Many parents purchase life insurance, sign a will, or prepare a trust to ensure the well-being of their children. The majority of life insurance proceeds are left outright to children and other beneficiaries without a single word of instruction. This kind of planning is a travesty.
Minor children cannot own property. Leaving life insurance proceeds or any other kind of property to minors is futile. Doing so leaves it directly to the probate court, under whose direction it will stay for each year that each child remains a minor.
So what do most parents intend for their children when they begin planning?
Most would like money and property to pass to their children with a few instructions and perhaps some guidance. Although most love their children equally, they care for them in terms of their needs. When preparing an estate plan, many clients continue to have the same goal: to ensure that children receive what they need when they need it. Too many wills and trusts provide little guidance for guardians who may be caring for those minors upon the parents’ death.
However, the clients can still accomplish their goals by creating a Common Trust for all their children as part of the estate plan. A Common trust enables children to receive whatever they need for their health, maintenance, and education until all of them are adults.
When that time comes, whatever is left can be divided equally among each of the children.
If there is a significant spread in the children’s ages and the client is concerned that adult children will have to wait too long for their inheritance, they can instruct their trustee to advance money to the mature children, as long as the disbursements are not harmful to the basic well-being of the younger siblings.
They can even stipulate that these advances are to be treated like interest-free loans. In this way, when the youngest child reaches adulthood, all of the children’s shares will be more equal.
Even after the children reach adulthood and the Common Trust ends, clients can still control the property for the protection of their loved ones. They could divide the remaining inheritance into shares that are placed into separate trusts for each child. The instructions for each separate trust can be as varied as the client would like. The only limit to these instructions is the client’s imagination.
Different children often require different planning; and all children need some planning. The client can stipulate that their children are to receive their inheritances at different times or at different ages. They can also determine how they will receive their funds.
Unfortunately, most people don’t plan for their adult children; they just give them their inheritances outright. This very natural choice can be a tragic mistake. Parents may say, “I don’t want to attach strings,” or “I don’t want to control from the grave.”
However, if most children understood the protections that can be provided for their inheritance, those children would beg their parents to use separate trust planning! They would request a trust, not resent it, if just for the creditor protection opportunities alone!