March 28, 2015 • By Dennis Beaver
There is an odd quality about money, life and time. We spend so much energy earning money to have a decent life for ourselves and our families. Parents who are able, and who care, try to provide a good education for their children, so that they may have a better life.
And then, just blink, and that baby boy we brought home from the hospital is a young man of 30, and we are at his wedding. Blink once more as we stare into the twilight of our lives, having fewer years yet to live than we have lived to this time.
If good fortune and common sense smiled on us, we have something more than photographs and memories to pass along. But what if that good fortune came with a child or spouse who was unwilling or unable to properly manage money and stands to inherit — and squander — a significant amount. What then?
And so, a question haunts many families. “How can I protect my loved ones from themselves when I’m gone?”
For an answer, You and the Law turned to Hanford estate planning attorneys Bob Gin, and Linda Monje from Bakersfield. We read them the following emails from our Central California readers:
“She blew a $1 million in six months”
“After we were married, I learned that my wife inherited over a million dollars from her father years ago and blew it in six months, loaned to flaky family members or in bogus investments. She is a spendaholic with zero financial common sense and can’t say no to the leeches in her family,” Dean wrote.
“With an aggressive form of cancer, my days are numbered. Including my home and investment accounts, I have about $900,000 which I want to go to her and after her death, to her two children. But if given the chance, she will repeat history and wind up penniless. What can I do now, while I still have good mental clarity?”
Accomplished daughter/problem son dilemma
“We have two children,” Matt’s email began. “Our daughter is a successful private investigator in Dallas, but our son is a 35-year-old who has never had a steady job, lives at home, and is a prisoner of real or imagined chronic fatigue, Lyme disease or whatever the doctors think it is. All he does is focus on his health, and it is driving my wife and me crazy.
“Both in our mid 70s, and very much afraid that if we died in an auto accident, by just dividing what we have between the two, our son would be unable to manage his share of what could be a large inheritance unless somehow his ability of spending money were controlled. What can we do? What should we not do?”
A trust can protect all these people from poor choices
Gin and Monje both immediately stated “Yes, your readers can protect a spouse and children from themselves and others by establishing a trust that limits their access to the money.”
“These situations are far more common than most people would realize,” Gin observes, adding, “And by addressing these issues now, while parents are in relatively good mental and physical health, matters which could tear a family apart can be avoided.”
“Monje explained that the term, ‘Spendthrift Trust’ is often used to describe the legal device which accomplishes the goals your readers have outlined. They would create the trust by transferring their assets, including home and investment accounts — which we call the trust principal — to a Trustee who controls and manages this property for the beneficiary, such as Dean’s wife or the troubled son.”
“In a spendthrift trust, the beneficiary cannot access the trust principal. It is money placed beyond their direct control, and therefore, with few exceptions — such as child support payments or taxes — their creditors cannot get to it either.”
Selection of trustee and key language
Gin stresses that, “The trust must give the trustee absolute discretion to pay for the support, health, education and welfare of the beneficiary, and direct that upon death of the beneficiary, remaining assets would go to others. By providing the beneficiary any ability to dictate what should be paid, the trust principal at risk of being taken by creditors.”
“While a CPA or family attorney can serve as a trustee,” Monje notes, “often it is better to hire a State Licensed and Bonded Private Professional Fiduciary who manage these types of trusts, but steer clear from having one family member — especially a brother or sister — serve as the trustee.
“The pressure to release funds could be enormous, as well as the potential for violence,” she underscores.
We offer one more don’t: Don’t even dream of doing this complicated estate planning yourself.
Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.