Anyone with children will tell you raising them comes with a unique set of challenges. Sometimes, no matter what you do, they just don’t seem to listen. Or, vices like gambling, drugs, alcoholism — even laziness — can cause them to behave recklessly. The adaptation of these bad habits can jeopardize all you’ve worked for, and even worse, further harm your child.
It can be hard to think about leaving your hard-earned money in unreliable hands. Luckily, you don’t have to. There are several options you can choose when creating your will to secure your wealth and take care of your children—without sacrificing one for the other.
Trusts and trustees
If you have dwindling confidence that your children can spend and save their inheritance responsibly, find someone who will. The best way to do this is through a trust, which acts as a safe zone for your assets. You can choose your own trustee, someone you know will handle your estate with a level head. This can be another family member, close friend, or a corporate trustee.
Personally, the corporate trustee is preferable due to the administrative obligations (accountings, tax returns, etc.) required of a trustee, and their professional investment and management skills. Plus, it doesn’t hurt that a corporate trustee will be fully insured for any mishandling or mismanagement of funds. If you prefer the professional approach but also want family involvement, then you can add a family member to serve as co-trustees or appoint a “family advisor” to assist the corporate trustee.
No matter who you choose, don’t take this task lightly; trustees are in charge of your finances once you’re gone, and that’s a big job. Make sure whoever you choose is capable, attentive, and most importantly, trustworthy.
Types of payments
You can customize your will depending on your family situation in a few different ways:
If you’d like your children to receive their inheritance, just not all at once, you have the option of setting up staged principal distributions. You can choose anywhere from an annual sum, or one every five to ten years (e.g. 20% at age 30, 30% at age 35 and the balance at 45). This makes life easier for your trustee, who will distribute the money, but with this option, they won’t have to delegate how it’s spent.
You can also buy an annuity agreement, which is a contract through your insurance company. They will set up a payment system for the amount and frequency of your choosing.
You don’t need to worry that your hard-earned cash or family fortune will be squandered by bad habits with an incentive trust. This is managed through a system of rewards. If your children do something good, such as graduate from college, get a promotion in a stable job, or even complete a drug rehabilitation program, they will receive a sum from their inheritance.
Many times we will require that a trust’s income distribution may not exceed a child’s W-2 earnings, unless that child is underemployed through a charity, a stay at home parent or has special needs. These techniques help insure that your child does not become a “trust baby.”
Conversely, if they continue to engage in dangerous or unhealthy lifestyles, they will receive nothing.
Due to the fact divorce is now common, many clients include a trust provision requiring the trustee to receive a signed prenuptial agreement before a child from a trust receives any distributions. Or, if the child is already married at the formation of the trust, then the trustee would require a binding agreement that a spouse of a child may not claim any interest or rights to trust assets for purposes of divorce, or spousal inheritance laws.
If you have a large fortune, implementing a dynasty trust will secure your assets for generations. A trustee will manage your assets and pay reasonable allowances to beneficiaries throughout their lifetimes. Dynasties are created to protect long-standing fortunes from wasteful habits, debtors, and estate taxes, which are exempt.
While unpleasant, it’s important to think about how your assets will be used once you’re gone. To learn more about how you can create a custom will that will work for you and your family, contact Stuart Boehning at 765-742-9066.
The content of this blog is intended to be general and informational in nature. It is advertising material and is not intended to be, nor is it, legal advice to or for any particular person, case, or circumstance. Each situation is different, and you should consult an attorney if you have any questions about your situation.