Originally posted on Market Watch — Published: Feb 16, 2018 8:47 a.m. ET
By Quentin Fottrell, Personal Finance Editor
The Moneyist – The ethics and etiquette of your financial affairs
I am in my 70s and have two children from a previous marriage of five years. One has a son and the other has two daughters.
My daughter is married and values material things far more important than financial security. She and her husband stay in debt, which has contributed to a horrible relationship for the past 15 years. I don’t know if it will last or not, especially when my granddaughter leaves home in just a few years.
More than likely, there will be some money left when my current husband and I are gone. Is there a way to assure that whatever she might be left would be protected from her wasting it away and instead, possibly contribute to her old age? We have individual wills but wondered if a trust of some sort or other type of document would be better?
What would be the best way to structure this for both of my children and grandchildren and also, my husband’s one family member that he wants to leave something to? My current husband and I have been together for the last 35 years and live in Texas.
Your question has two parts: Do you split your estate equally? And, how do you split your estate? The first one is easy: Yes. You want to leave your children something, but you don’t want to leave them with resentments and questions. You want to leave this world in a swift, graceful manner that leaves people with a good feeling — the inheritance equivalent of the triple-axel from the 2018 Winter Olympics: three equal, generously timed moves, and then you’re off the proverbial ice. Except in your case, for good.
As to your second question. I suggest an irrevocable trust, outlining ways in which your inheritance should be spent. This has two advantages. Your son has a financially responsible life, so he will be glad with any bequest and, I’m sure, will be heartened to know there is money set aside for home improvements or his children’s education. Your daughter, while not so fiscally responsible or astute, gets the same deal. Only in her case, you are protecting her from herself and protecting the interests of your granddaughter.
You don’t say what relationship your husband’s relative has to him, but if it’s not a sibling, you may consider leaving him/her a smaller amount than the money you leave the rest of your family. You may want to discuss the tax implications of such a trust with a financial adviser when you have decided on your stipulations and the amounts. You want to appoint someone who has no conflict of interest whether that person is a professional trustee — that is, a bank or trust company — or not. You need to depend on that person to act in a competent and trustworthy manner.
Comment from Fred O. Haiman, Haiman Hogue, PLLC
Another way to address this issue is for you and your husband to set up a family revocable living trust that contains a Heritage Trust within it. You set this up right now because the Family Living Trust remains revocable while you are alive, so you have complete authority to change, modify, alter or terminate it while you’re alive and legally competent. Upon the death of the first spouse, part of the trust will remain revocable while parts can become irrevocable – based on how you set it up. Upon the death of the second spouse, the trust breaks into Heritage Trusts for the children, which are completely irrevocable. You want it this way so that it can’t be changed, altered, modified or terminated after you’re gone. These Heritage Trusts allow you to protect your children against themselves and can address every single one of your concerns, plus concerns you might not even think of. It allows you to be as creative as you want to be in outlining exactly what you want. It allows you to pass on your morals, standards, values, etc.. It also has added protections against problems that can happen to the children – like bankruptcy, creditor attacks, lawsuits and divorce. It protects your estate from your children’s potential problems. You will need to hire a professional estate planning attorney to do this, but the money spent to put it together will far outweigh the cost and anxiety that comes with an inadequate plan or no plan at all. I often tell my clients that if you don’t do a plan, the government has one for you, and I can almost guarantee you’re not going to like it. Hope this helps, and God Bless.