Dear Rick:
I have a situation that I hope you can help me with. I am a widow with two adult sons. Both my sons are married and are in their early 40s. I’m in my early 70s, and I am about to make changes to my estate plan. In my original estate plan I left everything to my two sons to divide equally. My problem is I do not get along with my youngest son’s wife. In so many words, I think she is a gold digger and she spends money like it’s going out of style. My son earns a good living; however, they are always in debt because of her spending. I have tried to talk to my son about this; however, he politely tells me it’s none of my business. I want to divide my estate equally, but I’m fearful that if my youngest son receives my inheritance, he and his wife would just blow the money. Before I sit down with my lawyer, I wanted to get your thoughts. What would you recommend with regards to my youngest son?

Thank you.
Lori

Dear Lori:
You may be surprised to hear this, but your issue is not uncommon. I see it a lot within families where one child is fiscally responsible while the other is not. There are a couple of different ways to look at this issue. The first is to say that he’s an adult and he has to be responsible for his own actions. Therefore, what many families do is to ignore the situation and treat them like they would any other child. On the other hand, many parents want to make sure their children are protected from themselves, and in those situations, probably the best way to handle this is through a trust.

In a trust you can provide that your son does not get his money in a lump-sum upon your death, but rather, it’s spread out over the rest of his life. In that way, he would not receive a large inheritance in one lump sum, and thus, it is less likely that he would blow the money.

One of the beauties of using a trust is that you set the terms. For example, you can provide that your son gets his share yearly based upon his life expectancy, or you can also provide that he gets the income from the trust, or you can leave the distribution in the discretion of the trustee. The bottom line is that you’re in total control of how and when the money is distributed.

The key in any trust is the trustee. The trustee is the one in charge of the trust. If you want your trust to provide for discretionary payments based upon need, the trustee would be the one who makes that decision. Therefore, selecting the correct trustee is extremely important.

In selecting a trustee you don’t have to use a professional, you can use family members such as your other son. However, before you would name your son as trustee, I would recommend that you discuss it with him. After all, if he is trustee of his brother’s trust it could create some difficulties. In addition, to a family member, there are also many professional trustees that you can use. Not only do most banks offer trustee services, but also many financial institutions like Fidelity or Schwab offer these services. Whoever you use as a trustee, it is important that you sit down and discuss exactly what you want from them. Remember, they are going to make decisions on your behalf when you are no longer around, and thus, it’s important that they have an idea as to what is important for you.

In selecting a trustee, if you decide to use a professional, the one thing that you definitely need to consider is cost. Some professional trustees have, as far as I’m concerned, excessive fees. Therefore, it is important to discuss fees with any potential trustee.

I recognize that it is difficult for parents not to treat their children equally with regards to an inheritance. However, I would suggest that you probably didn’t treat the kids equally when they were growing up. After all, if one child needed braces, you didn’t say you have to spend an equal amount of money on the other child. You treated each child according to their needs. I would suggest the same thing applies to an inheritance. If one child is not fiscally responsible to handle their inheritance, it is the right thing to try to protect that child from themselves. Therefore, parents should not feel guilty in treating children differently.

Obviously, treating all your children equally is the easiest thing to do. However, it may not be the smart thing to do. My recommendation for everyone when it comes to estate planning is not to necessarily do what’s easy, but to do the right thing to protect your family.

Good luck!

If you would like Rick to respond to your questions, please email Rick at rick@bloomassetmanagement.com.