How To Safeguard Kids In Your Estate Plan
Video Transcript
Ray Hrdlicka – Host – Attorneys.Media
What is the biggest mistake that parents make when they’re, you know, in regards to their kids when they’re setting up estate planning?
Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA
I’m not sure that I know what would be the biggest mistake. I think generally when they’re setting up their estate plan and they’re creating a distribution plan, it’s almost always going to be that they don’t want their child to have their money fully when he or she turns 18.
I use this example, and it’s maybe my own myth about myself, but I believe if my parents had given me $1,000,000 and they both passed away and I was 18, I don’t think I would have wasted it. I would have spent about $300 and felt like it was an irresponsible act, and I would have gone and found a financial advisor or put it in an account somewhere and earned some money along the way. I wouldn’t have felt like I needed to waste it on friends and parties.
Ray Hrdlicka – Host – Attorneys.Media
Yeah, well, I’m not so sure that’s the norm.
Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA
I don’t think that is the norm. But anyway, I will say my sister’s even more responsible. She wouldn’t have wasted $200.
So, you know, sometimes kids come out of the womb and they’re unusual, like my sister and I are just a little bit odd. But the reality is the temptation is to spend it. When you have it, you don’t think about the responsibility that goes with it. And if you always think that you have more, then you always think you can spend it.
The classic example of the test truly is, if you have a credit card, you can start spending on your credit card and lose track completely of how much you spent unless you’re keeping track of it every day. Most of us don’t do that, so it’s the same kind of thing.
So the answer to being concerned about your children is creating a distribution plan that usually has an installment to it. If I have clients with young children, until they know what their children are like or they have an idea what their children are like, I say you probably have a child that saves everything and another child that doesn’t know how to keep $5.
I tell this joke: I have an uncle who walks into a room with $5, buys a couple drinks for people, and leaves with $10, right? There are just some people that manage to save money and keep their money and manage it really well, and others generally don’t.
And so if that’s true and you’re not really sure you want to take a chance and find out what your child is like, you can set up a distribution plan with installments. I have some clients that like ages 21, 25, and 30. I’ve had one client that wanted 25, 30, and 35 for the distribution of principal. In the interim, the trust would provide care so that interest earned on that money would be available for needs, and then the trustee identified at that time to care for the children would have the discretion to give more if there was a good reason.
It could be for schooling, maybe there’s a need for a car, or maybe the child has an entrepreneurial inclination and wants to start a business and it’s a wise investment. The trustee can give discretionary funds, a little bit more, but it’s based on whether it’s truly a wise distribution plan. Then the principal goes out in those installments.
That’s how parents like to do it for their children until they realize that their children are adults. Or as one parent said, “Well, look, if I’m gone and my child is 30 and he doesn’t know how to handle money, I’m not going to care anymore. I’m just not around anymore. I don’t have to see the massacre. Let him just spend it at 30.”
So you can plan out how you’d like to do it, but you have a clue about what your children are like, and so you set up a plan that makes sense for them.
Andrew Dósa – Estate Planning Attorney – Tacoma WA and Oakland, CA
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