Dear Michael: We want to transfer our assets to our children and protect the assets from long-term care. However, one of our children has had a bit of a troubled history with a bankruptcy and two marriages with children from both. How can we be sure if we transfer assets to him these assets won’t be lost? He’s a good kid but seems to make bad decisions. We have three other children and they seem to be financially stable, make good decisions with their lives and with their money and we don’t want to penalize them for one child’s different attitude towards life. What should we do? – One Black and White Sheep.
Dear One Black and White: In a lot of ways, we are all black and white sheep. We all make decisions that have turned out good or turned out bad. How many times do you look back and say ‘I could kick myself for having made THAT decision!” None of us is snow white when it comes to decision making throughout our life.
However, some people do tend to like to live life on the edge more than others. It’s an addiction of sorts – to tempt fate and see if you can come out the other side looking great and having everyone say “Wow, I wish I had seen that coming the way you did – that was awesome!” By believing they can elevate their self-worth by living so close to the edge and making this dream come true, it becomes a lifestyle rather than a once-in-awhile decision.
Fate, however, tends to say ‘If you want to mess with me, the bull, sooner or later you’re going to get the horns.’ Occasionally, the risk-taker is rewarded, but sooner or later the fall off the edge takes away any and all advantages gained in the past – and sometimes even mortgages their future.
Trying to get someone to change from this lifestyle is like banging your head against the wall. They’ve made a decision about this lifestyle and until they see that this lifestyle puts everything at risk – or more likely – this lifestyle has cost them everything and they need to change – they will not change.
In your case, you will have to provide for this type of behavior in your estate plan – not as a punishment but as a protection for the child himself. I once had someone tell me that if he left his estate to his children – both drug addicts – that it would literally kill them. They would then have the money to pay for drugs in the quantity they wanted – with his estate – and with that much money, they would be dead within the year. The only thing keeping them both alive was they were too poor to pay for the drugs in the quantity and amount they desired.
As such, sometimes you have to do what’s best for the child’s situation – and that may be very different than what the child wants.
In this case, you’ll want to segment your estate into shares for each of the four children.
For the child with the issues, you’ll need to plan his share to be handled in a specific way via a trust for these assets in his name and managed by an independent trustee. Putting another child in charge of this trust would be child abuse to the trustee child – who wants to put up with the problems you’ve been putting up with your whole life? A bank trustee doesn’t care if the beneficiary comes and kicks on the door at one o’clock in the morning or calls at all hours of the day or night. It’s better to pay them eight or nine percent of the income than lose one hundred percent of the assets.
Then you can leave instructions in your trust – you design the trust, by the way – so it provides for your child. Perhaps such things as directly purchasing a home – still owned by the trust – but providing shelter to the child. Perhaps income paid out from the assets over a long, long period of time. You can even give the trustee certain reward bonuses – such as no DWI’s for five years – as a reason for the child to receive more. It’s up to you because you design the trust.
You decide what the child will need, provide it in the verbiage of your trust, and then sleep well knowing you’ve done your best.
The other children can receive their assets outright and maybe he’ll kick and scream about that, but you’ll be dead and deep inside he’ll know why you did what you did.
“Keeping the Family Farm in the Family”
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