Last week, we talked about some of the considerations to think about when you are working on your estate plan. Honestly, until I did mine a decade ago, I didn’t really give a ton of thought regarding what it actually takes to make a good estate plan effective. What I mean by that are all the details and provisions that help to ensure exactly what I want to happen actually will happen. For me, having a trust in addition to all the other basic documents needed such as a will, power of attorney, advanced directive or POLST (Physician Orders for Life-Sustaining Treatment) was important because I simply have too many unknowns as it relates to my children. Because of their young ages, I couldn’t possibly know who is going to be good with money and who isn’t. Or who is going to be married two or three times. Which one might decide to fight the others in court over their share of the money? Who is the hard worker and who is lazy and may just want to live off of my assets and travel the world while they “find themselves”?
Sounds crazy right? Planning for the future divorce of a kid who was only 2 at the time I set up my trust? But the reality is about 40 to 50 percent of married couples in the United States divorce (Source: American Psychological Association). I have 3 kids, so mathematically it is a real possibility. So how do you plan for things that you don’t even know about yet? Well, here are a few of the provisions I used. While they might not apply to you, at least it may help you think of potential issues and things that you want to include in your plan.
• “Lineal descendants only” — This is a phrase in my trust that means only my actual descendants can benefit from the trust assets, more specifically, not their ex-spouses. You must be born of me in order to get the money.
• “Predecease Clause” — How do I ensure that my children won’t fight over the money when I’m gone? A predecease clause says that if any of my children contest my wishes, they are to be deemed to have predeceased me. In other words, they no longer exist and therefore effectively write themselves out of my estate.
• Spendthrift provisions — Have a kid who is terrible with money? Just in case I do some day, I gave my trustee the powers to limit what they can get money for and when. Need money for college? No problem. Want to buy a $100,000 sports car? Sorry kid, go get a job! Speaking of job, in order to get money from my trust, you must be employed full time or disabled under the definition of Social Security disability (a tough standard). My trustee has latitude in making decisions regarding those cases in situations such as a person being a stay-at-home parent to raise children etc.
• Distribution ages — While my kids have access to interest and a nominal amount of principal each year, they are allowed to get larger distributions at certain ages. I picked ages 25/35/45 with the theory that if you haven’t figured out how to be good with money by age 45, then you don’t deserve to have it, so go ahead and do what you want with it. If they are a danger to themselves (addiction, etc.), then they are not allowed to get any money at those ages. The same goes for if they are indebted to creditors. The last thing you want is to give money to someone who could end up having it hurt them by inheriting it. That defeats the whole purpose of protecting it in the first place.
As you can see, estate planning can really get complicated and is why I mentioned to be very careful about using simplistic online tools to create your plan. You want to find a specialist in that area of law. If you need a referral, send me an email or call, and I will be happy to point you in the right direction.
T. Eric Reich, CIMA, CFP, CLU, ChFC is president and founder of Reich Asset Management and can be reached at 609-486-5073 or firstname.lastname@example.org.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.