Friday, November 11, 2011
1. Parents should honestly assess their children’s financial judgment.
- Parents can do this by creating an investment firm and putting their children on the board to see how the children handle themselves.
- Parents can also include children in meetings with financial advisers.
- Parents might also consider a therapist to help the children deal with the psychological affects of inheriting great wealth.
2. Pick the right trustees.
- It is beneficial to have a corporate trustee and then a co-trustee who knows the beneficiary well, but is not too close to them.
- Corporate trustee will control the distribution of money, and the co-trustee can monitor and report on the beneficiary’s progress in improving his/her financial judgment.
3. Think about trust rules.
- Provide in the trust instrument for trustee to pay bills on behalf of the child.
- Use generic language in clauses that hold money back if a child is not behaving.
- Experts advise that parents avoid overly strict guidelines – clarify that the trust is not meant to be the sole means of support for a child in good health.
See Jennifer Hoyt Cummings, When Your Child's a Spendthrift, The Wall Street Journal, Sept. 19, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.