seperately? That seems like it’d be simpler, and avoid having to worry about the need to deduct advance payments to each child from his pro-rata share of the final split. That’s the plan for my fiancee and I…when/if we have kids, that is.

    The money my fiancee contributed to paying for our house (and all the money for the house she used to live in and is now selling) came out of her inheritance from her grandfather, so we’ve spent quite a bit of time recently dealing with trust issues. (Each living grandchild got half a million dollars in cash, and a 1/4 share of his land holdings. He died in 2005, and she, her brother, and her two cousins just got the land deeds and the last of the cash this week.)

  5. 5
    nickel Says:

    Yes, it would be simpler to split it upon death.. The problem with doing it that way, however, is that it removes flexibility. If, for example, one of our kids ends up having (say) expensive medical problems (or other special needs), their share could be end up being totally tapped out before they ever came of age. If we were alive when this happened, my wife and I wouldn’t count these costs against that child’s future inheritance, so it doesn’t seem right to create that possibility in their absence. The deduction of advance payments only kicks in when they’ve come of age.

  6. 6
    Miguel Says:

    Thanks FiveCent,

    I am redoing our estate plan right now and wondering the best way to leave money to kids when they are a wide span of ages. This has given me some food for thought.

    One question: Isn’t it possible that the guardians might need to use the bulk of the trust in the process of raising the kids before they turn 18. How much flexibility does the guardian/trustee have? How much of their own money would you expect the guardian to use towards raising your kids?

  7. 7
    nickel Says:

    Sure, it’s possible that trust might be exhausted before the kids hit adulthood. In our case, I think that’s unlikely, but it’s always possible. We also know that the guardians intend on adopting our kids if anything were to happen to us, so I would imagine that a substantial portion of the associated expenses would be absorbed into the ‘family budget’ (that’s what we would do). But our estate will be sizable enough to take care of huge one-off expenditures such as college.

  8. 8
    Miguel Says:

    Thanks for the follow-up. We are to be the guardians of my BIL’s kids if anything happened to them. So, not only are we trying to tie down our own estate plan, which is fairly complicated, but also work with him to insure that his plan will owrk for his kids and for us too. I had not even thought about adoption, but I’ll have to give that some thought to that as well. Bottom-line, while I would do anything for BIL’s kids (we’ll likely end up helping them with college anyhow), I also don’t want to be the recipient of an ill-planned situation that would severely impact my own finances – at least to the degree this can be avoided with some forsight. Some difficult discussions ahead for the family in general.

  9. 9
    Dan Says:

    Any comments on how you go about finding an attorney to handle this? We just had a baby, so we need the whole ball of wax – wills, estate planning, power of attorney, medical directives, and so on. Are their attorneys that do all of this in one shot? In all honesty, your $600 quote was much less than I would have expected.

  10. 10
    Miguel Says:

    @ Dan – I had wills, life insurance trusts, power of attorney, healthcare proxy, etc. done a few years ago and the initial tab was around $3500. I too was surprised at fivecent’s low bill. However, ours was fairly complex, especially with setting up charities and customizing the trusts. Maybe fivecent’s paperwork was mostly fill in the name standard boilerplate.

    FYI, I’m in NYC and our attorney was an estates specialist, so that may also have something to do with the costs. That said, we are not happy with the subsequent service we have gotten (long story) and are looking to change, so if anybody has a NYC recommendation, I’m all ears. Yet further proof that price does not always equal a better product.

  11. 11
    RootAnn Says:

    We did our estate plan a few years back similiar to this ($500), but we split the trust when the OLDEST was 21. There might be a really big age span (now six yrs, but we aren’t done having kids yet) between oldest & youngest so we’ll have to debate the pros/cons of your way vs. our current way. One side note – we added a strange side benefit for our (family member/friend) trustee – a small % bonus of the total trust amount to be handed out when the trusts were split. We think it’ll give some incentive to keep it growing. (Of course, we also had to make sure there was a check/balance in making sure he wouldn’t be a miser in doling out the necessary expenditures for the kids.)
    Our biggest debate was what happened if the whole family died together? We still haven’t figured out where the money will go. (A specific charity might be good now but what will they be like in ## years?)
    Dan: We asked for recommendations from trusted (older) friends. The lawyer who set ours up was great. We’ve sinced moved and the lawyer we went to for something else was a bust. Make sure you feel comfortable with them and they come recommended!

