In estate planning, many parents of young children set up testamentary trusts. The purpose of these trusts is to set parameters and controls around how children will receive assets if a parent passes away before the children become adults. A trustee is nominated, a distribution schedule is determined, and a date is set when the trust will terminate and, in most cases, any remaining funds will be distributed outright to the children.
What happens if the children are fully grown adults, but still are not financially responsible so as to be able to manage a large – or even a modest — inheritance? It happens. A lot. Sometimes the reasons drift toward issues related to drug and alcohol dependency. And sometimes, a child might have a strong inclination toward high-end snowboarding gear, Porsches, Eames chairs, Canlis, and plane tickets. What should a parent do if a child is now 25, 30, or 40 years old, but still has not gained the financial acumen to manage money?
One option is to revise the parent’s Will to adjust the terms of a testamentary trust so that it extends for a long period of time, potentially even the lifetime of the beneficiary. Under that scenario, the trustee will likely make bite size financial distributions to the beneficiary on an ongoing basis, annually, quarterly, or even monthly, so that the beneficiary cannot spend the entire amount in the trust. Additionally, it’s advisable to add “spendthrift” provisions into the trust, so that that the beneficiary’s creditors cannot reach trust assets. Further, if necessary, a trust can be written so that the trustee pays the beneficiary’s expenses directly rather than providing funds to the beneficiary with the hope that he or she will use those funds to pay the bills.
In these circumstances, it may be advisable to appoint a professional fiduciary to serve as a trustee rather than a sibling or family friend. The beneficiary may be angry that he or she will not receive an outright distribution, and that anger may make it difficult for a non-professional trustee to communicate with the beneficiary and impact the trustee’s ability to manage and distribute the trust assets.
Adult children are not the only family members who become angry. Parents often feel anger, frustration, and shame that their adult children lack financial discipline. Although they may feel isolated, rest assured, it is quite common. To avoid unpleasant surprises, it can be helpful if parents communicate clearly with their adult children that they will not receive assets outright when their parents pass. Perhaps the parents can communicate their expectations regarding the improvements in financial management that they’d like to see from their children. Maybe, if the children understand that they need to accomplish certain goals in order for the parents to work with their estate planning attorney to delete the trust from their Wills, then they will set out to meet those goals. Sometimes, with lots of patience and communication, parents might be pleasantly surprised to discover down the road that, indeed, their children have truly grown up.
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This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.