Why Young Families Need An Estate Plan

Story written by Glen Goland at Portland BizJournal
I have the good fortune of being married to a woman who (A) has a sense of adventure, and (B) has a brother-in-law that works as a guide at a helicopter-skiing operation in the Chugach Mountains in Alaska.

The year before my first child was born, I headed north for a week of the best snowboarding in the world, with two conditions from my wife: I had to get life insurance and had to prepare our wills prior to leaving (I was practicing as an estate planning attorney at the time).
This article is about some of the considerations we went through when preparing documents to protect our children from themselves and from the outside world.
This discussion helps our clients understand the sort of conversations they may have when they meet with their estate planning attorneys, and I hope it may get you thinking along similar lines.

How to distribute your estate

If you are married, your estate documents will likely say something along the lines of, “I give everything to my spouse and/or a trust for his/her benefit.” The reasons why, and the details of these provisions, are a conversation for another day.
What I want to focus on is what the documents say after that — how things are distributed when neither parent is alive (or able) to manage the funds.
The plain vanilla way for children to receive assets from their parents is by an outright bequest. “I leave my estate to my children, in equal shares.”
This sort of “no strings attached” distribution is often suitable, so long as the beneficiary does not have debt issues, carry potential personal liability, abuse drugs, receive means-tested benefits from a government program for a disability, or come home to an upset spouse with a good divorce attorney.

Setting up a trust

If parents would like to protect their children’s inheritance from these sorts of factors, a common vehicle for doing so is a trust. In my case, the trust for our kids’ benefit will only come into being upon my death — and then, only if my wife has died before me. The terms of this trust are inside of my last will.

This sort of trust will hold assets separately for each child for as long as the parent decides — in our case, until each child reaches age 40. The trustee of these trusts will distribute assets to the children along the way.
The provisions that govern these distributions will usually start with standard “health, education, maintenance and support” but where they go from there is where a good estate planning attorney can be worth every last dime.
Distribution provisions are often used to incentivize: “Match W-2 earnings each year” or “distributions for purchase of a first home or to start a business,” or “Child receives X dollars upon completing bachelor’s degree and X dollars upon completing post-graduate work.”
The provisions can be made to protect: “If my child gets married, he or she must sign a pre-marital agreement which protects these trust assets,” or “Prior to distribution, child must meet with an advisor to develop a written financial plan for managing the assets,” or “If the trustee has reason to suspect the child is abusing drugs, funds may be paid to rehabilitation facility (and payments to the child cut-off if necessary.)”

Shielding assets from creditors and predators

The language in these provisions will vary, but the intent will be the same — to put a wall around the trust assets in an effort to shield the assets from creditors and predators.
Every state has its own laws that govern the administration of wills and trusts. The differences between Washington and Oregon are both tiny and enormous, for example. It is important that you meet with an attorney in your home state so that he or she can properly tailor a plan to your needs and wishes.
Two final notes on trusts: First, they only work if you trust the people managing them. If you decide to set up a trust, have a conversation with your attorney about the administration of such a trust and the selection of an appropriate trustee.
Second, trusts only apply to those assets which are appropriately titled and/or directed to the trust. This is one of the most commonly overlooked areas of planning for clients across the income and asset spectrum. Prepare a detailed asset schedule ahead of their meeting with the estate planning attorney, to ensure all assets are accounted for and appropriately dealt with.
Source: Portland BizJournal

Posted by: The Trust Advisor


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