Yeah the “doing it wrong” if your spend is small enough that you never go into the seed corn or even leave behind a bigger pot strikes me as odd.
I want to live in the standard of living I like living. Why spend more just because I can? We’re both 66 and both plan on working for as long as we continue to enjoy it, which we both do. In a three to four years that income will get topped off by our maxed out SS number too. Add 4% of what has turned into a very comfortable chunk to that as something to spend? I mean it is nice to know I could splurge then if I wanted to (now even) but the implication that we are doing something wrong if we don’t? That’s a wrongheaded perspective to me.
Now I am recognizing that we are overdue for the estate plan. To talk about trusts and stuff. And when we start pulling SS, let alone having to take RMDs, my wife and I will have to sit down and discuss … my inclination is to start doing annual gifts earlier than later so they can each fully fund their Roths, if nothing else.
It’s darn nice for those of us in this thread whose earnings after savings and taxes more than support our desired lifestyle. That is very, very rare across the bulk of US citizens.
As much as the investment advice industry is geared towards the somewhat better-off, most of that “somewhat” crowd is very hard pressed to meet current needs, current wants, and save for retirement. A lot of advice and basic investment education is aimed at those folks.
There is a lot of simple comfort and worry avoidance that comes with living well within your means. But along with that comes the sorta awkward reality that an ever-growing pile of money is accumulating unused. Which money needs to be managed somehow, both while it’s accumulating and while it’s being partly consumed in retirement. And eventually it needs to go somewhere once you’re beyond need of money.
All of which are nice problems to have, but they are problems.
while I think this is no doubt true, for many at least I think the disconnect is that their “desired lifestyle” is no where close to being realistically tethered to the actual lifestyle that their income can support.
I wouldn’t consider them “problems”. I would say they are issues and scenarios that should be considered, but they are good things to have to worry about. It’s like calling needing to decide which tropical island you are going to vacation on for 10 days a “problem”.
We haven’t yet decided what we will do with any leftovers we might have. Charity is definitely in play, but the nephews and nieces are just now reaching early adulthood, and my view is that we’ll see how they’re doing. If they’re all crushing it, I think charity will get most of it. One is severely autistic, and if he needs help as his parents age (they’re same age as us, but much less well off) we might set some aside to help him, as he can probably survive in a group home, semi-independent, but I don’t see him ever being truly on his own.
Another is a doctor, and another just graduated with a degree in engineering from a big name school, so I doubt they’ll need much help. The rest are in late High School.
One thing being childless has done is to make it easy for us to help others as they’ve needed it. We’ve had three multi-year guests. Two post-divorce, one with an infant; we put her through school and one long-story couple who lived with us and we helped get back on their feet and save for a home. All relatives. If there’s a Karmic book of deeds, those are in there.
As to the first, the idiom “Champagne taste with a beer budget” dates from the 1890s*. Not a typo. 135 years ago. So folks whose wants are decoupled from their means is evidently not a new problem.
As to your second point, perhaps “tasks” is a better word I should have used. If one fails to manage their tasks, they can turn into problems.
* I asked Bing about the origin of that quote. It totally stumped the AI which returned nothing, and also returned a bunch of search results about the history of Champagne.
Google’s AI confidently asserts
The phrase “champagne tastes with a beer budget” was first recorded in print in 1890 in a news item titled “The Victim of his Clothes” by Howard Fielding and Frederick R. Barton.
If so, be careful about who you appoint as trustee. In particular, it’s a VERY bad idea to appoint a family member who is ALSO a beneficiary. We have a lot of unfinished business with my wife’s sister who was appointed by their father who seemed to think she was reliable.
She does not understand (or wilfully refuses to understand) the concept that a trustee has a fiduciary duty to abide by the terms of the trust document. In her mind, this is “Mom’s money, left to me to do with as I think fit”.
This is the fundamental question that my wife and I have been arguing discussing for a while. I contend we don’t, and she thinks we do. So we’ve finally compromised and are going to have a discussion with an estate planner from Fidelity. Hopefully she (the planner) will have a definitive answer for us after our discussion.
I have some vicarious knowledge on this. My brother is an attorney who specializes in trusts.
They can be useful to protect assets from Medicaid. If you end up in a nursing home for an extended time they can consume your assets, but a trust CAN protect them- it’s complicated. For instance, you have to create the trust seven (?) years before or the government can still take the assets. But, I have a grandmother who spent 12 YEARS in a nursing home (nobody thought she’d last that long) and it consumed basically the whole estate. But it isn’t all sunshine and puppy dogs- assets in the trust can’t come out. So, for instance, if your million dollar house is in the trust, you can sell it and move into a half million dollar house, but the half million in profit has to stay in the trust. You can’t take it out and spend it on hookers and blow.
They can also be useful to reduce the burden of probate. Basically, the whole process of transferring the assets through the courts is quicker and easier. It can easily take a year otherwise.
In my family’s case, I’m a trustee for my parents because my mom has gone blind, and if something happens to my dad she couldn’t even read the bills, much less pay them. And yes, I routinely tease my dad, telling him that if he pisses me off he’s going to be eating cat food in a single-wide (that’s just who my family is- we show love by giving each other shit)
My late wife was (among other roles) a wills and trusts attorney.
The major benefit of a trust is not for when you’re dead. But for when you’re incapacitated.
