Homework should be done right after school. Multivitamins should be consumed daily. dinner is family time (translation: put away the electronics). These are sensible rules you have established for your loved ones that have helped promote health and harmony. So, does it make sense to put conditions in your estate plan?
In short, it depends. Read on to find out some of the ways people can effectively set guidelines in their plan to make it easier to get their wishes for their loved ones, as well as some mistakes you’ll want to avoid.
Conditions for exercising the function of representative
Being an executor or trustee is a big responsibility, so appointing people to these roles is an important decision in your estate planning. Parents usually nominate one or more of their children in the hope that they will rise to the occasion.
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That said, it’s also not uncommon for them to include certain conditions on a child’s appointment just to be safe. One of the most common conditions is that a child must reach a certain age before they can take on the role. For instance:
I name my child, Jane, as my executor; provided they have reached the age of 22. If they have not, I appoint my brother, Sally, as my executor, to serve until my child, Jane, reaches the age of 22, at which time I appoint my said child .
This makes sense for a number of reasons. First, the law generally requires your estate representatives to be legal adults, which in many states means 18 or older. Second, this condition is measurable. Third, it’s practical: it makes sense to want your child to be comfortable with managing money. They will need to make financial decisions regarding estate assets and may need to hire an advisor for assistance.
You can also change the condition above:
I appoint my child, Jane, co-trustee of the Jane Trust; provided they have reached the age of 22. If not, I appoint my sister, Sally, as sole trustee, to serve until my child, Jane, reaches the age of 22, at which time I appoint my child as co-Trustee. Thereafter, when my child, Jane, reaches the age of 35, I appoint said child as sole trustee of the Jane Trust.
This layout is a bit more complex, but it actually ticks the same boxes: you want your child to ultimately take control of their confidence, but recognize that they may need a little guidance before they are fully ready. to handle things on their own. . Assuming your child and sibling get along relatively well, your child could learn a lot from a trusted mentor, which would better prepare them to fly solo.
But what about this one:
I name my child, Jane, as my executor; provided they have completed at least one year of college with a GPA above 3.8. Otherwise, I name my brother, Sally, as my executor, to serve until my child, Jane, completes at least one year of college with a GPA above 3.8, at which time I name my child.
This is where it starts to get tricky. At first glance, these conditions seem logical. After all, you’ve told your child that college is important for their future.
But what if your child decides to attend trade school or join the military? Or what if your child attends college, but chooses a competitive school or a tough major, where it’s harder to get high grades? You may have taken your child out of the running for playing a significant role in managing your estate.
Conditions of receipt of goods
Many wills also want to establish ground rules about the purposes for which estate or trust assets can be used. What if your impressionable child immediately depletes their trust fund, only to wish they had the funds later in life to help with the down payment on a first home?
Distributions may be made to my child, Bob, for his health, education, maintenance and support.
The HEMS standard is actually one of the most common standards for trusted distributions. It is widely considered to be relatively clear, measurable and practical. So when the child beneficiary asks for funds for, say, a shoulder operation, the trustee is almost certain to comply. On the other hand, if they are applying for funds to upgrade their expensive new vehicle to a more expensive vintage drive, there is greater assurance that it will come under scrutiny.
Some will-makers may want to be extra careful to make sure the funds are there for emergencies. For instance:
Distributions can be made to my child, Bob, for his urgent health needs.
Unless your child is independently wealthy, you may be doing more harm than good by imposing such a restrictive standard. After all, there are probably a number of reasons your child could use the funds you’ve supported. Also, what if your child does not have urgent health needs for many years? Do you really intend to leave funds while your child goes through important life milestones, such as marriage or the birth of a child, without you contributing to those memories?
Finally, what about a trust with conditions such as:
Distributions can be made to my child, Luna, if he graduates from an Ivy League school.
Distributions can be made to my child, Borris, if he finds a job in finance.
Distributions can be made to my child, Katherine, after having their first child.
You probably guessed it: even though graduating from an Ivy League school, getting a job in finance, and having children are life events who deserve to be celebrated and supported, your recipient may not meet these requirements. What if Luna loves Boston College, Borris wants to be a doctor, or Katy becomes a mother-in-law to three loving children and decides not to have children of her own? Your conditions will then likely be perceived as punishing your recipients for being authentic themselves, rather than supporting them.
Focus on clear, measurable and practical guidelines
You have worked hard not only to acquire property and financial assets, but also to guide children or loved ones in making smart decisions. When the terms are complex or overly restrictive, it can make settling your estate longer and more costly, and lead to resentment that can take generations to resolve.
Establishing clear, measurable and practical guidelines in your estate plan can both protect your plan and your beneficiaries when you are gone.
This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).