If something happens to both me and my spouse, and we leave our money in a trust for our minor children, at what age should we allow our children to take control of the principal of the money held in the trust?
It is critical to give serious consideration to the age at which you want your minor (or adult) children to receive money under your will. A line said by George Clooney’s character Matt King in “The Descendants” was very resonant on this point: “You want to leave your kids enough money to do something, but not enough money to do nothing.”
This concept rings true when designating at what age you want your children to take control of their own money. You want to make sure that your children have been instilled with the appropriate financial and social values before bestowing on them large sums of money that could potentially derail them from pursuing a productive livelihood. You also want to ensure that they don’t needlessly squander the money, and that it remains preserved to provide them with security for when they really do need it.
You need to specify at what age your children will receive distributions of remaining principal if both spouses pass away. While the trustee usually has the discretion to distribute both income and principal for the health, education, maintenance, and support for the minors (a fairly broad standard), you need to state at which age the minor children will receive what is left.
One method is to allow for 100 percent of the remainder (or their share) at the age of 21, 25, 30, or 35. Another method is to allow for one third each at age 25, 30, and 35. Or, you can allow for one half at age 25 and the other half at 30 if the child graduates from an accredited college or graduate school, otherwise it will be at 30 and 35.
You can be creative in framing out your minors’ trust provisions in your will. Here are several techniques that can be incorporated for your particular situation and objectives:
• Giving your child a partial distribution at a certain age (i.e. 20 percent at age 25) with the balance to remain in trust until another milestone age, or for the child’s life. The child could become the trustee of the trust at a certain age or at achieving another milestone (i.e., graduating from college) or have the power to appoint or remove co-trustees). This technique could protect assets from the child’s creditors and spouses (or future ex-spouses), but allow your child access to the money.
• Gradually increase the percentage withdrawals to increase as your child’s age increases.
• Implement a “matching” program. For example, if your child earns $75,000, he receives a $75,000 distribution, or 50 percent of his gross earnings.
• Implement distributions for achieving educational milestones, such as distribution of 100 percent of the income and a portion of principal upon graduation from an accredited college; another distribution upon graduation from graduate school, etc.
• Implement distributions for achieving academic milestones such as the Dean’s List, maintaining a GPA above 3.0 or 3.5, etc.
• Implement special provisions in the event that the child becomes disabled so that he can maintain government benefits.
• Distributions to match charitable contributions or for medical expenses.
• Starting a business, purchasing a home, or funding a wedding.
• Naming a child as co-trustee at a certain point to ensure he understands the power of money and the importance of the role in managing it.
• Making a specified distribution contingent on community service or charitable work.
• Stipends if a child stays at home to raise his children or, alternatively, additional stipends if he returns to work so that he can subsidize child care.
• Making decreases in distributions upon the occurrence of certain events, such as substance abuse, arrests or criminal convictions, issuance of civil judgments, speeding tickets, expulsion from school, or other disciplinary actions.
As with all estate and other legal planning, you should carefully consider your objectives and review them with an attorney to ensure that the documents you implement will achieve your goals.
Alison Arden Besunder is the founding attorney of the Law Offices of Alison Arden Besunder P.C., where she assists new and not-so-new parents with their estate planning needs. Her firm assists clients in New York City, and Nassau and Suffolk Counties. You can find Besunder on Twitter @estatetrustplan and at www.besunderlaw.com.
