In my previous blog, I discussed a situation I frequently encounter: the struggle many parents face trying to balance their desire to treat their children both equally and in the same manner with the recognition that this approach may not be in the best interests of some of their children, who would be better served if they were treated unequally, or at least differently, than their siblings.
I had a follow-up meeting last week with John and Mary, the clients discussed in my previous blog. When we last met, John had concluded that leaving a larger inheritance to his son Bruce, who had alcohol issues, would not be fair to Bruce’s two siblings even though Bruce’s need for support would probably be greater than his siblings’ due to his checkered job history and salary prospects. However, John was lukewarm to my suggestion that he have Bruce’s inheritance managed in trust for his benefit since this would treat him differently than his two siblings, to whom John and Mary were leaving their inheritance outright.
John had a change of heart at last week’s meeting. “I now accept the fact that Bruce needs more help than his siblings. Leaving his inheritance outright to him ducked this reality and was the easy way out. The trust approach makes sure that money that I worked very hard to accumulate will be there for Bruce’s support and treatment for the long term rather than being wasted by him. It also reduces the risk that Bruce will become a burden for his brother and sister later in life,” John said. “As a result, I have somewhat reluctantly come to the view that the best thing to do is to treat Bruce differently than his brother and sister and have Bruce’s inheritance managed in trust for his lifetime.”
Of course, a trust only is only as good as its trustees. At first, John wanted Bruce’s two siblings to serve as trustee. I suggested that this might strain Bruce’s relationship with them and be too burdensome a job for Bruce’s brother and sister to deal with on their own. I encouraged John to consider naming a professional trustee such as an attorney, accountant or bank trust department as either sole or co-trustee. John felt strongly that a family member should be involved and ultimately decided to name Bruce’s uncle, also his godfather, as co-trustee with a professional trustee, with John’s oldest daughter, Betty, his most responsible child and Bruce’s big sister, named as successor to his uncle.
I reminded John about the concerns he had expressed at our first meeting regarding the state of his son Bob’s marriage and asked if it might make sense to also have Bob’s inheritance managed in trust to help protect it from property claims that his spouse might make in a divorce. John agreed, although he reserved the right to change his mind at a later date and leave Bob’s inheritance outright to him if things improved. We structured the trust so that Bob was named as co-trustee with the same professional trustee that managed Bruce’s trust. I cautioned John that Bob’s authority as trustee would have to be limited in order to avoid having his trustee powers create adverse tax consequences for him; in particular, he would not be able to participate in trust distribution decisions. John thought the benefits of allowing Bob to participate as a trustee were worth the trade-offs involved.
As the meeting was drawing to a close, Mary asked whether they should consider a trust for their daughter Betty as well. “Betty is a very successful doctor and the child I worry about least in terms of her ability to handle her inheritance,” Mary said. “And I have no concerns about the stability of her marriage. But Betty always is worried about being sued, so maybe we should have her inheritance managed in trust in the same manner as Bob’s inheritance so that the trust can protect her inheritance from a future lawsuit.”
John had a smile on his face. “Our goal coming into last week’s meeting was to simplify our estate plan and leave our assets outright to our children. Now we are going in the opposite direction and for very different reasons for each of our kids. But it feels right to me based on where each of our kids is in life at this time. And we can always change it down the road.”
I left the meeting gratified that John and Mary had the ability to recognize their children’s different situations in life and the courage to deal with them. John and Mary’s trusts may not end as soon as they originally anticipated, but the end result will be a better, and more tailored, solution for everyone involved.