When working with clients to design their estate plans, I often remind them that they are only limited by their imaginations, and they can provide whatever instructions they feel are appropriate to their situation.  My job is to guide them in that decision process, helping them implement their objectives while avoiding unnecessary complexity, rigidity and administrative inefficiencies. 

It is common that trusts are drafted so that the trustee has the discretionary power to distribute income and/or principal for the beneficiary’s health, education, maintenance and support.  And when the beneficiary attains a certain age, the principal is distributed.  Frequently, principal is distributed in installments, such as when the beneficiary attains the ages of 25, 30 and 35, so as to give the beneficiary a second and even a third chance to use the assets wisely. 

While the distribution pattern above is a fine place to start the discussion, the proper distribution pattern should be based on the desires of the client, the nature of the assets in trust, and the strengths, weaknesses and needs of the beneficiary.  On occasion, a 25 year old may be prepared to receive his/her inheritance; however, this is certainly the exception and not the rule. 

Determining the proper distribution pattern requires the consideration of many issues, including the following:

·        Is the beneficiary in a happy marriage?  (Do you know?) 

·        What is the education level attained by the beneficiary and his/her ability to earn a comfortable living? 

·        Will the beneficiary be relying on the trust funds to pay living expenses? 

·        Will the beneficiary need the trust funds for retirement?

·        Does the beneficiary have a tendency to spend more than he/she makes? 

·        Does the beneficiary make sound financial decisions?

·        Is the beneficiary likely to engage in a risky occupation, business venture or behavior? 

·        Should the beneficiary be rewarded for good behavior, such as graduating from college, and discouraged from bad behavior, such as not going to college? 

·        Are the trust funds likely to be expended educating the beneficiary, thus making the timing of principal distributions less relevant? 

We find that clients increasingly wish to postpone the ages at which principal distributions will be made, especially where there is a significant sum of trust assets.  Sometimes, we preserve part of the assets for distribution to the beneficiary when he/she nears retirement age, such as at the age of 60.  In other instances, the assets are held in trust for the beneficiary’s lifetime, then distributed to the beneficiary’s children when they attain an appropriate age. 

In addition to postponing distributions for the purpose of avoiding the loss of assets, we also consider how access to money at too young of an age may affect the beneficiary’s internal drive for achievement.  I think most of us would agree that having assets handed to us generally reduces the motivation to work hard to achieve success.  Further, access to money at too young of an age may result in the beneficiary not acquiring the tools, provided by a good education and work experience, needed to prepare him/her for earning a living.  In addition, social scientists have found that our happiness is enhanced by the pursuit and attainment of our financial goals.  While money does not make people happy, the lack of it can make people unhappy.  And more specifically, the lack of security has been shown to reduce one’s happiness. 

At first blush, clients sometimes feel that they do not wish to postpone distributions to their children or other beneficiaries because they do not want to convey to them a lack of confidence in their judgment.  However, with the passing of time wise beneficiaries are usually grateful that the effort was made to protect them from exposing their inheritances to their own poor decisions or to the loss of the assets in a divorce or failed business venture. 

In summary, if your goal is to share the product of your hard work with your loved ones in a manner that will promote their happiness, you should carefully consider when and how distributions are to be made.