ESTATE  PLANNING  -  DISTRIBUTIONS
 
 

Passing On Your Estate Without Spoiling Your Children or Other Heirs

Unfortunately, most people don’t consider the most appropriate way to transfer an estate to their heirs. In many instances, all of the heirs will end up better off if more serious thought is devoted to this matter, particularly where the heirs stand to inherit quite a bit of money. Remember also that your spouse or partner may become heir to your property. Are you confident that he or she will be able to handle your estate? In the case of a spouse, have you considered the implications of remarriage on the eventual transfer of the estate to your children? Of course, concerns about the way the children might handle a financial windfall are even more acute. Will a large inheritance prevent the children from pursuing meaningful employment or impair their self-esteem? Worse, will it encourage them to live irresponsibly as they dissipate the estate? If you’re concerned about any of these or other matters pertaining to the transfer of your estate to your heirs, there are a variety of estate-planning techniques that can address your concerns. For example, the use of trusts incorporated in your will can assure that your surviving spouse is taken care of and prevent any new spouse from diverting the estate from the original heirs.

Parents who suspect that their children might run up huge debts or waste their inheritances can also set what is known as a spendthrift trust for their heirs. Courts have held that the grantor of property to a trust has a right to protect the beneficiary against his or her own voluntary improvidence or financial misfortune. The theory behind such trusts is that the property that is to produce the beneficiary’s income is never his or her own; therefore neither the heir nor his or her creditors can squander it.
With a spendthrift trust, a trust is set up and furnished with income producing assets. The trustee, which may be a bank or other independent individual, is given discretion as to when, under what circumstances, and in what amounts to pay out the income. A provision could be incorporated that allows the trustee, if he or she is not satisfied that the beneficiary will be using the money for what the trust agreement and instructions have defined as normal living expenses, to withhold paying out any money at that time. If you want to consider a spendthrift trust for one or more of your heirs, be sure to check with an attorney who can advise you on how they can be structured and whether or not they are effective in the state in which you reside.

One common method that’s used to help prevent heirs from rapidly squandering an estate is to delay or prevent the outright transfer of wealth at death. You can create virtually unlimited flexibility in these matters. For example, parents can pay the estate out in installments rather than in one lump sum. One common technique is to pay out a third of the estate immediately, one-third five years hence, and one-third ten years hence. Another technique which is becoming increasingly popular applies to parents who want to encourage their children to work but who also desire to ensure their financial comfort can create incentive trusts designed to match or provide some multiple of the child’s salary. Such trusts can also be set up to pay out principal if a child accomplishes some personal or professional objective. But many estate planning attorneys, wisely in my opinion, discourage such incentive trusts because it is hard to manage your estate from the grave, which is essentially what these trusts attempt to do. For example, would you want to provide a greater reward to child who opts for a high-paying profession and provide relatively less money to a child who chooses a career in teaching or public service?

Here’s another example of an estate-planning strategy that can backfire. Some people, for whatever reason, are hell-bent on locking up their estates so that no foreseeable event jeopardize their estate – not the remarriage of a spouse, not a failed marriage of a child, not anything. I’ve known some people who’ve spent tens of thousands of dollars arranging their estate so
that a son-in-law or daughter-in-law would never have access to any of the money. If this is your wont, please first consider the complexity, the cost, and, ultimately the possible unfairness of structuring an estate that has no flexibility.

Whatever your plans, you should share your intentions with your children or other intended heirs, beginning when the children are young. Children in particular should understand what they stand to receive (if anything), where it will come from, and how to hold on to it. You may want to hold periodic family meetings at which time you discuss topics ranging from the current
status of family finances to family values with regard to spending. You may also want to give your children annual gifts and/or general living allowances that will encourage those who are approaching adulthood to manage and spend money responsibly. You can then also judge to what extent your children may be trusted with an inheritance that they can expect later on.

When all is said and done, sometimes the most unfair thing to do in passing on an estate is to treat each child identically. Rare is the family all of whose heirs are equally trustworthy with money and have identical needs. Sometimes, particularly with larger estates, it is best to transfer the estate to each child or other heirs in a different manner. For example, a professionally successful and stable child might receive an outright inheritance, while a near responsible sibling receives the inheritance in trust. Of course, all parents should try to avoid this latter situation entirely by setting a reasonable example of managing and preserving family wealth while their children are growing up. Nevertheless, even the best of intentions to raise financially responsible children does not guarantee financially responsible adults. So I repeat, attempting to treat each child
equally in estate distribution may end up being the most unfair way to distribute the estate.
 
 

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Spouse’s or Partner’s Name: ______________________________________
Date of Birth: __________________________________________________
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Assets and Liabilities
 
 

Life Insurance & Annuities
 

*How is Title Held:

H    =      Husband’s separate
CP   =     Community property
JT   =      Joint tenancy
W    =     Wife’s separate
RLT =     Revocable Living Trust
TC   =     Tenancy in Common
TE   =     Tenancy by Entirety