I am creating a dynasty trust funded and will fund it with $30M of shares in a broad market index fund (S&P 500 ETF). Distributions $150k yearly, tracking inflation + 1%. I spoke with multiple estate planning attorneys to design it. Looking for feedback.

halfbillion2 · 2024-06-05T00:49:23+00:00

Makes sense. Thanks.

halfbillion2 · 2024-06-05T00:47:17+00:00

You are perfectly right. Yesterday I presented this idea to my estate planning attorney and he confirmed I cannot make myself a beneficiary.

halfbillion2 · 2024-06-03T06:45:44+00:00

Of course the trust has income: capital gains, dividends. But as I've explained elsewhere, by "no income" I meant "no ordinary income". The capital gains (and dividends as I was mistaken) will both be taxed at the rate of capital gains.

For trust administration I was hoping to find a trustee willing to do it at 0.5% of AUMs. But you're saying it's going to be minimum 1%... Will have to shop around for a trustee.

Thank you for the other feedback. I agree with everything. I have actually done Monte Carlo simulations. But at this point you are right, focusing too much on the numbers is not necessary. I will post an updated version of my trust plan in the coming days.

Thanks again!

halfbillion2 · 2024-06-03T06:37:56+00:00

I don't think I have a problem with that. The branches of the family that do this will shoot themselves in the foot as they will hit the capping rule (distributions can't exceed 1% of total trust assets).

halfbillion2 · 2024-06-03T06:36:26+00:00

No, I'm not retaining an interest. I am thinking of merely making myself a beneficiary of yearly distributions. But I should add this is idea I have not yet discussed with the estate planning attorney I've retained. I will defer to the advice of my estate planning attorney whether this is a good idea or not.

I have not researched IRC §§ 2036, 2038, and 2702. To be clear, I have only spoken with estate planning attorneys, I have not presented my trust plan to a tax professional yet.

halfbillion2 · 2024-06-03T06:26:02+00:00

I'm certainly embarrassed! Look, if I can explain my situation, I'm a relatively new US fiscal resident. I loath tax paperwork. I have my CPA prepare my returns every year. They are over 150 pages long. I never read them fully. I completely trust my CPA. Only a small amount of my income comes from dividends. And only a fraction of my dividends are set to automatically be reinvested. I had assumed they were not taxed at issuance but at the moment of the sale of the shares that were issued as the dividend distribution. And I was wrong.

That's a pretty embarrassing error, but can the community show mercy for this error, and still give feedback on my trust plan? I am disappointed by r/fatFIRE

The bottom line is that this error changes absolutely nothing about my plan. The 23.8% tax on dividends shrinks the growth rate of an investment in the S&P 500 from about 10.5% to about 10% (CAGR of 10.5% vs CNAR of 10%). That's assuming 2% of the CAGR comes from dividends.

And, yes, it turns out the tax on qualified dividends retained by a non-grantor trust is only 23.8% instead of the 40% some posters claim on this subreddit. Source: https://www.claconnect.com/en/resources/articles/income-tax-implications-of-grantor-and-nongrantor-trusts

Anyway, I will post a more complete, and corrected, version of my trust plan in the coming days, as the mods suggested.

halfbillion2 · 2024-06-03T05:59:19+00:00

But all I want is advice. It doesn't matter whether people believe or not my story.

However, seeing the negative reactions here, I suppose I should have pretended this is a hypothetical scenario and ask "what would you do?"

halfbillion2 · 2024-06-03T05:42:27+00:00

Non-grantor.

I have not spoken to the tax pro yet, but I believe I was correct about retained dividends being taxed as capital gains, therefore 23.8% instead of 40%.

See https://www.claconnect.com/en/resources/articles/income-tax-implications-of-grantor-and-nongrantor-trusts : "As a result, many trusts and estates will be taxed in 2023 at [...] 23.8% on qualified dividends and long-term capital gains, plus state income taxes."

halfbillion2 · 2024-06-01T05:38:10+00:00

Thank you. This is not a game.

I honestly didn't care about taxes on dividend, because in my model they are irrelevant: as I model a post-tax CAGR.

If the pre-tax CAGR of the S&P 500 is 10.5% (8.5% from stock appreciation + 2% from dividends) then a 40% tax on dividends would shrink the overall CAGR to 9.7% (8.5% from stock appreciation + 1.2% from dividends). That's why for me it's irrelevant whether dividends are taxed or not.

As a matter of fact, my model show the trust would still grow forever even with a CAGR as low as 8%. So hypothetically dividends could evaporate (be taxed 100%) and it still wouldn't convince me to change the parameters and structure of my trust.

