It can be one of the hardest parts of the estate planning process: Deciding how your assets will be distributed to your children after you die. Some parents simply divide all the assets evenly among their children.
Others, meanwhile, are less concerned about ensuring that assets are divided evenly than they are making sure certain assets go to the right children. This is especially true when complicated assets like a closely held business or investment securities are involved.
These decisions often carry a lot of emotional weight. After all, you probably want to be fair in the distribution of your assets to your children. But “equal” and “fair” aren’t always the same thing — and your kids’ concepts of fair might be different from yours and from each other’s.
One way to avoid hurt feelings and misunderstandings by your kids with regard to your inherited assets is to talk openly and honestly with them about your estate plan and your last will and testament. This can be done individually with each child or in a “family meeting” where all children are free to ask questions about the distribution of your assets after you die.
Another way to help maintain peace among your kids after you’re gone is to establish one or more trusts for your children. While it’s essential that you have a last will and testament that dictates how your assets will be distributed, it might also be smart to set up trusts — especially if you have a complex estate.
Benefits of Trusts
Using trusts can help ensure that your assets are distributed according to your wishes more quickly and with a minimum of red tape and hassle, while also keeping personal information about your property private. Many people think of trusts as estate planning tools for the super-wealthy, but the fact is they can be useful for almost anyone who has assets to be distributed to heirs after they die.
One of the most common types of trusts used for estate planning purposes is a revocable trust. As the name implies, this trust can be changed during your lifetime if you choose. Using and properly funding a revocable trust can avoid the need for assets to pass through probate after you die, which in turn will speed up and simplify the asset distribution process.
Practically any type of asset can be held in a revocable trust, including homes, investment property, bank accounts and interests in a closely held business. Revocable trusts, which should generally be set up by a qualified estate planning attorney, can generally extend beyond your lifetime for a term of up to 90 years.
Use Trusts Strategically
It’s important to be strategic in how you set up trusts. For example, some parents establish just one trust for all of their children that spells out the terms of how their assets should be distributed. However, it’s often smarter to set up a separate trust for each child instead. This frees up your children to raise their own challenges if they disagree with any aspect of how the estate is being settled while allowing them to name their own trustees.
Also, it’s usually not advisable to name siblings as trustees of each other’s trusts. Doing so eliminates any privacy your kids might have with regard to their trust. And perhaps most importantly, your children may not have the financial, investment and administrative expertise needed to handle the duties of being a trustee.
Instead, you should consider hiring a corporate trustee to provide professional estate settlement and investment management services for your heirs. As an impartial third party, a corporate trustee won’t be influenced by the emotions that sometimes come into play when settling family estates.
Corporate trustees are subject to strict state and federal regulations, including rules regarding fiduciary duties. In addition, they usually have an extensive network of other estate and financial professionals they can tap as needed, including attorneys, CPAs and insurance professionals. And corporate trustees may be able to generate higher investment returns on trust assets.
Fees for corporate trustees vary depending on the size and complexity of the estate, but typically range from 1% to 2.5% per year. Depending on the size and complexity of your estate and your family dynamics, this could be a reasonable price to pay to help maintain peace among your heirs.
Please contact us if you have more questions about estate planning or trusts.