Parenting is a constant pull between giving a child the freedom to fail and learn from his or her mistakes, and the exercise of control to protect a child. Estate planning brings that parenting conundrum to the fore because trusts are uniquely equipped to allow a parent to exercise control long after a parent is gone.
Control over Timing
Parents can choose when a child receives their inheritance. This is an important decision, and often requires projecting years into the future how your children will have matured as adults. Should they have control after they graduate college? As soon as they turn age 18? Age 52? Should it be spread out in stages once the trust goes into effect, say a certain percentage each year? Timing may be everything in sports, but when it comes to trust funds, there is more than just timing.
Control over Conditions
Going beyond the question of when, parents can choose other measurable conditions for a beneficiary to meet before they receive their inheritance. Hollywood plot lines use this to great advantage by having the hero of the story jump through some ludicrous hoop to receive their inheritance to the hilarity of all but the main character. We often use college as an incentive to trigger all or a portion of an inheritance. Other examples include achieving a balanced budget, earning income, eliminating debt, staying drug and alcohol free, and many others.
Control over Who
If you don’t have a child step up to the plate to be in charge of their inheritance at some point, just remember – for as long as there is a trust, someone is in charge. If it isn’t you as the original trustee, is it an older sibling, another family member, a trusted relative or friend or an independent fiduciary? It could even be several individuals. When you set up your trust, you choose who is on that all important list of trustees, and how they will be replaced if necessary. Your choice of trustee can even impact the level of protection a beneficiary can enjoy over his or her inheritance.
With Great Power comes Great Responsibility
Of course, it is your money we’re talking about so you have every right to decide how it is to be used. That power to decide and control how funds are to be used and by whom comes with a price – the impact your decisions will make on your beneficiaries. Protect, or provide? That’s the parenting conundrum.