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Dear Quentin,
Our estate is currently valued in the mid seven-figure range and would consist of three modest homes in two states — worth $2 million — and equities. We have two daughters, three grandchildren, wills and a trust. Upon our demise our daughters will both receive $500,000. When they are in their 30s, our grandchildren will get what’s left.
Prior to final disbursement to our grandchildren the corpus of the estate will provide for the education of our grandchildren, and income generated by the corpus will be distributed equally to our daughters, one of whom has significant depression and anxiety. These debilitating diseases means her employment is spotty, and she would be homeless if not for our ongoing episodic financial assistance. Her money-management skills are as you might expect.
“‘Our estate attorney advised, “Don’t name a financial institution as a trustee. They will only add expense without adding value.” We ignored this advice.’”
Our other daughter will be the executrix of our estate. We are concerned that the executrix will be pressured by our daughter who has mental-health issues to get more from our estate, a position we do not want her to be in. The estate attorney advised, “Don’t name a financial institution as a trustee. They will only add expense without adding value.” We ignored this advice and selected Vanguard as a trustee because we thought that might help the executrix rebuff pleas for more.
Is there a better solution? How can we protect daughter No. 2 from the potential demands of daughter No. 1? Is there any specific language we should use in the trust? We will be doing a mid-decade update to estate documents later this year.
Cautious Parents, Thinking of the Future
Dear Cautious Parents,
With the right planning, you can help ensure the financial stability of your daughters after you’re gone. You are in a fortunate position to make this happen.
You have trusted your instincts thus far, and it is paying off. Naming your daughter as executrix of the estate and as trustee would be putting a lot of pressure on her, could create resentment among your children, and could make that daughter a target for any misgivings your less financially stable daughter has with your wishes. You can’t please all of your children all the time, and it’s often impossible to divide and manage an estate in a way that will appease all parties. A corporate trustee will incur an additional, and not insignificant expense, but you have a large estate and the funds to ensure that it’s managed according to your wishes.
“Among the benefits of having a corporate trustee are that their fees often include services that individuals will pay other professionals to handle,” says Neil Carbone, partner at Farrell Fritz. “They don’t retire or die so there is continuity that an individual cannot provide; they are well-versed in the various duties involved in trust administration; and they have procedures in place to deal with investment management and requests for distributions. A corporate trustee will never have to worry about seeing the beneficiary at Thanksgiving dinner after having denied the beneficiary’s request for a discretionary distribution.”
“‘A corporate trustee will never have to worry about seeing the beneficiary at Thanksgiving dinner after having denied the beneficiary’s request for a discretionary distribution.’”
In addition to the lower expense with an individual trustee, Carbone adds, “there are no investment or distribution committees to deal with so decisions can be made more quickly, and individuals who are members of (or friends of) the family may have a closer connection to the beneficiary and therefore may be more sympathetic to requests for distributions. Serving as a trustee, however, involves real work, real fiduciary duties, and real potential for liability, and individuals with no prior experience may not be well-equipped to serve effectively.”
Establishing a trust allows you to think ahead to the next generation and, as you say, provide for your grandchildren. Think of providing an income for your daughter, if you believe that she could find managing a large sum of money stressful or, indeed, if you believe she could be vulnerable to being taken advantage of by others. As this gentleman painfully attests, it’s all too easy to let someone into your life who sees dollar signs and regards another person’s mental health struggles as an opportunity to help themselves to their life savings.
Finally, you may wish to consider including guidance in the trust agreement to help the trustee decide how to make or withhold distributions, Carbone adds. For instance, you could instruct the trustee, he says, to “make distributions to purchase a home, to start a business, provided that the beneficiary is gainfully employed, etc., [and to] withhold distributions if the beneficiary has addiction problems, is going through a divorce, is a member of a cult, etc.” That is not a reflection on your daughter, of course, but merely the kinds of issues lawyers, trustees and, yes, even the Moneyist see during the course of their work.
Becoming a trustee of an estate should not be taken lightly. It’s a big job and comes with risks as well as responsibilities. One wrong move or ill-chosen word could result in accusations of wrongdoing. Carbone says, “When a former client of mine who was asked to serve as a trustee was warned of the risks involved, he responded, ‘I understand, but I love the money!’ He eventually was sued by the beneficiary and endured years of litigation before being exonerated of any wrongdoing.”
Given that you are approaching this with sensitivity and thoughtfulness, I can only assume that your daughters will also look out for each other after you’re gone.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
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The Moneyist regrets he cannot reply to questions individually.
More from Quentin Fottrell:
• I’m 60 and a single mother. My daughter, 17, has a developmental disability. How do I make sure she’s taken care of after I’m gone?
• ‘We have an absolutely great relationship’: My live-in boyfriend gives me what he used to pay in rent. Should I give him a stake in my home?
• ‘I feel slighted’: My husband of 10 years stopped paying his salary into our joint account — and asked me to pay $900 toward our rent
