ARTICLE -- Estate Planning - Family Values and Security for Your Children
When properly drawn and executed, certain estate planning measures can perpetuate family values and family security.
Authored by Paul Arslanian, Managing Partner, The Arslanian Law Firm PC
Parents and grandparents use trusts in estate planning for many reasons. The probate avoidance and estate tax benefits of trusts are significant and well documented. Properly drawn and implemented, however, a trust can perpetuate family values and family security, concerns which should outweigh by far all others. For those with young children and grandchildren, the most important reason for estate planning is to provide that the inheritance is held in trust until the beneficiary attains a specified age, such as 30. This better assures that the assets are not dissipated for the wrong reasons before that time. This article discusses two additional options you might consider for your children and grandchildren beneficiaries of any age, the incentive trust and the beneficiary-controlled trust.
You would implement an incentive trust in an effort to effect a beneficiary’s behavior. In order to encourage positive behavior, you may include language which reflects your values. You might instead establish binding guidelines for distribution or withholding of money to encourage positive behavior or to discourage sedentary or bad behavior. Examples include:
• A general statement about philosophies on family, faith or money
• Incentives relating to education and employment
• Incentives relating to community involvement
• Withholding of distributions based upon undesirable behavior, including drug use, gambling or other addictions
The incentive trust is not without potential disadvantages. Some feel best results with children and grandchildren are achieved when values are explained rather than imposed upon them. This can be accomplished with thoughtful language in the trust. Extreme circumstances, such as an able child’s pure unwillingness to be a productive member of society, might be addressed by binding language which directs the withholding of money. Except for such obvious circumstances, however, some argue that the uncertainties and complexities in life defy the chances that binding incentive trust provisions will achieve their intended purpose.
Whether or not the incentive trust will help you achieve your estate planning goals, the many issues it might address pose reason to consider less “aggressive” options. Once such option is the beneficiary-controlled trust. This trust allows your adult child to secure certain advantages of a trust without some of the commonly perceived disadvantages, such as control by third party individuals or institutional trustees.
Consider the trust which is distributed entirely when the child attains 30 years of age. Absent mental or physical disabilities of the child, the primary purpose of such a trust is to assure that a responsible individual or institution, as trustee, will invest and distribute the trust assets for the child until the child is likely to have the requisite knowledge. This should not be before the child is expected to appreciate the security offered by responsible investing and use of the inheritance.
Prior to attaining 30 years of age, the trust assets are likely protected from the claims of a creditor of a child, such as a divorcing spouse. If the child were to die before attaining 30 years of age, the assets may escape estate taxation, and they may pass to the child’s children or brothers and sisters rather than passing to the child’s spouse, or to non-family members.
If a trust can accomplish these important objectives, why is it terminated when the child attains age 30? Too often, it is because the beneficiary-controlled trust is not considered.
Rather than distributing the entire trust assets to your child when he or she is old enough to have control, the trust can provide that your child becomes the trustee at that time. The degree of creditor protection, tax cost or savings, and other attributes of the arrangement are determined by the terms of the trust and whether there is a co-trustee. In almost any form, however, this arrangement is likely to provide much more assurance that the assets are not available to a divorcing spouse, or other creditor of your child, and that the assets will pass in your bloodline upon the death of your child at any age. Particularly considering the flexibility and control your child may be given in a properly drawn beneficiary-controlled trust, it is often incorporated in an estate which is thoroughly planned.
Paul Arslanian is an estate planning attorney and managing partner of the law firm, The Arslanian Law Firm PC, based in Bloomfield Hills, Mich. Admitted to the State Bar of Michigan in 1985, Arslanian has extensive knowledge in the fields of estate planning, business and corporate law, tax planning, and probate and trust administration. Arslanian can be reached at paul@estateplans.com or (248) 540-7500.