Absent a trust, there are a lot of things one spouse can do on behalf of another when one of the couple is incapacitated and the other is healthy. But not everything. And if both are incapacitated, it’s a right mess and nobody can do anything. Ditto if one is dead and the other incapacitated. This latter scenario is very, very common near end of life for the second to die. But can also very easily happen as the outcome of a fully healthy couple having a single bad car crash 20 years before they’d otherwise have died of old age.
Yes, trusts can assist with bypassing probate. But for a situation with simple beneficiaries, 99% of that same goal can be accomplished with POD / TOD designations, beneficiary deeds, etc. Trusts get far more important if you have blended families, large wealth disparities, etc. But for the base case of two people who’ve been married their whole adult life, started with nothing, have built up a $X nest egg now, and have a single joint set of kids they want to treat equally, using a trust just to control that distribution plan is probably overkill.
And yes, ref @xtenkfarpl, choosing an honest well-informed, well-intentioned trustee (and/or will executor / personal representative) is more important than all the other words in all the documents.
The key thing about wills and trusts is that death or infirmity can strike anyone on any day. And that is the moment it becomes too late to fix anything. This is a come as you are party, and if you’ve prepared no paperwork addressing these eventualities, you’ll be dancing naked. Or the people trying to take care of you will be forced to dance naked. Don’t do that to them or to yourself.
My wife’s grandfather had set up a skip generation trust (contains real estate partnership shares), and small ones directly for the grandchildren and the great grandchildren that existed before he died. Not a fan of how it worked out. One of his two children, my wife’s aunt, died young, before he did, and her kids got the trust money when they were in college and High School, immediately wealthier than their father was. They still turned into fine responsible adults but … And two of my four benefited from what he set up and two have not. Not quite right. So I’m on the one hand not a fan but on the other understand that there were estate benefits to do it. From what I gather only at a certain threshold of estate size though.
We have the questionnaire from the estate attorney we plan on using. And we need to finish filling it out so we can set the appointment up. We just have to agree which kid we want to designate as medical power of attorney if we are both incapacitated. And every time I try to have the talk about it my wife pushes it off. I am going have to push harder, because you’re right - you never know when the three ton weight will drop from the sky!
@LSLGuy one quick question though. At the current point in time most of our estate value is in my retirement portfolio. Which has my wife listed as sole beneficiary. Do you suggest listing the kids all as secondary?
No reason not to. Just hadn’t thought of it until reading here! It goes to them after we both die anyway and the advantage of listing them hadn’t been obvious to me. Again ignorance here.
My brother would say that everyone with significant assets should have one, but of course that’s how he gets paid. Depending on certain things, especially health issues you may have that make you more likely to end up in a home, or things like a family history of dementia, it could be very worthwhile.
The hardest part is that while you can access profits from the trust (ie, dividends) the assets stay locked in.
Definitely worth a chat with an attorney; if you have an advisor he will almost certainly “have a guy” though that can be good or bad.
IMO …
There is no downside to listing the kids collectively as secondaries. The upside is it solves the distribution problem if you and wife both die in the same accident, or nearly so.
There are many, many kinds of trusts with different pros and cons. Some are more about tax avoidance, others are about liability shielding, or legally “hiding” money from Medicaid, or public probate process avoidance or providing for a special needs child or spouse or … An attorney, more than somebody at a brokerage, can best advise which one(s) are relevant to your situation.
Note that although there is a lot of uniformity in trust law state to state, there are also some states with significant wrinkles. So any detailed advice, online or in-person, needs to be tailored to your state. And will need to be reviewed and possibly revised if you later move to another state.
Your experience with your wife’s grandfather sounds like the classic error of making specific arrangements and then not keeping up with them as the family situation changed. e.g. What made sense when Granddad had 3 minor grandchildren became all wrong 20 years later when he had 6 adult grandchildren and 9 great-grandkids.
Another factor:
A living person cannot place their IRA(s) or 401k(s) into a trust. They can however designate a trust as the beneficiary upon their death. There can be good reasons to do that. There are also ways to screw that up and essentially destroy the tax-deferred nature of that money, resulting in potentially a ginormous tax bill as the entire balance is suddenly ordinary income to the trust in the year of death. Punchline being: Do not make a trust the beneficiary of your IRA or 401k without deliberate consultation on this point with your trust attorney.
One last point …
That is true for some, but not all, forms of trust. I suspect it’s true for the “Hide from Medicaid” trusts, but not for others.
Fair point. I was thinking of the hide from medicaid sort, since that’s what most of the middle class clients my brother sees are looking for.
There’s also long term care insurance. I was quoted $167,000 for up to 8 years divisible in any ratio between my wife and me. And that price is only if I bought now, at 52. The cost increases each year.
This is the key point here, and why much of the discussion of “trusts” here so far is not particularly helpful. There are various types of trust, and each is designed to do something different. Revocable, irrevocable, testametary, living, etc. All of these have different goals. See here for a decent (but not complete) description of the main types of trusts and what their main goals are:
So, I think it best just to say, consult an experienced attorney to see if a trust makes sense considering your goals, and leave it at that.
I have an LTC policy. Originally gotten through my employer 25ish years ago when such extra benefits were offered. My late wife had one as well.
Right now it costs me ~$800/quarter. It started at more like $300/quarter. So I’ve probably paid about 500 * 4 * 25 = $50K for the coverage to date. Not considering time value of my money spent on those premiums nor the opportunity costs of alternative investments forgone.
OTOH, it pays out up to ~$1,000/day for inpatient, ~$500/day in-home, w a lifetime max payout of ~$1M. I suspect that’ll pretty well cover a worst case lingering death by senility or frailty.