Where Do You Do Your Shopping?

Thomas M. Boles, 33
Director of Development

Hi again! When I opened the "store," after last month's article, I had many "customers" ask me about leaving an inheritance to adult children. I realized that this is a major question for many of our members; therefore, the following might trigger some ideas, if this subject is on your mind.

How and when do you want your adult children to inherit? You have many options for distribution of your children's inheritance once they are adults. One would be to give them the full amount immediately upon your death. But many parents prefer to give their children more than one opportunity to invest or to use their inheritance wisely (which doesn't always happen the first time around).

Here's one option. You could specify that, if your youngest child is age 25 or older when both you and your spouse die, each child would immediately receive one-third of his/her inheritance. One-third would be distributed five years later, and the final third in another five years.

As an alternative, you could specify a percentage at certain ages, but make sure you review your trust regularly. Otherwise, your children could have inheritance in one lump sum_defeating your intention of distributing it in installments. To prevent this, your trust can specify that if your children have passed these ages, the inheritance would then be payable to installments every so many years (like above).

Using graduation from college as a milestone can also present some potential problems. For example, how would you define "college"? Two-year, four-year, or trade school? And what if your son or daughter decides to pursue a career (music, dance, sculpture, etc.) for which a college degree may not be necessary?

Percentages are usually better than amounts, because you don't know what the trust assets will be at any specific time. Your attorney can provide you with some suggestions on how to best accomplish your objectives. Also, your friends may have some interesting ideas. Always remember that this is your plan_make sure you end up with something you want that also meets the needs and maturity of your children.

What if you have an irresponsible child? If you feel you have a child that is too irresponsible to receive outright control of his/her inheritance (or one who has a problem with drugs, alcohol, gambling, etc.), you can specify that the inheritance remain "in trust" for your child's lifetime or until he/she reaches a more mature age. The trustee will manage and invest the inheritance and provide for your child's needs. (This is an excellent situation for a corporate trustee.)

How about grandchildren? Grandparents can also set up a children's trust to leave assets to grandchildren. You don't have to set up a separate trust; the children's trust can be included in your living trust. You can be the trustee, and you will also need to name a backup trustee (perhaps one or both parents and/or a corporate trustee). The trust will continue until all of the children have reached the age(s) you want them to receive their inheritances. You can also specify how you want them to inherit, just as explained above. Whatever you do, don't leave anything directly to your minor grandchildren; you don't want to cause a probate guardianship. If the inheritance is substantial, you should be aware that a Generation Skipping Transfer Tax may be involved. If you are interested in this, please write me.

Since this subject becomes quite puzzling at times, I'll cover other situations next month, i.e. stepchildren, disabled or special-need children, and what happens if your heir predeceases you (per capita or per stirps). Which leaves our "ad" for this month to read: When you share; share with your mind; as well as your heart.