While few of us have the kind of wealth that say Sting or Warren Buffett have to manage, many parents have a legitimate concern about their children’s ability to manage the money they plan on leaving to them. Parents want to see their children become productive members of society, and not a lazy consumer waiting for trust fund payments to come in. So what options do parents have when they create their estate plan to avoid the “silver spoon syndrome”?
Power … and Responsibility
There is a natural tension between keeping power out of the hands of young and inexperienced, and potentially irresponsible children, and teaching that young and inexperienced person responsibility. No trust, no matter how well-crafted can replace the wise guidance of a parent. That parental role – as far as passing on the estate goes – is handed to the successor trustee, and one reason their job is so important. Below are some tools that you can give your successor trustee to promote responsibility for your children.
Training Wheels
Making your child a co-trustee at a certain age gives them the opportunity to make decisions, but give them an experienced person to be right beside them and show them how things should be handled.
Gradual Transfer
You can transfer assets to your child gradually over time, allowing them to learn from each experience, and take that experience to the next distribution. Typically this looks like payments at set ages – for example, half at 25, balance at 30.
Educational Incentive
Many parents want to see their children or grandchildren complete college before receiving their inheritance, but recognize that not every child is cut out to be an Ivy League student. One of the popular options we create for our clients regularly is a hybrid gradual transfer with an educational incentive – payouts at set ages, but if the child completes their bachelor degree a graduate degree, the payouts can come sooner.
More Advanced Strategies:
There are more advanced strategies that parents can employ, such as the Financial Skills Trust or the Work Incentive Trust, both of which keep the trustee in charge, and put the responsibility on the beneficiary to meet certain financial goals set by the parents.
Every Family Is Unique
While many families have similar goals, the way we reach those set goals can be as unique as each individual – after all, you are not like everybody else, so why should you estate plan be the same as everyone else’s?