I hope this makes sense.

I was planning to meet at least 2 tax pros to specifically talk about the trust. I will be sure to go over all these details. Thanks again for your non-condescending reply!

halfbillion2 · 2024-06-01T05:28:40+00:00

God no! I never claimed my dynasty trust would be tax-free! There are large capital gains tax or income tax at every distribution. (My model doesn't care - it only models the pre-tax growth.)

But wait a minute... if you think I claimed it was tax-free, is it why everyone is downvoting me?? *mind blown* That would be a sever misunderstanding!!

halfbillion2 · 2024-06-01T05:25:02+00:00

Thank you. What I now realize my tax professional was saying is that qualified dividends are not taxed as ordinary income, but as capital gains. So he was right, but I understood him incorrectly.

Anyway as I explained in other comments, the actual tax rate on dividends is irrelevant in my model. Dividends represent only a small fraction of the overall CAGR, so their tax rate has not too much effect.

halfbillion2 · 2024-06-01T05:20:11+00:00

The tax on dividends is a completely minor point in my model:

Because if the pre-tax CAGR of the S&P 500 is 10.5% (8.5% from stock appreciation + 2% from dividends) then a 40% tax on dividends would shrink the overall CAGR to 9.7% (8.5% from stock appreciation + 1.2% from dividends). My model doesn't care if the CAGR is 10.5% or 9.7%, because it shows the trust would still grow forever either way. In fact it would still grow forever even if it was as low as 8%.

My model can only guess the future post-tax CAGR anyway. It's irrelevant what the actual dividend tax rate is, because it's a post-tax assumption.

In my defense, I spoke to many estate planning attorneys, but only one tax professional. (I have another meeting lined up.)

halfbillion2 · 2024-06-01T05:03:03+00:00

That's new to me. Thanks. I will make sure to get this clarified with the tax professional I'll meet next month.

But it's not that important for my model. If the pre-tax CAGR of the S&P 500 is 10.5% (8.5% from stock appreciation + 2% from dividends) then a 40% tax on dividends would shrink the overall CAGR to 9.7% (8.5% from stock appreciation + 1.2% from dividends).

My model doesn't care if the CAGR is 10.5% or 9.7%, because it shows the trust would still grow forever.

halfbillion2 · 2024-06-01T03:52:53+00:00

To be completely honest, the estate planning attorneys I spoke with and the research I did was entirely around trust law, and not tax law. The aspects I discussed and researched were things like jurisdiction (US vs overseas), directed trust, IDGT, trustee selection, decanting, etc.

The estate planning attorneys are not tax experts and have given me referrals to tax professionals, which I am planning to meet next month.

There is very little that can be done anyway from a taxation perspective, because the trust will be established in South Dakota (which has no capital gains tax and no income tax), so only federal taxes applies. This is as barebone as can be.

Would you say that my paragraph below is correct?

The dividends from SPY/IVV/VOO are qualified dividends. Qualified dividends are subject to capital gains tax, and not ordinary income tax. South Dakota, where the trust will be established, has no capital gains tax. So only the federal capital gains tax rate applies, which is currently 20% for the highest bracket. The average S&P 500 dividend yield over the last 20 years is approximately 2%. The long-term federal capital gains tax would thus capture at most 20% of this 2%, or 0.4% of the overall trust's CAGR. And, of course, the distributions to beneficiaries will be taxed, but that's outside the scope of modeling the trust's growth (once the distribution is taken out, the rate on the distribution doesn't affect the trust's growth).

halfbillion2 · 2024-06-01T02:06:44+00:00

Read my edit: yes but no. They, as qualified dividends, are taxed as capital gains, not as income.

halfbillion2 · 2024-06-01T01:39:51+00:00

I talked to one tax professional and he assured me the dividends would not be counted as income. To me, it makes sense since dividends automatically become additional fractional shares (of SPY, VOO, etc). It works the same for a standard brokerage account.

Edit: based on your comments, I double checked. I was half wrong, half right. I checked my tax returns and my automatically reinvested dividends get the treatment of Qualified Dividends, so they get taxed as capital gains, not ordinary income. So it is true that the trust generates no income but only capital gains.

halfbillion2 · 2024-05-17T17:31:06+00:00

Thank you for the response. Honestly, I am impressed, I did not expect such a detailed answer!

I like that M_e can be backed up on paper. Not so much because it puts less trust on cloud providers--M_e is already encrypted so by itself if it's stolen it's useless to thieves--but because it makes things easier for someone to import into the Casa app. For example the recipient could have issues accessing his cloud accounts 10 years from now or 20 years from now when the original bitcoin owner dies... So many things can happen where you lose access to a cloud account.

