Placing Conditions on Trust Distributions

[SunnyOne]

I'm establishing a trust that in the case of my demise, will leave my estate to my grandchild (currently a pre-teen)

If the worst comes to pass, it would be a huge windfall for a young person. I am choosing a trustee instead of her parent, since her parent is deceased and she lives with the other parent (my former son in law) and he is a spendthrift.

So the trust can go out to 30 or 35, but seems like she should receive some distributions if she goes to college and needs some funds.

Do you have a trust in which you have placed conditions on the distributions?

In the case of healthcare or educational expenses, does the trustee give the money direction to the school or provider? or to the young person? Thanks

 

[38Chevy454]

Just give the trustee the authority to disperse funds for medical, school related expenses, or some special one-time expense. Seems easy enough to me? The trustee will already have to oversee the trust portfolio, so give trustee flexibility as needed before the age related thresholds kick in.

 

[Bamaman]

Our wills were outdated, and my wife and I executed new mirror image wills two days ago.

We have a 35 year old daughter and she has 2 children--one of which we're raising. Her other children are 55 and 56 years old. We're very concerned about providing for our two grandchildren. A 55 year old daughter is an accountant and secondary executor.

We intend for our main residence to be sold and the funds held in trust 50/50 for the grandchildren until they're 27 and 30 years old (girl/boy respectively.) The trust allows for educational expenses and healthcare expenses to be paid out of the trust. Neither grandchild at 11 and 14 years appears to be fiscally responsible respective of their age. My wife and I were far more money oriented when we were young.

We want the grandkids to have a head start on life, but not to be rolling in the dough to where they don't take a positive direction in their personal and professional lives.

Another way for a family that's going to leave very substantial assets is to setup a Special Needs Trust. NOLO.com has a package that goes over that subject in detail. Special Needs Trusts (and all trusts) require a very strong trustee to maintain the trust, and make eligible payouts set forth in detail in the trust documentation.

 

[qt333]

I think trying to control behavior from the grave is futile. If you can’t give the money freely and without strings, don’t give it.

 

[Dash man]

I agree about not trying to control things from the grave. 529 plans can be set up for college. Set an age for the rest to be distributed and leave it at that. We chose to use a corporate trustee, Schwab, to handle our trust. Some things will be distributed by beneficiary designations.

 

[ncbill]

Just give the trustee the authority to disperse funds for medical, school related expenses, or some special one-time expense. Seems easy enough to me? The trustee will already have to oversee the trust portfolio, so give trustee flexibility as needed before the age related thresholds kick in.

Sounds like a standard HEMS trust.

https://smartasset.com/estate-planning/hems-trust

 

[SunnyOne]

It's not about control - it's about a young person just out of high school suddenly coming into a multi million dollar windfall.

Even the conventional wisdom of well known financial experts has publicized the potential issues with that. Warren Buffett has said of leaving money to kids : " enough money so that they would feel they could do anything, but not so much that they could do nothing."

I'm quite sure most of us now have a very different view of money and expenses than we did decades ago. Ok, point made lol.

Thank you Bamaman for giving me some ideas for structuring the trust or language in the trust.

 

[DrRoy]

The children of my brother-in-law received SS money when he died young. Two of them handled the $ fairly well, the youngest blew through it quickly. Even before that, when DW and I set up our revocable trust, and our sons were younger, we had the estate pay out in pieces until they were 30.

 

[Jerry1]

It's not about control - it's about a young person just out of high school suddenly coming into a multi million dollar windfall.

In structuring our Trust, I told my DW quite a few times that I'm not going to control from the grave. We have two grown daughters and they each get half. They're old enough now that whatever happens, happens. DD1 has the grandkids. If she doesn't put money away for their college, I can't help that.

For a teenager or even young adult (under 21), that doesn't apply IMHO. At the very least I would control some of the timing of the money being disbursed. However, in this situation, I would structure something. The HEMS Trust that ncbill mentioned seemed like a good starting point.

 

[marko]

I think trying to control behavior from the grave is futile. If you can’t give the money freely and without strings, don’t give it.

There's thousands of way-way-too-young trust funds kids now in their own graves because grandpa didn't consider the consequences and realities of a 22 year old waking up one morning to find $2MM in his bank account. Might as well have just given them a loaded gun.

Seen it first-hand.

