A lot of estate planning material you see out there focuses on avoiding the big expenses – taxes and probate fees. But what makes me excited about estate planning is working with people who truly care about their family, and want to ensure their success long after they are gone. For these individuals, the money is only part of the picture; their real concern is the well-being of their children. What do I mean? Well, here are a few stories to illustrate.
No Lazy Bums Here – Avoid the Trust Fund Baby Syndrome
Bill and Cindy want to make sure that their children don’t use their inheritance as an excuse to quit working and laze around all day. They’ve worked hard to build their savings and want to make sure their children and grandchildren benefit from the experience of working, including contributing to the cost of their education. Solution: Bill and Cindy can take advantage of a Work Incentive Trust or a Financial Skills Trust to motivate their children to make wise use of their money. A Work Incentive Trust rewards savings and employment. A Financial Skills Trust rewards having a budget, spending less than you make, and avoiding debt. Read more about Work Incentive Trusts and Financial Skills Trusts here.
I’m Destroying Myself, Can You Help? – Don’t Feed the Addiction
Peter’s parents are worried about his drinking, and possible drug use. They want to make sure he has a place to stay and has his necessities covered, but they don’t want to Peter to control the funds since they’re worried he would not only waste the money, but also destroy himself in the process. Solution: Peter’s parents choose a close family member who knows Peter well to manage the funds. In addition to selecting a Financial Skills Trust, they have given the trustee the ability to require Peter to take a drug test. If Peter tests positive for using drugs, the trust can pay for Peter’s drug rehab program. Successful completion of the program would restore Peter’s ability to receive distributions. However, if he were to test positive again, the trust distributions would be severely restricted.
The Outlaw Inlaw – Keeping Your Money from the Evil In-Law to Whom Your Child Is Married
Jane and Dave look at their daughter’s marriage as a slow moving disaster that will one day result in divorce. They want to make sure that their daughter and her children will have all the advantages their estate can provide, and protect the funds from their son-in-law. Solution: Jane and Dave put their daughter’s inheritance in a Bloodline Protection Trust which sets their daughter up as trustee, and allows her to make distributions for her and the children’s needs. In the event of a divorce, her brother would immediately take over as trustee until the final judgment is entered, and the daughter would step back in as trustee. The beneficiaries are limited to Jane and Dave’s daughter and her children.
Special Needs Trusts: Enhancing Financial Position of Disabled Children
Charles has downs syndrome, and needs assistance with managing money, and has ongoing speech therapy through the county. In fact, the county is providing a number of services for which Charles’s parents are very grateful. His parents know that if Charles were to receive a large inheritance it would disqualify him from not only the minimal financial aid but also the very important county services. Solution: Charles’s parents created a Special Needs Trust and set up a close family member as the trustee. The funds are carefully managed so as to maintain Charles’s eligibility for the services he depends upon. Read more about special needs trusts here.
Yours Mine & Ours – Equally vs. Fairly, and Avoiding the Clash of the Clans
Bill’s child from his first marriage just graduated college and is excited about starting his first job. Bill’s children from his current wife are playing in the local Little League team, which Bill helps coach. Bill loves all his kids equally and wants to treat them fairly. The important thing is paying for college, since Bill and his current wife paid for his first son’s college expenses. Solution: Bill balanced his desire to have the estate divided into equal portions with a provision to set aside a substantial portion to cover college expenses for his other children. The set-aside account will be divided equally after the last child graduates. Read more about the challenges of planning for blended families here.
Protecting – Not Controlling
Frank is in a bad car accident, and finds himself in a major lawsuit, and at risk of losing everything, including the home and assets he just inherited from his parents. Solution: Fortunately, his parents created his own Asset Protection Trust which holds his inheritance for him, keeping lawsuits and creditors at bay. Despite losing the lawsuit, Frank is able to continue enjoying his inheritance. Read more about the Personal Asset Protection Trust here.
Originally published February 27, 2014, updated July 21, 2016