Dear Mr. Premack: My only son is not very reliable. He is divorced, and his ex-wife has custody of their son. I’ve made a very difficult decision to leave my estate to my grandson instead of to my son. I do not want his ex-wife to be able to take the money. What do I need to do to be sure that the inheritance will be used for my grandson’s college and to help him start in the world. Right now he’s only five years old. – W. H.
Texas law allows you to select any people or charities to receive all or part of your estate. Your son may be an “heir at law” but that status is secondary to the decisions you pronounce in a legally valid Will. Your grandson is also a natural target of your generosity, but his age and your desire to keep his parents out of the control loop requires some detailed legal planning.
The option that gives you the most control over the inheritance is to include a testamentary trust in your Will. You select a manager of the inheritance (a trustee) who is willing and capable. Since you do not want to select your only son or his ex-wife at Trustee, do you have any other trusted individuals (friends/relatives) who could act as Trustee? If not, you can appoint a bank trust department to manage the inheritance.
The Trustee is required to follow any instructions issued by you in the trust. Thus, you must decide exactly what benefits your grandson will receive and when he will receive them. For instance, while he is under age 18 his parents have the legal obligation to provide for his health, education and support. You could therefore state that the trust should be used only in case of emergency, or just for special medical needs, or for summer camp.
You may hope that your grandson will go to college. The terms of the trust can state that the Trustee must expend funds for his tuition, room and board, fees and books. If he’s not college bound, the trust can allow funds for vocational education or other career training. Educational expenses are likely to consume any income produced by the trust while still providing your grandson with a substantial benefit.
Eventually he will become an adult. You have to decide how old he should be before the trust ends. When it ends, all of the funds in the trust must be given to your grandson, so you want to be conservative when guessing about his maturity. It is very difficult to know what he may be like as an adult when the only evidence you have is his behavior as a five-year-old. Consequently, ending the trust when he turns 21 may be too early for his education and development. Consider age 25, or 30, or even 35 if his best example is likely to be your son (who, you say, in unreliable).
After your grandson has finished his formal education and until the trust is distributed to him, he need not be entirely cut-off from help. You can instruct that any income earned by the trust fund should be paid to him on a monthly or quarterly basis. You can also instruct that the actual inheritance (the trust’s principal) may be spent for certain needs he may have – but only if the Trustee decides to do so, never on demand from your grandson.
Those discretionary distributions may be used to help him buy a car, to make a down payment on a house, or to start his own family. He’ll have to realize that the Trustee will exercise judgment in whether to make those distributions, much like you would have made those decisions if you were still alive on that future date.
Utilizing a testamentary trust gives you great flexibility (you can dictate almost any terms you find to be appropriate). However, with flexibility comes complexity. Your lawyer will charge a higher fee to prepare a Will containing a testamentary trust compared to one with simple gifts to adults. The trust will involve all of your hard-earned assets, so it is worth the time and expense to protect those assets by hiring a certified attorney to draft the document for you.
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2012) practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, August 17, 2012