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Judith A. Wright |
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Judith A. Wright |
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About Our Services |
Families with minor children should use trust planning or contingent beneficiaries on life insurance policies or retirement benefits without realizing the potential planning nightmare. Minor children, by law, are not permitted to inherit property or receive property by beneficiary designation. Therefore, if upon the death of a parent, a minor child receives a distribution, the court imposes a court directed guardianship over the proceeds which only lasts until the child’s eighteen birthday. This can result in a number of undesirable consequences. While the spouse is usually the “guardian of the person” of the children, the court may exercise its discretion to appoint a third party as the “guardian of the estate” Is it desirable that the surviving parent be dependent upon another party to dole out money for the care of the family? When a court sets up a guardianship for a minor beneficiary, it supervises the administration of the child’s assets through an annual accounting. Consequently, even when a spouse is named as the guardian of the estate for the children, the spouse must account to the court as to how the money is spent. This reduces family flexibility and adds to the cost of administration. The court’s jurisdiction over a minor ends upon the child becoming an adult at age eighteen. Few eighteen year olds are sufficiently mature to receive an inheritance. This may result in the “Red Ferrari Syndrome.” The money that has been carefully saved for college gets invested in a shiny new sports car. Rather than involving a court, a parent can create a trust for the benefit of the children and select the trustee. The trust will not end until the time the parent designates. Now the college savings will be used for the intended purpose. ______________________________________________________________________ equally to the children when both spouses are gone. Is that the best plan for the family? Should the cardiologist get the same distribution as his “special needs” brother? What if the children are four years apart in age? If distribution to the children occurs when one is age 18 and the other is 22, it is likely that the older child received help with post high school education while the younger child received none. If they inherit the same amount, the younger child will spend the inheritance on college expenses, while the older child, whose college was paid by the parents, is left with a windfall. A trust allows parents to create the plan that is right for their family and equitable to all beneficiaries. ______________________________________________________________________ Translation of No Plan: “Mom and Dad didn’t care.” family is that Dad and Mom did not care sufficiently about the family to create a plan. The children are left to untangle the legal web and are reminded at each step that their parents did not think they were worth the time to plan. ______________________________________________________________________ Passing property in trust to children and other beneficiaries provides them with creditor and failed marriage protection. remarriage and creditor protection for the surviving spouse. There are also significant benefits to passing property in trust to children and other beneficiaries rather than distributing the property outright. Property left to a child or other beneficiary in a correctly designated trust will be seen as owned by the trust rather than the individual beneficiary. The beneficiary may be a co-trustee of the trust, have the use of the trust assets and income to maintain lifestyle, and control the investment of the trust property, but the property will still be protected from the beneficiary’s creditors, including a failed marriage, or the creditors of your beneficiary’s spouse. It is always possible your beneficiaries may receive their gifts at just the wrong time in life. Forcing an outright distribution may only add to their troubles. ______________________________________________________________________ Property transferred in trust can protect a beneficiary from investment mistakes or the schemes of predators other beneficiaries, all in a single lump sum, that property may or may not be invested wisely depending on the choices the beneficiary makes. If the beneficiary is free to make decisions with respect to the entire amount left to the beneficiary, then one mistake could cost that beneficiary his or her entire inheritance. One way to avoid this difficulty is to leave property in trust, at least for a period of time, and then allow payouts to be made on an installment basis. That way only the portion of the property that is distributed free of trust would be lost because of a poor investment choice or because the beneficiary was scammed by an unscrupulous person. The property which remains in trust may have a Cotrustee to prevent this sort of tragedy from occurring. |
Estate Planning
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