By Mark Winn
Contributor
“Trust but verify” is a practical, reality-based point of view on how to deal with foreign powers. Ronald Reagan made the statement well-known when he was describing the United States relationship with the Soviet Union back in the 80s. In essence, he was saying that we trust in the Soviet Union, but we require proof that our trust is not misplaced.
And so, it goes with estate planning. Let’s say you have directed your assets, once you and your spouse are gone, to go to your daughter “in trust.” You have given your daughter the role as trustee and beneficiary. The standard she has to follow in making distributions is for her needs related to health and maintenance in reasonable comfort and for her accustomed manner of living. You have also inserted a spendthrift clause which will serve to insulate the trust assets from attack in the event she is sued for anything from a car accident to divorce. Let’s further say that you have dictated that upon her passing, what is left will go to her children. You also direct that if her children are under age 30 when they inherit, that they will have their share held in trust until they attain age 30.
Now, you are confronted with the question: Who will serve as trustee for that grandchild? If you name the biological parent (the in-law) which we probably do in 90% of the cases where the issue applies, then it may be wise to consider naming a “trust protector” who will look over the biological parent’s shoulder, so to speak, or impose the obligation to report to someone else for purposes of accountability and oversight.
So, for example, if Darryl and Althea have one child named Francis. Francis has one child named George. Francis’s husband is Gerry. Darryl and Althea could state that if Francis passed, her share would go to George in trust for his health and education until he turns age 30. They could also direct that Gerry would be the trustee, but as trustee he would be obligated to report bi-annually to an independent third party of all receipts and disbursements from the trust, or to a sibling (uncle or aunt) if there was one.
Now, that is a situation of trusting Gerry but also wanting to verify his actions are faithful to the terms of the trust. Here, Darryl and Althea have chosen to trust Gerry in that unlikely circumstance, but they have also built into their plan a check against his authority. This check is oversight. Since Gerry needs to report bi-annually of all receipts to a third party, the odds are increased dramatically that George’s funds will be properly managed for his benefit. That’s good planning.
When there is no oversight, then power can become absolute. When power becomes absolute, there can be corruption. When planning your estate, the moral of the story is that you can trust your in-laws and you can trust their judgment, but it is wise to be realistic like Ronald Reagan was with the Soviet Union in the 80s.
Contributed by Mark F. Winn, J.D., LL.M. in Estate Planning, who is a local tax, asset protection and estate planning attorney.
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