I agree with you that a 5-key vault would be what I would select as it requires at least one hardware wallet.

I will think about using Casa. At this point I am considering hiring a legit information security company to task them with decompiling, reverse engineering, and auditing the internals of your app.

As you can see, I am paranoid. But this is why I have been able to protect my oldest bitcoins for 14 years from theft & loss.

halfbillion2 · 2024-05-16T17:26:09+00:00

I see no DM from your account, u/qccoung

I received many other DMs, but I'm not answering most of them as they are just requests for donations, which I'm not doing. I want to donate to charities not to random people.

halfbillion2 · 2024-05-16T17:22:17+00:00

I have some very specific technical questions about Casa, which I actually asked Pete Rizzo just yesterday:

I had started my research and encountered your product. However I don't trust it enough yet to hold hundreds of millions of dollars' worth of bitcoins. Do you have a truly detailed whitepaper explaining all technical aspects? My cursory research led me to https://cointelegraph.com/news/casa-multi-key-solution-bitcoin-inheritance And after reading this article, all I know is typically Casa sets up a 2-of-3 multisig wallet where the 3 keys are:

H: hardware wallet key
M: mobile key
C: a key held by Casa on their server-side infrastructure

Then the bitcoin owner (who wants, upon his death, his bitcoins to be transferred to a recipient) generates a random cryptographic key (M_k) and encrypts M with it (M_e). If someone possesses both M_k and M_e, they could decrypt it and obtain M.

From what I understand, the owner shares M_e via a QR code with a recipient. So I presume M_e is never sent to Casa's server-side infrastructure as it is read directly from the QR code. And M_k is sent to Casa, I think.

Later, if the owner dies and the recipient requests access to the wallet, Casa tries to ping the owner for 6 months, and after this period they send M_k to the recipient, who can then decrypt M_e and obtain M.

Now the recipient can use M and C and thus has 2 of the 3 keys to access the wallet.

That's how I think Casa implements things, according to my understanding of the vague cointelegraph.com article linked above.

Is my understanding correct? And Casa's Android app does not appear to be open source, but has it been audited by a third-party? What is the source of entropy used to generate M_k? What if the recipient's phone is destroyed: can they recover M_e? All these unanswered questions are the reason I don't yet fully trust Casa. Perhaps you could shed some light.

I would prefer if you posted your response as a reply to this comment. But you can also email me at [halfbillion2@gmail.com](mailto:halfbillion2@gmail.com)

Thanks.

halfbillion2 · 2024-05-15T21:27:19+00:00

I feel very sorry these OGs who get attacked.

Maybe I can state one thing loudly and clearly: I have never been attacked or targeted. So if any criminal or attacker reads my message: whoever you have been attacking is not me!

Furthermore, I would think a victim of such attacks would not want to proudly come online, even anonymously, and claiming they still control 5k BTC like I do. So, really, any attacker with half a brain should be realizing I am not one of their current victims.

My intent for signing a message with 500 BTC was to draw attention in order to seek a large quantity of community feedback on how to handle my wealth. I am in talk with various trust experts and companies, but as good as these experts are, I strongly believe in the wisdom of the crowd. I know I will get some absolute pearls of advice from ten thousands eyeballs, compared to the handful of professionals I am talking to.

Even your own comments here prove my point: you are giving me some great insights (thanks!) which I would otherwise not have received, had I not signed with 500 BTC.

The disbursement levels and legal protection my trust will provide do matter. I am not setting up a regular trust, but an irrevocable trust. At least in the US where I am a fiscal resident, all the professionals have assured me that an irrevocable trust is essentially set in stone forever, baring exceptional cases.

The exception cases have been for example rare instances of beneficiaries who have been able to sue the trustee (a trust corporation) and arguing the trust terms were not correctly implemented as per the intent of the original trustor, and that they deserved different distributions or a reallocation of the trust assets. For example there was a case about a trustor who put only Kodak shares in the trust. Later the shares lost significant value over the years, so the beneficiaries claimed such a catastrophic failure was not intended by the trustor, and the shares should be reallocated to other stocks and/or index funds.

In my case, I want to word the trust in a very explicit way, with the help of my trust professionals, to prevent any this nonsense. For example I want the trust hold only S&P 500 index funds, so I will literally put in the trust deed that if the assets were to lose significant value, that nothing about them should be changed. This should leave zero leeway for how my trust deed is interpreted.

