Last Thursday we discussed a variety of ways to address
clients' concerns regarding lifetime gifts made to their children. Issues such
as these stem from the clients’ common concern for treating
their beneficiaries equally. Another frequent sticking point when addressing
fairness in distributions is a client’s desire to leave bequests to
both their children and grandchildren. As clients begin to contemplate leaving
gifts to multiple generations, the complexity of achieving fairness multiplies.
One option
when choosing to include grandchildren in trust distributions is to provide
that each living grandchild receive a fixed sum prior to dividing the remaining
trust assets among the client’s children. This ensures that
the client treats each grandchild equally and that each child receives an equal
share of the remaining estate. Alternatively, some clients elect to divide
their entire trust estate equally between their children, but stipulate that
from each child's share a specific dollar amount or percentage is set aside in
trust for that child's offspring. While both of these methods ensure that each
grandchild receives an equal gift, the second method reduces the gift to each
of the client's children proportionate to that child's number of offspring.
The
second method for dividing the trust estate between the client's children and
grandchildren requires the trustee to establish an equal share for each of the
client's children as well as an additional equal share for the benefit of the
client’s grandchildren. The share for
the grandchildren is then subdivided, giving each individual grandchild in
equal sub share. As with the first option discussed, this method ensures that
every member of the same generation receives the same size gift but avoids making
a fixed denomination gift to grandchildren that can potentially overwhelm the
client's intention to provide for their children.
A third
method for making distributions that include grandchildren involves again
dividing the trust assets equally between the clients’ children and then holding each child's share in trust. The
terms of these trusts may vary, but a common choice is to provide that a
portion of the income from each child's trust is distributed to that child
automatically each year, while the remaining income and principal may be used
for the grandchild's needs subject to an ascertainable standard. Following the
death of the child, each of their offspring receives an equal share of any
assets that remain in the trust. This technique, while requiring more
substantial involvement from the trustee, allows the client to provide an
annual gift to their child while also providing for their grandchildren's
long-term needs.
As you
can see from these examples and as we have said before, distribution provisions
are limited only by the client's imagination and our ability to draft to those
desires. What is important to remember is that clients should not lose sight of
their planning goals in order to ensure fairness among their beneficiaries.
Engaging in the estate planning process and establishing a living trust serve
to provide structure, guidance, and peace of mind to the client and their loved
ones. When engaging in planning, clients should work with an experienced
professional who takes the time to understand their family situation and assist
them in creating documents that address the clients' wants and needs.
No comments:
Post a Comment
We welcome and appreciate your comments but remind you that while not all viewpoints are equally respectable, all people should be treated with respect. The authors do not actively moderate comments but reserve the right to remove comments that are offensive, derogatory, or contain spam.