When we finally decide to sit and write down our wishes regarding the distribution of our assets, the first question that we ask is “how?” If we are married, our natural inclination is to direct that all our assets will go to our spouse upon our passing. However, if we have children from a prior marriage, we also need to determine if we should provide for them in addition to our current spouse. A variety of decisions need to be made when writing the script of our estate plan.
Most individuals believe that all we need is a Will. After all, this is what Hollywood taught us: all the family members gather for the reading of the Will in the lawyer’s office, sitting in oversized chairs, amidst dark wood paneling with shelves filled with old law books. Unfortunately, this is far from the truth. There is no reading of the Will. Most importantly, the most crucial estate planning document you may need might not even be a Will, but rather a Trust.
A Trust provides for an orderly distribution of assets. The administration of a Trust is a private matter. It does not require opening a probate case or estate administration proceeding in Probate Court. All actions filed in Probate Court are public documents which would be open to inspection by anyone. Detailed information of assets of the estate, including fair market values, and distributions to beneficiaries (with names and addresses) are easily discoverable in the court documents. In contrast, a Trust does not need to be filed anywhere. The terms and distributions of a Trust are known only to the trustee and beneficiaries.
When making estate planning decisions, we need to ask ourselves hard questions about our personal wishes and the make-up of our beneficiaries:
- If we are in a second or subsequent marriage, do we direct that all our assets pass on to our surviving spouse or do we allocate a portion to our children of a prior marriage?
- Should our beneficiaries receive their inheritance outright or through a period of time under stated conditions? We may not be too inclined to direct an outright distribution to a beneficiary if it is known that our child is (i) suffering from any debilitating physical, mental, emotional or other condition that might adversely affect his or her ability to manage, invest and conserve property of the value that would be distributed to him or her, (ii) is at such time, or previously has been, a substantial user of or addicted to a substance the use of which might adversely affect such child’s ability to manage, invest and conserve property, (iii) has demonstrated financial instability and/or an inability to manage, invest and conserve his or her property, (iv) is going through a period of emotional, marital or other stress that might affect his or her ability to manage, invest and conserve property, and/or (v) is or has been under the influence of one or more individuals or organizations who or which in the opinion of the trustee may successfully endeavor to induce him or her to part with such property. These are facts we need to weigh in order to determine if it is in the best interest of our beneficiaries to receive a potentially substantial amount of money. Or would they be better served if their inheritance is distributed to them in accordance with the trustee’s discretion, depending on circumstances then existing at the time of distribution.
- Should we direct that our children receive inheritance in equal shares even if we are fully aware that one may need financial assistance while one may not? One child is a brain surgeon while the other is living paycheck to paycheck. The emotional issue at play may be, whether we are penalizing the child who did good for himself or herself, and rewarding the child who may not have applied himself or herself although getting the same opportunities as his or her siblings. Does it reflect a lesser love and affection when we allocate a lesser percentage to one child who may need more financial assistance over another child?
These are just some questions to ask ourselves when we are deciding on the amount and manner of the distribution of our estate. There is no right or wrong answer. It is personal to each one of us and the most important thing is to do something. Now.
Eileen R. Bower is a member of Crabbe, Brown & James’ estate planning, probate, and tax team. She assists clients of all sizes and net worth to address and plan for the challenges relating to transfers of wealth and estate planning. She helps individuals, traditional and non-traditional families, and businesses navigate complex issues of tax, probate, and trusts.