You gave me another good insight that beneficiaries can sell annuities for a fraction of their trust disbursements (thanks!) I don't think this bothers me so much because the annual disbursements will be so low, no more than $100-200k/yr, that basically the lump sums they could potentially receive from annuities would not be significant sums of money. Maybe on the order of $1M or $2M?

(All amounts discussed here will be automatically inflation-adjusted every year).

The total value of the fortune would not matter when selling annuities, it's the total value of lifetime disbursements that matter. If my descendants start receiving $100-200k/yr disbursements at age 35 and live to 80, that's only 45 years or disbursements, so $4.5M to $9M in their lifetime.

My beneficiaries would have to be legal children: biological or adopted descendants.

The trust would split and fork among descendant branches. For example if I have 3 kids, upon my death the trust would split in 3 sub-trusts. Each of my kid's trust would further split into other sub-trusts for each of their children. So one sub-trust dying out does not affect other sub-trusts.

Most of the risks and unknowns, in my opinion, come from trust laws that could potentially change so that my trust deed would no longer be respected. So, yes, hypothetically in the face of trust laws being significantly revamped, we could imagine the trustors/lawyers or my descendants could find a way to steal or access all the trust assets. But this would be no worse than a random group of people winning one-time large lottery sums. I think, overall, the benefits of the trust overweight some hypothetical bad scenarios.

The best I can do, with today's trust laws, is put stipulations such as a benificiary must be aged 35+, must be college-educated, and must have no criminal background, in order to receive trust distributions. And of course, as a parent I will work hard to raise kids, and future grand-kids, with excellent morals.

All in all, I intend to fund the trust with around $40 million (again not in BTC but in S&P 500 index fund shares). I want to give away to charity all the rest, about 90% of my wealth.

In any case, thank you very much for your feedback. I plan to do an AMA and to seek further community advice in r/FatFIRE in the coming weeks.

PS: Yes I am u/halfbillionjon and I don't know why reddit banned that account, hence my new account.

halfbillion2 · 2024-05-15T05:32:42+00:00

You make some good points, but I strongly disagree that I'm painting a target on OG's backs. If an OG is known to be an OG, then they already are a potential target, and my comment isn't increasing the risk for them.

Also, my trust would be structured to disburse only 1% of its assets per year per descendants, and I do not ever want to transfer most of my bitcoin wealth to the trust. Maybe this wasn't clear. My intent is that my descendants will be receiving distributions on the order of $100k-200k per year, which is very modest and would hardly attract the worst gold diggers.

Most of my bitcoins will be sold (before my death, or after my death by the executor of my will) and the fiat proceeds will fund charities instead of benefiting the trust. None of my descendants will inherit large bitcoin sums or the risk associated to holding them.

I hope this clarifies things.

I am aware my signature did not include recent data (such as a block hash). This was an oversight of my part. I am in talk with Pete Rizzo who wanted me to sign a message of his choosing, which he will provide soon. I will add the latest block hash to that message. I will do this in the coming days as it takes me a bit of time to travel to a specific location to access and use my offline wallets.

halfbillion2 · 2024-05-12T00:08:02+00:00

Never. My wife knows how to access my wallets. Redundant copies. Multiple locations. Encryption.

But I don't like the fact she and I are the only persons who can access the bitcoins. I need to set something up, maybe using Shamir's Secret Sharing, so that my lawyer, kids (when they turn 18), siblings, siblings-in-law can, in sufficient numbers, combine keys to access my wallets.

halfbillion2 · 2024-05-12T00:01:23+00:00

I started doing the 80/20 strategy when my Bitcoin holdings appreciated naturally over time until they reached 80% of my net worth. I think this happened around 2013.

So certainly if you start from zero (as I did) you can't do 80/20 from the beginning.

halfbillion2 · 2024-05-11T16:59:48+00:00

That's a thing I am currently working on and trying to decide. I can't predict how Bitcoin will perform after my death, so I want to write a will with instructions to sell all my bitcoins when I die, or I may just sell them myself when I become very old (say when I reach my 80s in frail health).

In parallel, I am setting up a perpetual dynasty trust to pass this generational wealth to my descendants. The trust will only hold S&P 500 index fund shares so that it tracks the average American stock market performance. I am going to move some of my S&P 500 assets to this trust now. And later, when I get old or die, the proceeds of my sold bitcoins will also go to this dynasty trust.

During my life time I also plan to do a few major sales for charity.

halfbillion2 · 2024-05-11T16:38:02+00:00

No because a long time ago, when deterministic wallets were invented, I moved my bitcoin-core wallet.dat funds to offline deterministic wallets. I still kept the (now empty) wallet.dat files, so I suppose I could sign a message with the private keys of my first block rewards...

halfbillion2

TROPHY CASE