A client, “Alec” discussed imposing a third party trustee on his son “Terrance’s” inheritance, while leaving his daughter in charge of her inheritance without imposing a gatekeeper of any kind. Alec worried that the substantial sum he was going to leave his son would be squandered without proper supervision.
“Tell me about Terrance,” I asked. “Why do you feel it necessary to have an independent trustee watch over his investment and distribution decisions?”
Alec sighed, frowned slightly, then began. “He takes a lot of risks. Extends credit, and it makes me nervous that he’ll leverage whatever he receives from my estate when I die.”
“Why does it make you nervous?”
“I never bought anything other than my house that I couldn’t pay cash for,” Alec said. “Cars. Vacations. You name it. I didn’t buy it unless I had money in the bank first.”
“And Terrance?” I asked. “He extends himself often?”
“Yes. He owns four different businesses and went deep in debt to finance the acquisition and expansion of each.”
“Has Terrance found success?”
“Oh for sure!” Alec responded. “His restaurants got Silver Spoon ratings and are always booked solid, his other businesses have done equally well.”
“So it’s not so much that he is irresponsible with money then, is it?” I challenged. “To me it just looks like Terrance has a much higher risk tolerance than you do.”
“Yes, I suppose that’s true,” Alec said. “I’m just worried that one day he won’t be so lucky and it crashes down on him.”
“Are you sure that you want to impose a gatekeeper on Terrance’s inheritance while his sister won’t have any obstacles to using her inheritance from you as she sees fit? Won’t that cause Terrance to wonder how you felt about him? Is that the last words you want to leave to him?”
These questions seemed to hit home. “I guess that’s not such a good idea,” Alec pondered. “But it still worries me that he could lose any inheritance I leave him to creditors or business disputes with his partners.”
“We can protect what you leave him by creating a testamentary trust inside of your estate plan. He could name a co-trustee if a problem arises who can act as an independent trustee, but that would only occur if Terrance becomes subject to a lawsuit or other money problem.”
“That sounds like a good idea, but will he understand it?”
“Yes, we could certainly explain how it works. He’s in total control unless an issue arises, at which point he would want the protections.” I said.
Alec seemed somewhat relieved. “I didn’t know that was even possible inside of an estate plan. But Terrance and I have never even discussed my net worth or how I plan to leave anything to him.”
“Do you think if he knew what you had that he’d have expectations of lifetime gifts or other handouts?” I asked.
“Probably not.” Alec said.
“Well, it might be time to have a serious discussion with Terrance,” I suggested. “He’s a successful man who seems to understand business. He’s certainly had lawyers help him with bank loans and negotiating leases. Why not give him the benefit of the doubt and have an adult conversation with him about your worries and expectations?”
Alec’s situation is an illustration of many different real life stories I’ve heard over the years. Using credit is much different today than it was a generation ago. It still carries great risk, and there are ways to protect your adult children from losing the inheritance you might leave them should a business decision go bad.
Nevertheless, when your adult children act responsibly, it makes sense to discuss your concerns with them. If you create an estate plan that helps protect them, my suggestion is to discuss what you did and why you decided to include certain provisions.
Communication is key. Hopefully if you open up, then your adult children will also open up about their own concerns. That conversation might even lead to even better ideas to consider. These are not easy discussions but the families that are so willing to engage usually have successful outcomes because the expectations are clear.
The Sheppard Law Firm has its main in Fort Myers and also in Naples by appointment.
© 2017 Craig R. Hersch. Originally published in the Sanibel Island Sun.
