“I have significant savings and several properties”: I am 52 years old, I am happily divorced and I have 4 nieces and nephews. How can I entrust my heritage to future generations?

By Quentin Fottrell

“As a teacher, I believe that education has been at the heart of my experience and my social mobility. I want to make sure that future generations have this opportunity.”

Dear Quentin,

I am a 52 year old second generation teacher, happily newly divorced, without a will. I have an incredible chance to succeed in what I undertake. Because I am a state employee, I have a generous pension until I retire. I have significant savings and several properties that have gone from state to state.

I am also the executor of my mother’s estate (she predeceased my father), and the simple sale of our family home in California will guarantee my brother and sister a large estate after she passes away. I have a sister and a brother, both of whom have two children who I hope will be very old adults when I die, and a son-in-law whom I love very much. We are lucky not to be a family of conflicts.

Traditional distribution models would mean that my estate would and/or should be divided among my extended family. I understand that’s how generational wealth works. Families, over time, can build on the success of their ancestors — or, in this case, their “pre-uncles” — but I had some thoughts about what targeting my estate might mean. In other words, I would really like to create a mechanism (perhaps a trust) that provides scholarships or educational benefits to my family members across generations.

As a teacher, I believe that education has been central to my experience and social mobility, and I want to ensure that future generations have this opportunity. I think bigger than traditional college savings models (based on how I understand 529 work).

For example, create a fund that allows eligible recipients to receive a lifetime educational support benefit based on average tuition fees for a four-year degree over their lifetime. If no one uses it, I just want it to grow for the next generation. It is distributed to people who have the power to meet the world where they are and make decisions about how to improve their lives.

First of all, what do you think of this from a generational point of view? Second, if I choose to set up something like this, how could I find a long-term trustee? Third, is a trust the right way to think about this, and could I use a 529 plan to accomplish this?

A future foreuncle

Dear Future Foreuncle,

The three most important things in a young person’s life, in no particular order: education, education, education. Kudos to you for thinking ahead and using the money you won’t be spending in your lifetime. The younger members of your family are indeed lucky to have such a caring and generous uncle. If we’re not here to help each other and support each other when we can, what’s the point of either of us being here in the first place? You are one of the lucky ones because you have options. You may want to set up a trust and 529 plans.

A trust, however, gives you more flexibility than a 529 plan. Setting up such a vehicle can be expensive, but considering the amount of money you seem to be dealing with, it seems very worthwhile. And yes, you will also have to think of a trustee: a relative, a friend or even a bank. Choosing a trustworthy trustee is a difficult task, and you may have more than one trustee. Naming a family member can get complicated, especially if there’s a disagreement over how the trust is run. Either way, consult a lawyer who specializes in estate planning.

Trusts are flexible. You should consider how you want the funds distributed — as lump sums and/or as annual income to pay for certain expenses — and for what educational purposes. You may decide to include alternative forms of education apart from a four-year university degree, for example. And what happens to family members who choose not to go to college and take another route? Will they receive funds for a down payment on a house or start-up capital for a business, for example?

Setting up a 529 plan

Uncles, parents, and even grandparents are ideal candidates for setting up tax-efficient 529 plans for their younger family members. You are young enough to see your nephews and nieces go to college. There are two types of 529 plans: prepaid plans for tuition at some colleges’ current rates, and a flexible savings plan for tuition, accommodation, and sometimes textbooks.

There are potholes to avoid, or at the very least to be aware of. As my colleague Beth Pinsker points out: “Any money from a non-parent given to a student while eligible for aid can be considered student income and is assessed at a much higher rate than a parental asset Suppose you gave $5,000 to a high-school graduate as a gift in May 2022. They are supposed to report it as income on the Free Application for Federal Student Aid (FAFSA) this year – for their second aid program – and the likely outcome is that the college lowers its price by $2,500.”

But 529 plans are popular. To give you an idea of ​​their popularity and the financial commitment involved in setting up such a plan: more than $434 billion in assets were invested in 529 education savings accounts a year. last, up 10% from a year earlier, according to the Education Savings Plans Network. The average account size was $30,287. Money withdrawn is tax-free if used for approved education-related purposes.

Transfer of intergenerational wealth

As for your broader note, you’re right about intergenerational wealth transfer. It lends a helping hand to the next generation and it helps wealthy families stay wealthy generation after generation after generation. While this doesn’t quite help economic inequality in our society or intergenerational mobility for people in the poorest households without such benefits, not all branches of a family have equal access to funds. You are trying to level the playing field for everyone in yours.

As Thasunda Brown Duckett, the CEO of TIAA who oversees a retirement account manager with $1.2 trillion in assets, said at MarketWatch’s Best New Ideas in Money Festival last month: of the next five years, we will probably see the beginning of one of the greatest transfers of intergenerational wealth. It is estimated that when they die, the silent generation and baby boomers will transfer between $30 trillion and $68 trillion to their adult children. »

Duckett is somewhat more optimistic about the impact on economic inequality than other parties, including the authors of this article for the Center for Economic Policy Research. “This will put younger generations in the driver’s seat and has the potential to reshape our economy. Millennials and Gen Z should be prepared for this shift in wealth by ensuring they work on their financial literacy, considering whether they will need to meet with a financial advisor and think about their long-term investment strategies,” Duckett added.

I hope this provides context and perspective for your own plans. You have the money to change and/or improve the lives of younger generations in your family. Education is one of the best gifts you can give. In the meantime, do yourself a favor and write a will.

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-Quentin Fottrell


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11-18-22 0847ET

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