Patent-pending trust Is designed for baby boomers’ children

When William E. Hesch, Esq., CPA, PFS came up with the innovative idea of his patent-pending retirement trust, he simply wanted to come up with some creative ways his children would have sufficient funds to live on when they reached retirement. But as an experienced attorney and a practicing certified public accountant, Hesch also had many clients that were facing the same problem.

“Millennials are not saving for retirement in their 401(K)s and IRAs, and social security may not provide much retirement income for the generations that follow the baby boomers,” says Hesch.

Recent statistics also show that many millennials still live at home with their parents, and up to 75% of the population live paycheck to paycheck, making retirement security almost impossible.

“My patent-pending trust allows the grantor (or grantors) upon their death to hold assets in a trust for the benefit of their children until their children reach an age specified by said grantor, typically 62 years of age,” says Hesch. “Prior to age 62, the heirs receive 4% of the assets annually, and upon reaching age 62, children begin receiving monthly distributions of retirement income at around 6% of the assets. And there are a number of features the grantor can customize in the instrument for his or her specific situation.”

The unique trust is designed for use by baby boomer clients who want the benefits of using a revocable trust in their estate plans but are concerned with their children’s (or other beneficiaries’) financial security when they retire. They have these concerns for many reasons, including their children’s past financial decision making, they are worried their children won’t have a nest egg for their retirement, their children have potential creditor problems and don’t want them inheriting trust assets outright in a lump sum distribution, or they believe social security benefits will not be there for their children when they retire.

“It is a fact that 70% of lottery winners end up bankrupt after receiving a large financial windfall,” says Hesch. “So it is not hard to believe that many children receiving a substantial windfall all at once from their parent, in their 30s or 40s, may suffer the same fate.”

So how does it work?

The patent-pending retirement trust is a revocable trust that becomes irrevocable upon the death of the grantor or both grantors. Upon the death of the grantor(s), the trust is divided into sub trusts for each child. Each child has the right to certain monthly distributions of their sub trust as explained above.

The grantor(s) has a choice of the following options: a fixed dollar amount of the trust income and principal each year, adjusted for inflation annually; a fixed percentage of the trust principal each year (i.e. 4%, which would allow the trust nest egg to grow, while supplementing beneficiary’s income); and the grantor may also attach a work requirement to the beneficiary’s distributions before reaching the designated retirement age. If a child becomes disabled, monthly payments commence for early retirement.

Once the child reaches age 62, the balance of assets remaining in that child’s sub trust is totaled and that child is entitled to a monthly annuity payment using the average monthly payment amounts that would be payed from comparable commercial annuities, payable for the remainder of that child’s life, which is around 6% of the trust assets annually.

“I based my trust on annuities from two insurance companies identified in a section of the trust,” says Hesch. “Any insurance company’s annuities or actuarial tables or the IRS life expectancy tables can be used to compute a monthly benefit to be payable for that child’s life. To clarify, an annuity is not actually purchased from one of these insurance companies.”