How To Protect Children In Estate Planning – Part ONE

Video Transcript

Ray Hrdlicka – Host – Attorneys.Media

Hi, this is Ray Hrdlicka, host of Attorneys.Media Legal Commentary Interviews.

Today we’re sitting with Andrew Dósa, an estate planning attorney in Tacoma, Washington, and Alameda County, California.

And we’re going to talk about a small section of estate planning, well, it’s not so small actually, that many of the people are a little bit reticent to address, and that is, how do you handle children in estate planning when you lay it out?

So, let’s just jump right in and ask Andrew, welcome, and tell us how you work with your clients in regards to their children, what questions you ask, and, you know, what are their responses at times?

Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA

Hey, Ray, well, let me begin by saying thank you for inviting me to join you today. And I will say, I believe this is the first time we’ve had an interview from my Washington office or my Washington home office. So, it’s kind of fun to be up a little bit north now while I’m answering questions about Washington law and, of course, California law.

So, I was thinking this is a great topic. I know that most people, once they get over the idea of dealing with their estate plan because of their own hesitation or anxieties about it or thoughts of what happens when they pass away or get disabled, the next venture or adventure is how do they deal with their children. And most of the time it’s not really a complicated matter. Most of the time it’s not too difficult. Most parents generally think in terms of doing an equal split between their children. And I’ll just give an example. Well, I’ll come back to the example in just a second. And that’s pretty straightforward.

What if you have children that are managing life differently? And that’s not necessarily that they’re managing it poorly, but what if their situation is different? So let me give you an example of a client that I had. They had four children. The first two were doing very, very well financially, successfully, and in life. One was a doctor who had gotten a reputation for his excellence, and so he was in demand, and he was doing well financially. And then the second son had decided that he wanted to be a pilot, but the best way to do that was to have somebody pay for his flight lessons and his training. And so, he went into the military. So, when he came out, he was in a position to get a great job flying commercial airlines and flying passengers rather than packages. So, they were both really doing well.

The parents had done well in terms of how they loved all their four kids. The kids got along well. So maybe it was partly the parents doing well and partly just that the kids got along well. But what about those other two? Well, they were not difficult kids. They were just in a different place. One was inspired to be a teacher. And so she did really well, was excellent as a teacher, but did not make a lot of money. And then the fourth was the artist in the family. And he was an exceptional talent, but really never made much money. But he couldn’t step away from the idea of committing himself to perfecting his craft and dedicating his life to the art that he felt he ought to do.

So, the benefit for the parents when they were addressing it was the response of the first two. I said, you get to decide whether your children like the idea or not. But there may be a way that you can make certain that there aren’t conflicts. Talk to the first two, find out what they’re thinking, and then talk to the second two. And if the first two, the first and second born, aren’t really having problems and are very happy to be the big brothers for the third and the fourth children, maybe they’re not going to care too much about getting a part of the distribution from your estate. They know they’re the beneficiaries of your love over the years.

But talk to them and what came out of it was the first two said, we’re doing fine, but our brother and sister need the support and the finances you can give them. It will just be wonderful. They won’t have to have the financial stresses that they have now, and they can be completely free to go about doing the things that they want. That was easy. The distribution plan between all four of them equally would have been not the best for the family, wouldn’t have been best for the two that needed it more than the other two who were responsible, but thoughtful and loving and said, we don’t need to do it equally. So those parents decided to give almost all of what they had to child three and child four, and then a little bit to the first two, and then mostly had a little bit of a fallback plan for the grandkids.

So that’s a solution that you can find when it’s an unequal distribution and it’s not because there’s a conflict in the family.

Ray Hrdlicka – Host – Attorneys.Media

I want to ask, is that like a fictional tale that people write in a book? Does that really happen?

Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA

Well, it happened once and I suspect that it could happen again. Okay. But you never really know.

And so, the other thing, the fallback position I have is that I tell parents, you have the power to decide what the distribution plan is. So if you have a child that’s struggling and you don’t want to give that child much because they’re irresponsible with money, I always pull them aside and say, hey, we’ve made this decision. We can’t give you as much. You know you struggle with money. We don’t want to give it to you, not because we don’t love you, but you will waste the money. And however they tactfully say that. I’ve had clients that have been in that situation.

So, what do you do if you want to share the blessings that you have as parents to a child that’s not doing well, whether they are really addicted or whether they’re just irresponsible, or whether they just struggle to get work and be functioning and stable in society? And there are a couple of things you can do. And one of those things is creating a trust inside your trust. So you may say, let’s suppose that there were three children, two were doing well, but the third was really struggling. And let’s suppose we just use numbers. Let’s suppose that there’s a 1,000,000 estate. You give one-third to the eldest, one-third to the second child, and you could put the one-third for the benefit of that third child into a trust.

