Author Topic: S/O of generation wealth  (Read 7479 times)

Gin1984

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S/O of generation wealth
« on: September 09, 2014, 01:13:42 PM »
What would people think of a trust for grandchildren/great-grandchildren that required them to pay back, at inflation what they borrowed from the trust for college? 

beltim

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Re: S/O of generation wealth
« Reply #1 on: September 09, 2014, 01:15:23 PM »
I'd wonder why the grandparents didn't just pay for it if they have that much money.

Gin1984

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Re: S/O of generation wealth
« Reply #2 on: September 09, 2014, 01:22:43 PM »
I'd wonder why the grandparents didn't just pay for it if they have that much money.
Grandma and Grandpa are dead and want all potential grandkids (and further generations) to have access to college even if the parents are screwups.

rocksinmyhead

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Re: S/O of generation wealth
« Reply #3 on: September 09, 2014, 01:24:20 PM »
so the point would be to provide interest-free student loans to future generations?

cool idea, I like it

Gin1984

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Re: S/O of generation wealth
« Reply #4 on: September 09, 2014, 01:26:15 PM »
so the point would be to provide interest-free student loans to future generations?

cool idea, I like it
I was thinking more like, interest indexed to inflation so people like us would actually pay it back, lol.

trailrated

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Re: S/O of generation wealth
« Reply #5 on: September 09, 2014, 01:26:43 PM »
I'd wonder why the grandparents didn't just pay for it if they have that much money.

+1

I could understand a hesitance on just giving grandchildren gobs of money.... but why hesitant on providing an education? I don't understand why strings would be attached. What would that pile of money do after?

beltim

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Re: S/O of generation wealth
« Reply #6 on: September 09, 2014, 01:27:59 PM »
I don't know much about trusts, but that seems like the kind of thing that would have needed to be established before they died.

But even so, the difference between, say, 3% and 6% interest doesn't seem like that big a deal to me.  On a 100K loan that you pay back over 10 years, the difference is about $150/month. 

I'd think the better use would be to pay for the education, and hope the grandkids pay it forward.  Having the grandkids start their working career without student loans would make a huge difference.

gimp

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Re: S/O of generation wealth
« Reply #7 on: September 09, 2014, 01:29:04 PM »
Required how? That seems pretty difficult to set up. What do you do about the kids who borrow for expensive school but can't get work afterwards that pays well enough? Does someone need to make the kids go through a "business plan" to make sure they can pay it back and withhold money if it doesn't pass?

This is why I tell people - don't ever accept money from people. It always comes with strings. I'll take government aid over some dead guy's trust any time; the government's expectations are fairly straightforward and fair.

solon

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Re: S/O of generation wealth
« Reply #8 on: September 09, 2014, 01:29:35 PM »
What does the "S/O" mean in the thread title?

Gin1984

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Re: S/O of generation wealth
« Reply #9 on: September 09, 2014, 01:33:56 PM »
I don't know much about trusts, but that seems like the kind of thing that would have needed to be established before they died.

But even so, the difference between, say, 3% and 6% interest doesn't seem like that big a deal to me.  On a 100K loan that you pay back over 10 years, the difference is about $150/month. 

I'd think the better use would be to pay for the education, and hope the grandkids pay it forward.  Having the grandkids start their working career without student loans would make a huge difference.
Sorry, assuming the trust is set up upon death of grandma and grandpa.  And hope does not always work, some parents won't help and given our current financial aid set up won't hurts the college students more than can't.

beltim

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Re: S/O of generation wealth
« Reply #10 on: September 09, 2014, 01:39:07 PM »
Sorry, assuming the trust is set up upon death of grandma and grandpa.  And hope does not always work, some parents won't help and given our current financial aid set up won't hurts the college students more than can't.

In that case I think it'd be better to just distribute the money directly.  For example, in my 100K for 10 years example, the students save about $18,000 over the life of the loans.  This is also the opportunity cost to the trust of that money, at a minimum (depending on how the trust is invested).  If, instead, that 18K was given directly to the kid (thus costing the trust the same amount of money), the student would have only 82K of student loans, and the monthly payment would be even lower than the subsidized loan from the grandparents:
100K @ 3%, 10 year = $966/month
82K @6%, 10 year = $910 per month

arebelspy

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Re: S/O of generation wealth
« Reply #11 on: September 09, 2014, 01:52:38 PM »
What would people think of a trust for grandchildren/great-grandchildren that required them to pay back, at inflation what they borrowed from the trust for college?

To what point and purpose?  Why couldn't they just get their own student loans?
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Cheddar Stacker

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Re: S/O of generation wealth
« Reply #12 on: September 09, 2014, 02:07:21 PM »
I like it.

..What do you do about the kids who borrow for expensive school but can't get work afterwards that pays well enough? Does someone need to make the kids go through a "business plan" to make sure they can pay it back and withhold money if it doesn't pass?

I like gimp's caveat's here, although I don't think gimp likes them.

I would run it like a business, but limit it to family and make the interest rate something very low like 1%. Maybe it wouldn't be a trust, maybe an endowment of some sort?? I would hire a person, a CPA firm, a law firm for $10-20K/yr to facilitate the financial operations and "approve" loan requests.

If someone wanted to take out a $240,000 loan to study Sanskrit, DENIED. (Bonus points if someone can guess what movie that college major refers to)

If someone wanted to take out a $100,000 loan to study dance at Juilliard, well, they better be a damn good dancer.

I would try to create a loose set of rules governing approval of loans, but ultimately leave it up to the discretion of the person in charge. As long as they are substantially improving themselves and their abilities, going to a reasonably priced school, and showing some insights into how they would be able to repay the loan based on earning capacity, loan approved.

Then after they'd repaid 25% I'd write off the remainder.

