As parents we all have visions of what our children will become. Preparing estate plans for families with young children presents the interesting opportunity to discuss the dreams and visions parents have for their children. Guiding parents through their different options is an enjoyable exercise in seeing life through their eyes, and participating in ensuring their vision for their children will survive them. What options do parents have, other than delaying the “moment of truth” when the “keys to the kingdom” are handed over to the next generation? There are a number of creative, inventive ways that parents can use an estate plan to support their goals for their children. I’ll talk about two common goals, and some unusual ways those goals can be met with a bonus “wild card” option thrown in for consideration.
Education is an absolute necessity – we can see that from our experience, but children seem to assume they will live forever. A trust can specify that the estate funds can be released upon reaching certain educational milestones. The trick here is that the university/college system as we know it is changing – high-tech trade schools, internet courses, and options that could exist in five or ten years that we can’t even picture today challenge the best drafted plans. Parents will have to choose whether they support the tried and true, or whether they will want to include language that will support a successful path less traveled. Are your goals education, life experience, or financial success?
Encouraging Work and Savings
Parents want to see their children become self-sufficient, and who, on the whole, are a benefit to the world around them. One way to encourage and reward hard work is to use trust funds to match a child’s earnings, and his or her contributions to a qualified retirement plan.
What about buying a house? Providing for a wedding? What about children who have fallen into self-destructive addictions or lifestyles? These and other situations all have answers. The best way to review these options is a discussion with your estate planning attorney.
Protection from creditors
Finally, the “wild card” option. Most options for distribution are outright distributions, with the difference being the time and reason for the distribution. However, one can keep the assets in the trust, providing creditor and divorce protection with a “Beneficiary Controlled” trust. The child would still control the investment of the money, and choose the co-trustee who controls the distributions. He or she would also choose who would inherit the funds after them. What they “lose” in direct control they gain in additional protection for the funds. If you’re handing significant assets to the next generation, this option is definitely worth considering.
There are a lot of tools available to parents in crafting an estate plan to best support their values and vision for future generations. With this power though, comes a responsibility to use restraint. The plan that parents create will have to survive the test of time. While we all think we know what the future will look like, a healthy dose of flexibility for your trustee and children will ensure their success in the challenges with which life presents.