By: Michelle L. Feinberg, Esq.
There is a common misconception by parents of young children that if their assets are not substantial enough to require estate tax planning the only documents they would need for a comprehensive estate plan would be a set of wills. A will of course is the back bone of any estate plan; and it would be here that the parents would designate a successor legal guardian for their minor children. While the nomination of a legal guardian is perhaps the most important decision to be made, special consideration should also be given as to how the assets will be managed for and distributed to the children after the death of the survivor of the parents. Without the implementation of a living trust, the parents are left with very few choices.
Barring any unusual circumstances, the customary goal for most estate planning clients in this situation would be to leave all of their assets to each other in the first instance, and when both spouses are gone, to have the assets pass to their children. While this objective can be reached if the estate plan consists solely of simple wills with such provisions, there are two important concerns that cannot be addressed with such a plan. The parents cannot divide the responsibilities of rearing their children and managing their assets for their children\'s benefit between two or more people; and they cannot postpone the ultimate distribution of their assets to their children beyond the age of majority.
We choose a successor legal guardian for his or her ability to raise our children in a home filled with love and compassion, using child rearing methods similar to our own. This person can be hard to find; and if we are fortunate to have someone that fits this job description, we may be pushing our luck to assume that he or she is also capable of managing our assets for the benefit of our children. If we do not have a separate trust instrument, however, in which we name a different person or professional as trustee, it will be the legal guardian\'s responsibility to control and distribute the assets. Even if our legal guardian has the business acumen to handle the finances, in most situations it is best to name a separate person for this role so that we have checks and balances. The legal guardian can then work with the trustee to make sure that the children\'s needs are met.
Upon attaining the age of majority, which in Massachusetts is eighteen years old, a child is entitled to receive all assets that have passed to him through his parents\' wills. The responsibility of the legal guardian then ends, and the child is on his own. Considering that the value of these assets might include, among other things, the proceeds from the sale of the family home, life insurance proceeds, bank accounts and securities, the child could be sitting on a very large sum of money. While some eighteen year olds might believe that they could handle such a situation quite easily, most parents would agree that this would not be the best set of circumstances. It could foster laziness and could cause some children to resist reaching their full potential. Some may decide not to continue on to finish their college education; others may forgo working; and certainly most would spend far less responsibly than we would prefer.
By executing a trust that is to receive the family assets upon the death of the surviving parent, the assets can be held in trust for the benefit of our children beyond the age of majority, to an age that we determine to be appropriate. The age at which the children should receive their shares outright and free of trust is a personal decision for the parents, but would typically be determined by considering the likely size of each child\'s share. The revocable nature of the trust lends flexibility as it enables the parents to make changes while they are alive, such as revising the age for final distribution to a later age, or even to extend the trust for the lifetime of the child if, for example, he develops a gambling or drinking habit or finds himself in a less than stable marriage, or has proven to be irresponsible with managing his own money. While the assets are in trust, the funds are available to the children in the discretion of the trustee. Parents may put language in the trust to give guidance to the trustee to let him know their intentions, such as which distributions might take priority.
Another important benefit of having the assets held in trust is that \"spendthrift\" language should be placed in the trust to ensure that while the trust continues, the assets would be protected not only from the child himself, but also from his creditors. There would also be some limited protection from the child\'s spouse. It makes it easier to say \"no\" to a spouse when you have a trustee to blame. If the marriage turns sour, during a divorce proceeding the probate judge could take into account the value of the trust beneficiary\'s share, but the assets themselves could not be reached by the court. Other marital assets might be allocated to the spouse, however, to offset the value of the trust share.
As illustrated above, even without estate tax planning language, a living trust can serve a crucial role in many estate plans. There are other varieties of trusts that can be implemented to address other needs, such as a special needs trust to provide for a disabled child without disqualifying for government aid. When meeting with your estate planning attorney, be sure to discuss any concerns you might have so that he or she can develop the appropriate estate plan to fit your goals.