And the key, of course, is finding the distribution plan and the monthly installments or the quarterly installments of a distribution for that child so that they will always have enough to have a room in a home or apartment or whatever, and you don’t have to worry about them struggling with managing the money and not paying the bills. There are two things you can do. You can give the money and have the trustee, the successor trustee, oversee that money management. You can give them, say, 2,000 a month, and you can have them come and show how they’ve spent the money. Or you can have the trustee actually pay the bills so that the rent is paid every month by this successor trustee, whether that’s the first or second born child or aunt, uncle, or some other trusted person. That way you know you’re still providing for a child that just is vulnerable with money, unwise or terrible with money. And you know they’re never going to be without at least some kind of foundation that allows them to manage well, even in the midst of the chaos or the struggle or the challenges that they experience.

Now let’s talk about a variation on the theme, if I may. Hold that thought. So, what happens if you have a child that’s on a disability and they are on public benefits? You can create what’s called a special needs trust. And the idea is that the trust is a fallback. Ultimately, the simplicity of it is you don’t give money so that the public benefits are lost. So all of that money that you’ve earned is lost. And then as soon as the child spends it all, then they go back on public assistance. It seems for most people, that’s just not the best way to go.

But the special needs trust is a fallback so that if there’s anything particular that comes up, or, say, the need to buy a car or something like that, that child will always be taken care of. And then there’s a minimal compromise of their right to get public benefits. And this goes beyond whether you like the idea of your children getting public benefits or whether you like the idea of our government having those government benefits. There is a reality of the world. And so, you just get past that, you know, that the government may be giving more to children or adults, adults that have vulnerabilities, and then they just become dependent on the gift.

But in any case, the point for you as a parent is that you can make sure that a child who is physically vulnerable because of disabilities, and it could be not just physical, it could be a mental disability, you can just make sure that they’re never going to be without when there’s a really, truly great and substantial need that’s not met by public benefits. Or even if there’s a need that comes up that exceeds their public benefits, you can worry about if there’s a loss of the money over time or a compromise of the benefits. You just know that your child is always going to be safe as long as there’s some money left in that special needs trust.

You had a question. I didn’t want to. I did. And the question goes to actually any situation that could be construed as contentious once the estate planning, once a person, the principal, is gone. Right. So, my question to you is, should that person tell their beneficiaries what is in the estate plan beforehand?

Well, the easy answer is it depends. But I generally like the idea of really just advising people what’s happening. And the reason why, I think, is because, let’s use this scenario. Let’s suppose that you are 55 and you tell your children, you have children that are late teens if you started late or in their 20s and they’re doing well or not doing very well. If you live another 10 years and you pass away early, your children have been told and they have to live with the fact that that’s what the plan is. And then the other thing I tell people is if you have children that are really struggling financially and can’t manage it, the one thing that protects your trust from some kind of true challenge by them is that they can’t afford to get an attorney. So they have all this time to get used to the plan that you’ve established, whether they like it or not, and they can live their lives accordingly.

If they are really difficult and really contentious or vindictive, or they hold a grudge and they will cut off connections with you, well, it’s easy. If they have been out of touch with you for 10 years and then you pass away, it would be terribly difficult for them to surmount a very powerful challenge to your trust on the basis that they were really close to you and you somehow got overwhelmed by the influences of others when there’s no evidence of them having any care or concern for you. So I’d say in that situation, which is not that common, you have some protections. They simply don’t have the money to. And if they’re that vindictive and they want to be out of your life because they’re that upset, well, you’re probably safer not having to run around trying to take care of them.

I know that as a parent, I’m very fortunate because I have been in relationship with both my kids. Both my kids will call me up and say hello because they just want to chat with Dad once in a while. And I think if they really needed me, they’d call me. If they need advice, they’d call me. But I know of a lot of family dynamics where that isn’t always happening. You can’t really do too much about it, whether it’s that the parents did something that was difficult for the children or the children just were difficult. It doesn’t really matter. It’s beyond the question of who’s at fault, who’s responsible. It’s just a reality.

So, the benefit that I can share with all people in creating a trust when I share this is that they can set a plan that they believe is the best way to give the blessings they’ve gained over their lifetime to those people they care about. And sometimes that may mean that you give to your family and friends who’ve been there for you over the years, and you give them something that you would otherwise give your children, but you really just feel the blessing to those friends. It’s a statement that’s worth making. And I’ve had a few situations where the clients gave much more to those friends than I thought would make sense, but that just means I did not appreciate the value of that friendship to them and the statement they wanted to make by the gift they gave.

Ray Hrdlicka – Host – Attorneys.Media

Right. I mean, you’re not privy to their years of friendship or the closeness of that friendship. Well, thank you very much. I appreciate your answer. We’re going to have you back again because a lot of things are going on in the estate planning world and the legal realm. It really is. So, thank you very much for joining us.