  12. 12
    nickel Says:

    Thanks for sharing your approach, RootAnn. The reason we split it when our youngest hit 21 was that otherwise the younger kids would end up subsidizing the college tuition of our oldest (his tuition would get paid out of joint trust, but their tuition would come out of their individual trusts). As I noted, if you split it later as opposed to sooner, then you need to be careful to build in flexibility for disbursing funds to the eldest in case they need it for ‘grownup’ stuff. This is why we built in the deduction of advance payments for our older kids if they need funds before the split happens.

  13. 13
    RootAnn Says:

    Actually, nickel, we don’t want the estate plan to pay for the kids college tuition. If we were alive, we wouldn’t be paying for it. We don’t want them sponging if we’re dead. They can pay of loans when they get their share of the money when they are older, but they aren’t going to get it paid for upfront. So, we don’t have that worry.

  14. 14
    karla (threadbndr) Says:

    Since we have an only child, the trust situation was a little simpler initially, but more complex when we considered grandchildren (son is nearly 21 and is looking at rings with the girlfriend).

    We also have a payout in stages.

    When I revamped my will, PoAs ect, after Walt’s death, it was about $500. Those are midwest prices for a straightforward will and trust.

    My lawyer is a member of our church and I paged for him when he was in the political arena. His partner is my parent’s lawyer, so the decision was easy.

  15. 15
    My Financial Journey Says:

    I’ve been putting off the whole will/trust thing too and hopefully I get my butt in gear soon. My goal is to have it setup before our 2nd child is born this summer.

    Anyway one quick question that I have always wondered about. How is the money “invested” while waiting to be dispersed. Obviously this will be a size able portion of money and I think it would have us all rolling over in our graves if it was sitting in a money market account earning sub-par return.

  16. 16
    MITBeta Says:

    @RootAnn: “(A specific charity might be good now but what will they be like in ## years?)”

    If you’re still following this thread: keep in mind that a will is a living document, not a create once and forget about it. So pick the charity you like now and if when you next revise your will you have a different thought about the charity, make a change.

  17. 17
    Walt Padabney Says:

    I think that is a pretty good plan.. Particularly the age band vesting… But, would sit down with the kids when they are old enough or Write a letter to them in the event that you don’t survive to that age, explaing why they should continue to keep those assest segregated and invested inside of the trusts… Protection from Creditors, Preditors, Inlaws and outlaws. Any money they don’t need to spend should stay segregated so they don’t become community or Common property… just incase a spouse doesn’t turn out to be what they expected… A little eductation goes a long way in keeping your hard earned estate within your bloodline..

  18. 18
    ParatrooperJJ Says:

    You might consider having the trust be a living trust and not a testamentary trust. That would keep your assets out of probate and save a bunch of money in legal fees.

  19. 19
    Mark Says:

    My wife and I went through this about 10 years ago. We have one child and we allowed for follow-on to save from having to adjust with the birth of additional children. Our program is very similar…with the exception of the length of time for distribution. We felt the standard options for school, buying a home or investing into a business was already established. So we didn’t see the need for additional disbursements so early in live. We established ours as 10% at 25, 10% at 35, 15% at 45, 15% at 55 and the balance at 65. I must say…we have not always received a positive response from family. For example my mother in-law felt our children should receive it all at the age of 18 and it was the way she established her estate for her girls and their children. She felt that our estate should be consistent with hers. I thanked her for her opinion, stated that her trust program is a very popular one; and was perfectly acceptable. But, our job as parents is to ensure our children have as normal of a life and financial support after we are gone, as they would if we were alive. We feel this trust supports our goals. I wanted to add this because, many times your estates is tied to others. Your parents have their own plans for you and your children.

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