I have clients who are 100 years old, who just turned 18, who are wealthy, who are poor, who just got married, who just got divorced, who just started a business, and who just filed bankruptcy. You pick a category, and I have represented them. I can put them all in two groups. The first group has one objective – do it as cheaply as possible. The second group analyzes the potential risks, balances that risk with the expense and administrative hurdles of protecting from those risks, and comes to a reasoned determination of the level of protections that they wish to provide. It is my job to move clients from the first group to the second.
If you are comfortable with the risks that you are taking, then I am comfortable too. But you can’t decide how to plan unless you know what might go wrong. A simple and straightforward estate plan may be the right prescription for you. But a simple plan is a solution, not an objective.
Most new clients have not even considered the possibility of placing any protections around the assets that they will leave their beneficiaries. The first reaction to the concept of a Trust is often negative. They think Trusts are for rich people. They imagine that Trusts are expensive to create and maintain, that their children will have limited access to their inheritance, and that a bank trust officer will control their property. Many clients have said that if they leave their assets in trust, their children will think they don’t trust them. So they have never considered anything other than outright distributions.
I will not go through all of the possible benefits of leaving assets in trust. But Trusts are versatile tools that can accomplish all kinds of different things. You can choose how they are taxed, who makes decisions about trust assets, when the decision-maker is removed, who gets the benefits of Trusts, how long Trusts last, and what kind of protections they provide. You can create Trusts that protect your children from all kinds of potential problems and still leave them in control of the assets.
Unless you are leaving small amounts to competent, responsible adults, I believe that some type of Trust is usually a better option than outright distributions. There are three reasons to leave outright distributions. The first is that you do not believe that the risk of any of the potential problems happening to one of your beneficiaries justifies the extra administrative hassle of administering a Trust. The second is that you do not believe that the additional costs of setting up the Trust is justified by the level of risk. The third is that you don’t care if the money you worked for is lost or wasted. You can’t make those choices without evaluating the circumstances.
I can’t quantify the risk of your child getting divorced, filing bankruptcy, being sued, having a stroke, suffering a debilitating injury or being diagnosed with a life-threatening illness. But I have seen all of these things happen many times over 13 years of practicing law in a small town. Even if the chances of one of these problems negatively affecting one of your children may be low, the potential consequences could be severe.
Leaving assets to your children in trust doesn’t show that you don’t trust them. It shows that no matter how life treats them, their parents cared enough to make sure their inheritance was protected.