As to the point and purpose Rebs, as Gin stated earlier it would be to make sure all your descendants have access to an education without leaving it in the hands of the government or their parents. I've considered some way of funding future generations of Stackers if I hit one of those crazy CFireSim runs where I leave earth with millions. Seems like a cool thing to do.

Gin1984

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Re: S/O of generation wealth
« Reply #13 on: September 10, 2014, 06:24:39 AM »
What does the "S/O" mean in the thread title?
Directly, it means spin off.  Basically it means a thread that came because of another thread.

arebelspy

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Re: S/O of generation wealth
« Reply #14 on: September 10, 2014, 07:44:44 AM »
What does the "S/O" mean in the thread title?
Directly, it means spin off.  Basically it means a thread that came because of another thread.

Oh.  I also had no idea (SO to me means "significant other", so thread title didn't make sense, and I just ignored it.)  Thanks for clarifying! :)
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gt7152b

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Re: S/O of generation wealth
« Reply #15 on: September 10, 2014, 09:06:28 AM »

If someone wanted to take out a $240,000 loan to study Sanskrit, DENIED. (Bonus points if someone can guess what movie that college major refers to)


PCU:

Major? Guy in line: "Sanskrit." You majored in a 400 year old dead language? Latin, it's the best I can do. Major? Next guy in line: "Phys- Ed." Get out of my room, seriously OUT.

Cheddar Stacker

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Re: S/O of generation wealth
« Reply #16 on: September 10, 2014, 09:16:17 AM »

If someone wanted to take out a $240,000 loan to study Sanskrit, DENIED. (Bonus points if someone can guess what movie that college major refers to)


PCU:

Major? Guy in line: "Sanskrit." You majored in a 400 year old dead language? Latin, it's the best I can do. Major? Next guy in line: "Phys- Ed." Get out of my room, seriously OUT.

gt7152b, you get bonus points. Whatever that means.

Great movie, great scene. Jeremy Piven is one of my favorites. I tried to youtube link a video of the scene but there aren't too many PCU videos out there. Oh well.

ender

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Re: S/O of generation wealth
« Reply #17 on: September 10, 2014, 09:17:55 AM »
I'm not convinced I would take this offer had it been something I could have done.

Loans at a variable interest rate with significant family ties/baggage potentially associated with them vs a fixed interest rate? Sounds like a disaster waiting to happen.

TreeTired

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Re: S/O of generation wealth
« Reply #18 on: September 10, 2014, 09:23:47 AM »
Is that even possible?  (For a Trust to lend money to beneficiaries)

What does the trust do if the money is not paid back?   What does the trust do with the money if it IS paid back, or if it is never borrowed?  How long do the kids have to take advantage of these inflation-indexed loans?   I think interest rates would have to be at least IRS specified minimums, but actually I have no idea how something like this would work.   Sounds like a terrible idea to me.  If my grandparents set something like that up for me I would go to great lengths to avoid using it.

ioseftavi

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Re: S/O of generation wealth
« Reply #19 on: September 10, 2014, 09:34:58 AM »
I like it.

..What do you do about the kids who borrow for expensive school but can't get work afterwards that pays well enough? Does someone need to make the kids go through a "business plan" to make sure they can pay it back and withhold money if it doesn't pass?

I like gimp's caveat's here, although I don't think gimp likes them.

I would run it like a business, but limit it to family and make the interest rate something very low like 1%. Maybe it wouldn't be a trust, maybe an endowment of some sort?? I would hire a person, a CPA firm, a law firm for $10-20K/yr to facilitate the financial operations and "approve" loan requests.

If someone wanted to take out a $240,000 loan to study Sanskrit, DENIED. (Bonus points if someone can guess what movie that college major refers to)

If someone wanted to take out a $100,000 loan to study dance at Juilliard, well, they better be a damn good dancer.

I would try to create a loose set of rules governing approval of loans, but ultimately leave it up to the discretion of the person in charge. As long as they are substantially improving themselves and their abilities, going to a reasonably priced school, and showing some insights into how they would be able to repay the loan based on earning capacity, loan approved.

Then after they'd repaid 25% I'd write off the remainder.

As to the point and purpose Rebs, as Gin stated earlier it would be to make sure all your descendants have access to an education without leaving it in the hands of the government or their parents. I've considered some way of funding future generations of Stackers if I hit one of those crazy CFireSim runs where I leave earth with millions. Seems like a cool thing to do.

I had a massive debate about this with a work colleague.  I'm of a similar opinion to you, Cheddar - if you want to study something that generally offers a very low ROI, you either need to be phenomenal at it, or you need to do it in a low-cost way or as a hobby.  I do not think that I would have held this opinion 20 years ago, but being a reasonable person who has looked at the data on the issue for a few years now...I don't know that I'd feel good about supporting a kid who chooses to get a master's degree in medieval dance. 

In previous generations, the accepted advice was that you should support your kid with as much help as you could, to go the the best college they could.  The cost of the degree and their particular field weren't nearly as important as the school they attended, their GPA, and the fact that they had a college degree.

Nowadays, I don't think that this line of thinking holds.  The price of college (relative to median incomes) has skyrocketed.  A much, much higher percentage of americans have college degrees.  And the disparity between degrees that pay, and degrees that don't, has never been more striking from what I can see.

Anyhow, I'm probably preaching to the choir on the MMM boards.  I think for previous generations, going to college at a reasonable-cost, moderately ranked school and doing "good enough" in any major was a fine decision.  If your kid wanted to major in Philosophy and didn't go to Harvard, that line of decision making would still probably work out OK.  With the cost of tuition where it is, the increased supply of college grads, and the massively different results for various degrees that we now see - I don't think parents can afford to be so blasť about the "where to go to college / how to pay / what to major in" decisions.