The Pros and Cons of Inheritance Guidelines: Shelly Joyner, Associate Attorney

The Pros and Cons of Inheritance Guidelines: Shelly Joyner, Associate Attorney

One of the many great things about using a Revocable Living Trust for your estate planning instead of a traditional will is that you’re better able to restrict how and when money is given to beneficiaries. Some clients want to give direct, cash distributions to adult beneficiaries so that they can to do with it as they please. However, there are many circumstances where giving large sums to individuals is a terrible idea. Here are some of the most common examples:

  • Your adult child is disabled and receiving Social Security Income. Generally, if you give someone who is receiving government assistance a large sum of money, they could be disqualified from receiving those benefits. Supplemental Needs Trusts (sometimes called Special Needs Trusts) can be written as a standalone trust or as a “mini-trust” within your Revocable Living Trust. A Supplemental Needs Trust puts aside money for the benefit of the disabled individual, but that money is NOT in the beneficiary’s direct control. Therefore, the beneficiary gets the best of both worlds – continued public benefit support and private trust dollars to supplement their needs.
  • Your adult child has substance abuse and/or mental health issues. We serve clients who have children or loved ones they want to support but are worried about giving direct distributions. Sometimes, giving someone with substance abuse or mental health challenges a large sum of cash or other assets can result in that person doing severe harm to themselves. Trust provisions can be written with any combination of restrictions like: distributions only upon a series of clean drug tests, distributions only for direct payments by the trustee for rent and healthcare, small monthly distributions, or distributions only after age 65.
  • You want to fund multi-generational educational funds. Many clients want to create educational trusts within their Revocable Living Trusts. Higher education isn’t getting any cheaper, and clients often want to make sure that their children, grandchildren, and great-grandchildren have all of the support needed to pursue education after high school. A common trust provision might read like, “5% of my residual estate to my granddaughter, Sandra Day O’Connor, to provide for her education. The trustee shall pay all related expenses for her university or trade school at the trustee’s discretion. Upon her graduation from a university or trade school, or when she attains age 30, whichever occurs first, the trustee shall distribute the remainder of her share to her, outright.” This type of provision sets parameters that encourage Sandra to pursue some type of professional training while allowing for distribution at age 30 if schooling is not completed. 

However, sometimes creating too many complicated provisions can backfire. Not only is it a bad idea to leave instructions that are too complicated, but the law also actually prohibits it. A centuries old law called The Rule Against Perpetuities does not allow complicated provisions to last for too long. My law school Wills & Trusts professor explained it as preventing “too much control from beyond the grave.” Here are two of the most common examples of complicated provisions that can go wrong:

  • Specific restrictions on real estate. Restraint on Alienation is a legal term used to describe a clause within an estate plan or any conveyance of real property that tries to keep the new owner/beneficiary from being able to do what they want or need with the property. For example: a client once asked me to leave his homestead to his 2-year-old granddaughter with a restriction that it was to be held in trust by her father and could not be sold until she turned 21. At the outset, this sounds like a perfectly fine idea as it would preserve the homestead for his granddaughter, but it didn’t take into consideration possible decisions that would need to be made long before the granddaughter reached the age of 21.
    • What if the real estate market is doing great but headed for a downturn when she’s 20?
    • What if there are plans for a sewage treatment plant down the street and the value is about to permanently plummet? 
    • What if a commercial developer offers twice the value?
    • What if she gets accepted to Harvard at age 16 and they need the proceeds to pay for a move to Massachusetts?

In the end, we were able to honor his request that the homestead and its value be used only for the direct benefit of his granddaughter, but also gave the trustee decision making discretion should the need arise.

  • Failing to plan the remainder of an estate. Partnering reasonable inheritance stipulations with proper contingency planning is key to a successful estate plan. As mentioned above, a common provision in Revocable Living Trust planning is one that limits distributions to a beneficiary with substance abuse problems. There must be specific planning for a variety of contingent plans with this, or any, specific provisions. 

Neglecting to plan for the remainder of an estate will leave a trustee in limbo unsure of what direction to take. Here is an example of a provision that couples inheritance restrictions with a plan for the remainder of the estate should the beneficiary not meet the inheritance criteria. 

“The Trustee shall, in addition to direct payments for the beneficiary’s education, maintenance, health, and support, make distributions of $500 per month upon proof of a clean drug test from the beneficiary. However, if the beneficiary fails a drug test more than 6 months in a row, the trust shall terminate, and the entire remainder of my estate shall instead be distributed to the Drug Free America Foundation.”

You don’t need to figure all of this out before you start your estate plan. As estate planning professionals, our attorneys use their experience to help you sort out the happy medium between “letting it ride” and creating complicated provisions that are at high risk of failing. When you meet with one of our experienced estate planning attorneys, they will listen to your story and all of your concerns and wishes. They will use that information to create the perfect plan for you and your story. Comment below or email us with any contingency planning or beneficiary stipulation question you may have.

4 Comments
  • Sue Brittain
    Posted at 12:28h, 25 February Reply

    Excellent information!
    Thanks

    • admin
      Posted at 12:35h, 25 February Reply

      Glad you enjoyed this blog!

  • Sallie
    Posted at 21:53h, 01 March Reply

    Great insight! As I approach 30, it’s time I call an attorney to draw up a will.

    • admin
      Posted at 10:42h, 02 March Reply

      Hi Sallie! Glad you enjoyed! Would be happy to set a time for you talk 1:1 with Shelly. Just text 972-560-6288.

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