Estate Planning for Perfectionists and Social Engineers

By Robert J. Lord


The ordinary estate plan does what it is supposed to do. It provides for the distribution of wealth in a tax-efficient manner, taking into account planning for special needs, asset protection and perhaps divorce protection. Some people, however, like to take things a step further. Their attempts to achieve perfection and desired social objectives for their children have given rise to some interesting (and somewhat amusing) provisions in their estate plans. This article provides a few examples of those provisions. My purpose in writing this is not to suggest that you should incorporate such provisions in your own estate plan, but rather to provide food for thought and perhaps a chuckle or two. There is a fine line here between planning on the one hand, and obsessing, on the other. You’ll never achieve the perfect estate plan, but sometimes you can come a little closer to your goal.

“Fairness” Provisions. In most, but not all, estate plans, parents want to treat their children equally. Ordinarily, that simply means dividing their estate into equal shares when both parents have passed away. Some parents, however, question whether that is entirely fair. For example, if they die when Johnny is 23 years old and has completed his college education (funded by mom and dad, of course) and Susie is 18 and a senior in high school, is Susie getting cheated? After all, she will have to pay for her education out of her inheritance, while Johnny has already had his paid for. So what is a fair-minded perfectionist to do? The most common solution to this perceived problem is to hold the entire estate until all children are through college, making distributions only for the college and support expenses of the younger children. When the youngest child graduates, the remaining estate is split into equal shares.

The thinking does not always stop there. For example, what if one daughter’s wedding has been paid for and the other’s has not at the time both parents die? The thinking can even go the other way – that the older child is being treated unfairly. For example, suppose Johnny and Susie each inherit $1 million when Johnny is 35 and Susie is 30. If Susie then invests her inheritance for five years, she will have perhaps $1,500,000 when she turns 35, whereas Johnny only had $1 million. Believe it or not, I have had clients actually take this into account. In simple terms, they reduced Susie’s share so it would grow to equal Johnny’s share by the time she reached age 35. This is an area where the fine line between planning and obsession perhaps has been crossed.

Obviously, you do not want to over-think this issue, but there may be circumstances where equal shares of an estate are not necessarily equivalent treatment of children. But do not obsess here. It is impossible to achieve perfection.

“Anti-Laziness” Provisions. Many people are concerned that the receipt of an inheritance by a child will destroy that child’s ambition. Indeed, charities prey on this fear in people. In some cases, they convince them to leave all or substantially all their wealth to charity in order to avoid destroying their children.

Some parents are not that gullible, but they do fear the effect a large inheritance might have on their children, so they create mechanisms to make sure that their children do not rely on their inheritance as a means of avoiding hard work. My favorite provision in this area is elegant in its simplicity, although perhaps somewhat narrow-minded. My client provided that each child would have an equal share of his trust, but that the distribution paid to each child in any year would be limited to the income that child earned himself or herself. In other words, the more you work, the more you get. Of course, this mechanism may unfairly penalize a child who chooses a lower paying career, such as teaching, but it certainly does discourage laziness. I am not sure I would include such a provision in my own trust, but I do applaud the creativity.

The “Don’t Let My Siblings Cheat My Kids” Provision. This is one of my favorites. Here is the situation: My client wants to make sure his elderly parent is provided for in the event he dies prematurely. But he also wants to make sure his siblings contribute their fair shares to mom’s cause, so that his kids’ ultimate inheritance is not depleted any more than is appropriate. So, he establishes a trust for his mom’s health, support and maintenance after his death. That, by itself, is not the least bit unusual. Included in the trust, however, is a provision which conditions any distributions from the trust on equal contributions being made by his siblings to mom’s cause. So, if bro and sis don’t kick in their fair shares, mom doesn’t eat. Clever, huh?

Conclusion. There are numerous other concerns that I have seen addressed through unusual estate plan provisions – divorce, education of grandchildren, hurt feelings over selection of trustees. Although you may conclude that these concerns are better left unaddressed in your estate plan, they’re worth a passing thought.



This article contains only general information and is not to be relied on as legal advice. For advice on your individual situation, consult a lawyer in your jurisdiction. No attorney/client relationship arises from use of this article.



 
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