To a certain degree, "mailbox money" aka a quarterly allowance until a mature age helps mitigate the risk of re-joining the deceased relatives too soon.

 

[Aerides]

Find a good trustee who aligns with your ideas. IE, post-18 timeline but wiggle room for emergencies, exceptions.

Going as late as 30 or 35 doesn't help that much - think back to 23 year old you, had you known you were coming into a bunch of money at 30.. would you have bothered with a career the same way? (I would most definitely have not.)

Sounds like a good investment for her would be your time, now, so she knows how to handle her financial future, whether you die when she's 18 or 48.

 

[Teacher Terry]

I totally agree with Marko. We had ours structured to pay out at different ages in the event we both died because we had taken out large amounts of life insurance.

 

[CaliKid]

In my opinion, having done this type of work for way too long, it's generally best to 1) select a HIGHLY trustworthy and smart/practical trustee (and backups) and 2) give that trustee discretion. Give them guidelines, outside of the trust, of what's important to you but it's best not to restrict or put guidance in the trust. Both can cause problems. Life happens and it rarely happens exactly as you think it will!

 

[SJhawkins]

Sounds like a HEMS trust to me, as someothers have noted.

Depending on the time frame/how long the trust may last I may concider a cooperate trustee. Dealing with a trust can be a PIA, would not wish that on anyone (been there done that). With any luck the OP will live long enough and will be able to give it outright.

A good book on the subject I thought was Beyond the Grave by Gerald M. Condon and Jeffrey L. Condon.

I think trust are oversold in many cases but the OP has a ligit concern. Keep it a simple HEMS trust with some decent discretion built in, example: kids car takes a dump, state the trust can buy xyz car outright. Some trustees will say get a loan and the trust will make the monthly payment etc. You can state how you want distributions paid out, directly to the school etc. Be clear in your wishes and give a end time for the thing to end, whatever you choose.

 

[ERD50]

In my opinion, having done this type of work for way too long, it's generally best to 1) select a HIGHLY trustworthy and smart/practical trustee (and backups) and 2) give that trustee discretion. Give them guidelines, outside of the trust, of what's important to you but it's best not to restrict or put guidance in the trust. Both can cause problems. Life happens and it rarely happens exactly as you think it will!

Good advice, but how does one go about that?

-ERD50

 

[pacergal]

We did have such provisions in our first trust when our two kids were younger. Trustee/guardian was my sibling, allowed to pay for as needed living expenses, college, etc. Then equal distribution at ages 25 and 35. I knew my sibling would raise our kids with similar ideology and teach them fiscal responsibility.

Recent updates to will, etc, changed to immediate distribution, as they are both in their 30's now. They turned out well and both very money wise.

 

[MarieIG]

Our wills were outdated, and my wife and I executed new mirror image wills two days ago.

We have a 35 year old daughter and she has 2 children--one of which we're raising. Her other children are 55 and 56 years old. We're very concerned about providing for our two grandchildren. A 55 year old daughter is an accountant and secondary executor.

We intend for our main residence to be sold and the funds held in trust 50/50 for the grandchildren until they're 27 and 30 years old (girl/boy respectively.) The trust allows for educational expenses and healthcare expenses to be paid out of the trust. Neither grandchild at 11 and 14 years appears to be fiscally responsible respective of their age. My wife and I were far more money oriented when we were young.

We want the grandkids to have a head start on life, but not to be rolling in the dough to where they don't take a positive direction in their personal and professional lives.

Another way for a family that's going to leave very substantial assets is to setup a Special Needs Trust. NOLO.com has a package that goes over that subject in detail. Special Needs Trusts (and all trusts) require a very strong trustee to maintain the trust, and make eligible payouts set forth in detail in the trust documentation.

I hope you left the oldest/ the accountant something to help her in retirement. Whether or not she "needs" it, it shows you were thinking of her.

 

[MarieIG]

There's thousands of way-way-too-young trust funds kids now in their own graves because grandpa didn't consider the consequences and realities of a 22 year old waking up one morning to find $2MM in his bank account. Might as well have just given them a loaded gun.

Seen it first-hand.

To a certain degree, "mailbox money" aka a quarterly allowance until a mature age helps mitigate the risk of re-joining the deceased relatives too soon.

Yep, I also saw it; age 18. Fast cars and up his nose.