Blame it on “The Circumstances”
Sometimes distributions in wills and trusts are not equal among children because . . . of the circumstances. For instance, let’s assume recent retirees from New York, Max and Gracie are worth collectively 1.8 million and they own their home here in South Carolina and a timeshare in New Hampshire. They have two daughters, Heather and Jasmine.
Heather is supported very well by her husband, Trevor, who is a plastic surgeon. Jack and Christy are their children. Trevor’s parents are wealthy and Trevor is an only child. Max and Gracie know that Heather does not need their money and that Jack and Christy will have all the privileges and educational advantage that money can buy.
Jasmine and her husband, Derek, struggle financially. Derek is a spendthrift. They live in a declining neighborhood. Fritz and Tina are their children. Max and Gracie are concerned Derek will waste Jasmine’s inheritance, and that Fritz and Tina will not have all the privileges and educational advantage that money can buy. They also want Jasmine and Derek to be able to move to a safer neighborhood.
What can Max and Gracie do? Max and Gracie can use revocable trusts to make it so they will not have probate in New Hampshire and only summary administration here. With or without Heather’s consent, they can dictate that upon the death of the survivor of them, $250,000 or 15% of the overall collective estate whichever amount is more shall be placed into an educational trust for Fritz’s benefit, and same amount in an educational trust for Tina’s benefit.
With all the rest, they can direct half into a trust for benefit of Jasmine, and half into a trust for the benefit of Heather. The remainder interest on Heather’s trust can be directed to go to Jasmine’s trust if she survives, or in default, to Jasmine’s children (or to their educational trusts) if they are under age 35 at the time. This favors Jasmine and her children to the detriment of Heather and her children, but under the circumstances, it is appropriate.
To guard Jasmine’s inheritance from Derek’s wasteful spending and possible “pillow-talk” re: access to the funds, Gracie and Max can make it so an independent trustee must act jointly with Jasmine on her trust and on the trusts for Fritz and Tina and that while entitled to all the income, principal distributions shall not exceed 5% per year unless medically necessary or to live in a safer community.
Aside from avoiding probate in New Hampshire and reducing legal and court fees here, what would this plan accomplish? It would:
Mark F. Winn, J.D., Master of Laws, LL.M. in Estate Planning, is a local tax, asset protection and estate planning attorney.