Last week at the Observer & Eccentric Spring Senior Expo I spoke on estate planning. The following is one of the questions I received and I thought I would share it with you.
A gentleman and his wife approached me and explained their situation. They have three kids and a few years ago, their son died of cancer. At the time of his death he was married with two minor children. Since his death they have had a falling-out with their daughter-in-law and as a result, they no longer see their grandchildren. Their first question to me was whether they are obligated to leave anything to their daughter-in-law. The second question dealt with their grandchildren. Even though they no longer have a relationship with their grandchildren, they do want to leave them something but they don’t want their daughter-in-law to be involved. They asked me what would be the best way of accomplishing this.
With regard to their first question, my answer is absolutely not. You are under no obligation to leave anything to a daughter-in-law or son-in-law. In fact, what some people are surprised to hear is that you’re also not obligated to leave anything to a child. There is a very simple way to disinherit a child.
With regard to handling the grandchildren, after asking a variety of questions as to what they want their money used for, I told them the best way to proceed is to do a living trust. In a living trust they basically can retain control of their money, even after their death. In a living trust they can set forth the terms as to how and when the money is distributed to the grandchildren. In addition, they would name the trustee of the trust who would be in charge of the distribution of the money. Therefore, by using a living trust they would be able to direct money to their grandchildren without having to go through their daughter in law.
What I also told them was that in establishing the trust my general view is that they should leave a set dollar amount as opposed to leaving a percentage of the estate. My reasoning was that if you leave a percentage of the estate, you could run into valuation issues which could open the door for some disputes with the daughter-in-law, who is the guardian of the children. Therefore, to totally keep the daughter-in-law out of the affairs of the estate it’s best to leave a set dollar amount.
When I talk about valuation issues, questions come up as to how to value a house or collectibles or family heirlooms. In most situations this is not a problem; however, where there are family disputes it can be an issue and in the case at hand where there are already issues with the daughter-in-law, leaving the grandchildren a set dollar amount will reduce the chance of any dispute.
Living trusts are not for everyone; however, they are an effective estate planning tool for many people. It used to be the number one reason people did living trusts was to avoid estate taxes. However, now with the estate tax exemption at nearly 5½ million dollars per person, estate taxes for most people are no longer the primary issue. The primary benefit of a living trust is that assets within the trust avoid probate. Avoiding probate can not only save you a substantial amount of money but also keeps your affairs private and living trusts are also much more difficult to contest. Therefore, particularly in situations like the case at hand where there are disputes or when you want to make sure that your loved ones do not have to go through the probate process, a living trust is an excellent estate planning vehicle no matter what you net worth is.
Rick is a fee-only financial advisor. His website is www.bloomassetmanagement.com. If you would like Rick to respond to your questions, please email Rick at firstname.lastname@example.org