My son and daughter-in-law are new parents. They're loving, but financially irresponsible. How can I safeguard my son's and my grandson's legacies from imprudent spending?
When an heir can't handle money, the classic solution is to leave it to a trust for his benefit. Trusts can be created in your will and unfunded until your death.
You choose the trustee and set the frequency of distributions and how the money is to be used — typically for its beneficiary's health, education, maintenance and support, says Gregg Weiss, a Manhattan estate lawyer. A trust can last for its beneficiary's lifetime or be distributed in installments over time.
The ideal trustee is sensitive to the beneficiary's needs, strong enough to withstand unreasonable demands, savvy enough to invest appropriately or to hire financial assistance, and young enough to outlive you. He or she should have some discretion to spend trust principal as well as interest, says Joseph Bollhofer, a St. James estate lawyer. "For example, if your son says 'I need a car to get to work,' the trustee should be able to say 'I'll give you $15,000 for a car,' or better yet, 'I'll buy the car.' "
If you don't specify a fee, the trustee is legally entitled to an annual commission based on a sliding scale. The commission is $4,200 per year on the first $400,000, gradually increasing to $6,900 on a $1 million trust, plus $3 per thousand on amounts above $1 million.
Choose a contemporary as your trustee if there are no younger candidates, and add successor later, advises Weiss. Also name at least one substitute trustee. "If your choice isn't available, the court is required to name a trustee. Family members often waive a fee, but someone appointed by the court will take the statutory commission."
The bottom line
If your heir can't handle money, consider leaving it in a trust for his or her benefit.
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