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Money June 2018

Legal Ease

Reining in the ‘Spendthrift’ Kid’s Behavior While Still Receiving an Equitable Inheritance

By Jonathan J. David

You can include language that directs your trustee to divide the assets of the trust into equal shares among your children, with each of your “responsible” children receiving their respective shares outright and your “irresponsible” son having his share held back in trust on his behalf.

Dear Jonathan: I am a widower and I have four adult children. Three of my children are married and leading productive and responsible lives. My fourth child, my youngest son, unfortunately is very irresponsible, can’t hold a job and has no clue about handling money. Over the years I have given him so much money that if I wanted to, I could treat what I have given him as his inheritance. In fact, I have seriously considered not leaving him anything from my estate, however, after consulting with my other children they insisted that he be treated as an equal beneficiary. Begrudgingly, I have agreed to their request and I will divide my estate equally among all of my children.

However, I am concerned about my son receiving a large sum of money at one time, which is a concern I do not have with my other children. Can I distribute my three other children’s shares outright to them and hold back by son’s inheritance in trust? If so, do you have any recommendations as to how much I should hold back and for how long?

Jonathan says: Regarding your first question, when creating a trust, you can include language that directs your trustee to divide the assets of the trust into equal shares among your
children, with each of your “responsible” children receiving their respective shares outright and your “irresponsible” son having his share held back in trust on his behalf.

Regarding the trust established on behalf of your son, there are many different ways you can address the amount he is to receive and the timing of when he is to receive those distributions from his trust. For instance, you could indicate that he is to receive a certain dollar amount or percentage of the principal of the trust over a set period of time with the remaining balance being distributed to him when he reaches a certain age or when the value of the trust is reduced to a certain amount.

Another option is to provide him with a certain amount or percentage of the principal on an annual or monthly basis for life, with the balance being distributed upon his death to remainder beneficiaries of your choosing. You could also give the trustee discretion to distribute additional amounts from time to time as required by his life circumstances at that time. Further, the amounts to be distributed to your son can be tied to certain conditions such as his:

  • Having and maintaining a job.
  • Not having a drug, gambling or alcohol addiction.
  • Having a stable marriage, if he is married.
  • Not having creditor, insolvency or bankruptcy issues.

Those are just a few of the conditions that you can require a trustee to consider before making distributions to your son. Although this puts a lot of control in your trustee’s hands, giving the trustee the ability to hold back distributions in certain circumstances would serve to protect your son if he continues to lead an irresponsible lifestyle. If, on the other hand, you don’t want to give the trustee that type of discretion, then your focus should be on the dollar amounts or percentage of trust principal you would like your son to receive on a monthly or annual basis, what type of discretion you want to give your trustee, if any, in making distributions to your son and the period of time you want his inheritance held in trust.

I recommend that you meet with an estate planning attorney in your area who can explain to you in more detail how you can draft this trust for your son that would not only avoid your son receiving his entire inheritance at your death, but have it spread out over a period of time to  protect him from his own irresponsible behavior.

Good luck.

 

Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, PC, 1700 East Beltline, N.E., Grand Rapids, Michigan 49525.

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