Jan L. Warner & Jan Collins
Question: All of our children are nice people, but three are responsible adults and the fourth can’t keep a nickel in his pocket. We thought he would mature when he married at age 33, but his wife is as bad as he is. My wife and I would like to treat all of our children alike, but we have nightmares thinking about him and his wife squandering his inheritance. We don’t want to hurt our son’s feelings, but want to make sure his share is doled out to him over time. We have IRA’s, a home, bank accounts, and some stocks. Are we wrong in our thinking?
Answer: Absolutely not. In fact, you will probably be doing your son and his wife a big favor if you do some extra planning to protect him against himself. Unless you and your wife have a taxable estate that will require more complex planning, you will leave all assets to her and vice versa. When the second of you dies, what’s left will be distributed to your children.
At the second death, you and your wife could divide the residue of your property into four equal shares, three of which would be distributed outright to your financially responsible children. The fourth share would be placed in a trust created under your will for your "fiscally challenged" child.
The trustee could be given the discretion -- but not the obligation -- to distribute income and, to a limited extent, principal, to your son upon certain conditions. For example, you might want to include language that requires your son to give copies of his tax returns and credit reports to the trustee so that, if your son is clearing up his debt, the trustee can provide additional benefits as incentives. Properly drafted, this type of trust should both allow your son to be rewarded when he deserves it and also prevent creditors from attaching the proceeds for his debts.
Decisions like this are difficult to make, mainly because your son will probably be hurt that he wasn’t treated like the other children. In order to try to head off family disputes after your death, you may want to discuss your concerns with your son now. And, you should choose a corporate trustee in lieu of your other children.
Next Week: How to use a special trust as beneficiary of your IRA’s in order to protect those assets from spendthrift beneficiaries.
Question: Because I plan to retire next year, my wife and I began the “estate planning” drills that we should have started years ago. We have read a couple of books to help us, but we’re still not sure what we want our lawyer to do.
Answer: The best starting place is for you and your wife to decide on your goals and then prioritize them. Some sample goals that can be “rated” in order of importance based on your situation include:
1) Avoiding estate taxes (if you and your wife will have taxable estates); 2) Avoiding probate costs (if you and your wife live in a state where the cost of probate is high); 3) Making sure children of prior marriages are not left out or, if you are in a second or later marriage, ensuring that the spouse does not receive what is intended for children; 4) Planning for the consequences of long-term care and disability (by buying disability or long-term care insurance) and making sure you have enough money to last over your life expectancies; 5) Making gifts to charities if you are so inclined; 6. Ensuring that a beneficiary who would otherwise inherit from you will receive nothing or a limited share; 7) Making provisions for a handicapped or disabled child or spouse through appropriate trusts; 8) Establishing a pattern of gifting to children or grandchildren during your lifetime; 9) Protecting beneficiaries from blowing their inheritance by doling it out over time; 10) Making sure your spouse is protected by use of an insurance trust or other source of income that will keep him or her comfortable if you die first; 11) Nominating guardians for minor or disabled children and, when appropriate, third party fiduciaries; 12) Avoiding family disputes over what you decide to do through penalty provisions in your wills and/or arbitration agreements.
Add to this list as you deem necessary, establish your goals, communicate them to your lawyer, and let him or her take it from there by preparing a plan for your approval.