What do you get when you add one kid with poor impulse control with one enormous inheritance?
Hint: The sum is not a lifetime of fiscal responsibility.
As this Wall Street Journal article points out, wealthy parents face a challenge in estate planning for an heir who has a penchant for shiny things that go fast and depreciate faster. Parents love their kids but the veterans among us are familiar with the limits of financial control we can exert over them while we’re still here. (Remind me some time to tell you the story of the Ruby Red Slippers and Dorothy’s adventures in the land of OZ.)
So how can we expect to ensure the fiscal responsibility of the spend-happy kids when we’re gone? What’s more, how can we do it in such a way that allows the independence necessary for them to mature on their own?
The article explores a couple of options.
One of them involves creating an investment firm and putting the children on the board of directors, giving the parents the opportunity to observe their children in a financial setting before making any decisions.
Another option is to consider is creating a private family trust company. Our recent posts have focused on domestic asset protection trusts, which carry the possibility of creating a “family office” to act as your trustee for multiple generations. The Journal discusses the cost of “traditional” trust companies but options now exist for providing control in a less regulated environment.
The key to the family trust company is selecting the trustee and the situs of the trust. Remember, the objective is not asset protection in the traditional sense; the objective is to protect the children from themselves.
It’s something to think about.
In the meantime, good luck and good hunting.
The Fisher Law Office is an Annapolis-based firm of attorneys focusing on estate planning, probate administration, asset protection, and business law. Attorney Randall D. Fisher has practiced for over 20 years, maintains the highest peer review rating for ethics (AV Preeminent) by Martindale-Hubbell, and is a sucker for long walks on the fairways.