The phrase “Trust Fund Baby” has a different connotation for everyone. For many people, it conjures images of the children of billionaires who have a huge pile of money to live off of, without ever having to work a day in their lives. It often connotes someone who is lazy, sitting in their pajamas, watching TV all day long, while the money gets automatically wired to their bank account every single month. When you have to consider how to distribute assets to the younger generation, you don’t have to be a billionaire to require some creative planning.
You should not ruin the lives of your beneficiaries with their inheritances. Just think, if you were 18 years old, and were handed $500K cash, how would your life have turned out? In hindsight you may think, I would have saved it, went to college, worked in my dream profession, and the funds would have grown to $5M by the time I was age 65. But, would that have really happened? Did you really have the maturity needed at the age of 18? Or even age 25 for that matter? Certainly, at about age 50 or 60, receiving that kind of money is a totally different situation. It would likely not ruin your life, but probably enhance it quite a bit.
Some creative ways of distributing the assets to the younger generation include the following:
(1) Cap out the yearly amount during their 20s, then their 30s, then their 40s, etc., and make it all available at age 60.
(2) Only distribute an amount equal to their W-2 income from the year before.
(3) Distribute a yearly amount equal to their age multiplied by $1,000.
(4) Give them a percentage every year, 3% to 5%, and then allow them to have it all at age 60.
(5) Only give distributions to a beneficiary if they are not addicted to drugs/alcohol, they have completed a college education, they have a full-time job, and/or if they work in the family business.
These are just examples of how to distribute assets to your beneficiaries in a responsible way. Just think…you did not work hard all those years, sacrifice family time, vacations, hanging out with your friends, to earn your assets, while your beneficiaries receive it and spend it all in 18 months!
The smart thing to do is to plan early, and thoughtfully with an estate planning lawyer in Schaumburg, IL. Your beneficiaries may not like everything you have to say, but in the long run it is in their best interest, and they will be happy when that account has grown to a nice size by age 60.
Thanks to Bott & Associates, Ltd. for their insight into estate planning and trust funds.