Does $25,000 Plus An Additional Amount Equal To Interest On Said $25,000 At The Rate Of 7% Per Annum For 14.8 Years Mean Simple Interest ? Or Compounded Interest ?

CaptainForest

From the wording of the question, I do not know.

What kind of $25,000 is this?

I would assume compounded interest if I had to guess since more interest is compounded than simple.

TEDDE

Specific Distibution of funds on a living trust, apon death.

Does $25,000 Plus an additional amount equal to interest on said $25,000 at the rate of 7% per annum for 14.8 years mean simple interest ?

this money was not invested, it is to be paid out of insurance policies upon death.

CaptainForest

I would go with Compounded Interest.

TEDDE

this is not an investment, it is additional money paid to my sister out of my sister out of my 50% of the trust.

CaptainForest

Okay.

The trust itself has 25,000 in it. You sister gets 2,000/year or whatever.

What does the trustee do with the other 23,000? He invests it. And guarantees you a rate of 7%. That is 7% on the remaining balance, not the original balance.

Therefore, while it is compounding, in the end it makes no difference because by the end of the 14.8 years, the principal will be down to $0, and 7% of 0 is $0

TEDDE

I made an error explaning. My mother put all of her property and life insurance in her living trust. There was not many thousands in her trust
until her policies paid, upon her death and her house which has not sold yet.

Me and my sister are to split the money 50%-50%, but my sister gets a specifc distribution before this division.

This is her exact wording: Upon my death my trustee shall make a specific distribution of $ 25,000 Plus an additional amount equal to interest on said
$25,000 at the rate of 7% per annum.

Her death was 14.8 years latter. Simple interest is $25,000 Plus $25,900 in interest equaling $50,900.

You can not compound the interest because the money was not availible
until her death.

This is a big dispute between me and my sister. If this has to be settled in
probate court it will be expensive, and who ever loses will have to pay the
attourney's fees.

CaptainForest

Mmmmm, details.

Where is the lawyer who wrote your mother’s will? He/She should be taken out back and shot for allowing such an ambiguous clause to go in there.

You both have valid points here. I can make arguments for you both.

The $25,000 payment isn’t an issue, so I won’t go into that and just discuss the interest payment.


You are saying simple interest which would be $25,900

She is saying compound interest which would be, assuming I did my calculations right, $68,049.

Honestly, I think I’d side with you on this based on the fact that there was no money to compound until after her death. That is, simple interest at $25,900.

But here’s the honest truth, which you have already hinted at. You two go to court, the total legal fees will be about what $15,000-30,000 combined? Is it really worth it? Well, the lawyers will get rich.

Why not try to find a compromise in the middle somewhere. Perhaps you could offer her $40,000 to settle the issue. A compromise seems like the best way to resolve this issue rather than going to the court systems.

And from a personal view point, it might also be better. If you take your sister to court, that might be a negative thing and hurt your relationship, since the Judge will rule and one of you will feel hurt over losing. If you two compromise with each other, then you both can walk away feeling happy.

And it is also possible that the judge will order a split down the middle if he can not decide simple or compound interest.

So, I would recommend trying to compromise. Start off at $38,000 or $40,000 and go as high as $47,000.