Legal Blog

Options to Consider                                                    

full-house-1024Picture that you’ve just met with your estate planning attorney and in the course of discussing the terms of your new Will, you’ve decided that it’s best to leave your children’s inheritance to them in trust.

Now, the hard part begins, as you need to decide how the trustee will distribute the assets of the trust to your children. Should all the assets be distributed to a child upon attaining a specific age? Or should a stipulated amount (a “stipend”) be distributed to a child each year? Or should distributions only be made in the discretion of the trustee?

Take a look at the article set forth below - it sets forth some of the options that are available for distributing the funds in trust to your children.

Did you watch Full House, the show that was on tv in the 80s and the 90s? If so, you might remember that Danny Tanner has three daughters, D.J., Stephanie and Michelle. Picture that Danny is my client and has just advised me that he wants the inheritance due to his daughters to be held in trust for their benefit.

Danny then asks me to suggest a plan for distributing the income and principal of the trusts, in the years to come, to D.J., Stephanie and Michelle. Here’s what I would state to Danny: 1. Designing a plan for distributing the income and principal of the trust is like deciding what to paint on a blank canvas - the choices are endless. 2. Nonetheless, you need to start somewhere. When I meet with my clients, here’s where I start:

When I meet with my clients, here’s where I start:

Option 1 - give D.J., Stephanie and Michelle the right to withdraw one-third of the funds in the trust at age 30; another third at the age of thirty-five, and the final third at age 40. If Danny prefers this option, it’s an indication that: 1. Danny believes that D.J., Stephanie and Michelle won’t be ready to receive their inheritance until they’re each thirty years old. 2. But, Danny thinks that it’s a good idea to stretch out time that each of his daughters will pay funds from the trust, as something could happen (i.e. a divorce, or a business failure) that would endanger a daughter’s ability to keep her inh

1. Danny believes that D.J., Stephanie and Michelle won’t be ready to receive their inheritance until they’re each thirty years old.

2. But, Danny thinks that it’s a good idea to stretch out time that each of his daughters will pay funds from the trust, as something could happen (i.e. a divorce, or a business failure) that would endanger a daughter’s ability to keep her inheritance. 3. For example, if D.J. receives one-third of her inheritance at 30, and then loses it at age 32 (as a result of a business failure), it’s not the end of the world, as the remainder of D.J.’s inheritance will paid to her at ages 35 and 40.

3. For example, if D.J. receives one-third of her inheritance at 30, and then loses it at age 32 (as a result of a business failure), it’s not the end of the world, as the remainder of D.J.’s inheritance will paid to her at ages 35 and 40.

Option 2 - give D.J., Stephanie and Michelle the right to withdraw an annual stipend from the trust each year, once they reach the age of thirty; and then provide each daughter with the right to withdraw the remainder of the funds in her trust at age 40. Danny may prefer this option as it provides each of her daughters with regular distributions from the trust; but, it postpones the date that D.J., Stephanie and Michelle will receive the bulk of their inheritance.

Here’s how Option 2 works:

1. The trust would be required to pay to Danny’s daughters an annual stipend (i.e.$50,000) each year, once they reach the age of 30.

2. When D.J., Stephanie and Michelle each turn 40, they’ll be allowed the amount remaining in the trust.

Option 2 tends to be more attractive than Option 1 for larger inheritances. For example, if D.J., Stephanie and Michelle are each due an inheritance of $1,500,000, Option 1 would allow them to withdraw $500,000 at 30 and $500,000 at 35. That’s a lot of money for D.J., Stephanie and Michelle to have in their thirties.

In contrast, Option 2 would only pay to D.J., Stephanie and Michelle a $50,000 stipend each year that each of them is in her thirties.

Option 3 - only allow distributions to be made from the trust in the discretion of the trustee. Parents who prefer this option believe that it’s better to wait for the future to unfold (instead of allowing their children to withdraw funds from the trust at a stipulated age) and permit the trustee to make distributions from the trust when it’s prudent to do so.

If you’re interested in leaving the inheritance to your children in trust and want to discuss how the funds in the trust will be distributed, feel free to give me a call.

ABOUT MAURICE OFFIT

Maurice Offit elevatorpitch_meetme moffit@offitkurman.com | 301.575.0308 Maurice Offit is an estate planning attorney, co-founder of Offit Kurman Attorneys at Law and a member of the firm’s Management Committee. Mr. Offit counsels a large number of clients who share an interest in minimizing estate taxes and asset protection from the claims of creditors.

You can also connect with Offit Kurman via Facebook, Twitter, Google+, YouTube, and LinkedIn.

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