G. HOW DO I PROVIDE FOR CHILDREN OR OTHERS WITH PROBLEMS WITH DEALING WITH MONEY?

There are many special provisions applicable when dealing with a transfer of property for your children, particularly where they are minors, and in arranging for transfers of property to other individuals who have difficulty in dealing with or managing money. 

1. Giving Property to Children

If you have adult children who are capable of managing their own financial affairs, leaving property to your children can be as simple as an outright gift to them under the terms of your will or your revocable living trust.  Should you want to make gifts to children who are minors, or who have difficulty managing money, or should you desire to leave property to other individuals who have difficulty managing their own financial affairs, other considerations arise. 

In most states minor children are not legally allowed to own property of any nature.  This means that it is necessary to find a method to transfer property to an adult or trust company who will hold it for their benefit.  There are several mechanisms designed to accomplish this.

a. UTMA Gifts

The simplest method is generally a transfer under the Uniform Transfers to Minors Act.  This is a statutory provision that allows property to be transferred to a custodian who will hold the property for the benefit of the minor until the minor reaches an appropriate age.  If there is no specific designation, this age is generally 18 in California, but under certain circumstances it can be extended to 21 or 25.  Particularly where you are dealing with sums that are not huge, this may be the most effective method of leaving property to children.  Frequently, we will prepare a Will or Trust that directs that property be distributed equally to then living children, but includes an exception that reads something like the following: 
"Notwithstanding the foregoing, any portion of my property to be distributed to a child who is a minor shall instead be distributed to John Brown as custodian to such child under the California Uniform Transfers to Minors Act."  This type of provision would generally allow the property to be maintained for the child until the child reaches the age of majority.

b. Trusts

Many clients are not comfortable with a custodial account or the terms of the Uniform Transfers to Minors Act.  Where you desire for property to be retained in trust for a longer period, or with more specific instructions, it will be necessary to create a trust for the benefit of the child.  For more details as to what is meant by the term "trust," see  "THE USE OF A REVOCABLE LIVING TRUST."

When establishing a trust for the benefit of a child, or for an adult where it is desirable not to transfer property directly for the benefit of that adult (which often occurs because of physical or mental incapacity or drug dependence), a trust can be structured which is designed to have an independent trustee manage the property for the benefit of your intended beneficiaries.  In this structure, you create a trust by preparing in your estate planning documents a comprehensive set of instructions directing the trustee as to how to manage the property for the benefit of your intended beneficiaries, and setting forth the terms and conditions upon which the income and principal of the property held within the trust will be distributed for the benefit of the beneficiary.  Decisions which need to be made to effectively implement this type of instrument, are as follows:

1. It is extremely important that you identify a capable trustee or successor trustee.  I generally prefer individual trustees for the
    benefit of children, where appropriate people are available.  Several successors should be named.  The ultimate trustee should
    be a corporate fiduciary.  See discussion in "Selecting A Trustee."

2. You need to be specific about the terms and conditions upon which the property will ultimately be distributed to the
    beneficiaries.  This can be after a term of years, after the happening of a certain event, or on any other basis that you deem
    appropriate.

3. You generally will want to provide the trustee with the discretionary ability to distribute funds for the "health, support and
    maintenance" of the beneficiary.  This allows flexibility so that medical expenses can be paid, groceries can be purchased and
    similar care can be provided.  For minor children you will also want to include a reference to "education."

4. You may want to include more specific provisions, depending upon your personal circumstances and desires.  A sampling of
    these types of considerations are as follows:

(i) You may want to assure that the child is provided funds for private school, graduate or post-graduate education.

(ii) You may want to allow the child to receive some portion of the trust estate for the purchase of a first car or first home.

(iii) Certain clients want to encourage self-sufficiency, and include provisions that match earnings from self-employment of the
      child.  This can be done, for example, by having a distribution from the trust in an amount equal to the amount that the child
      actually earns from his own employment.

(iv) For a child who suffered substance abuse or similar problems, specific provisions may need to be included allowing the
      trustee to require drug testing or similar actions to assure that distributed funds will not be abused.  Similarly, where there is
      drug abuse, the trustee may be authorized to make payments of rent, to pay for groceries and to pay for similar items directly
      to the provider rather than giving the funds directly to the beneficiary.

(v) The trustee can be provided instructions to encourage activities such as obtaining a college education, becoming affiliated with
      particular religious groups, avoiding certain affiliations deemed inappropriate by the parents, or similar items.  While these are
      used by certain clients, many feel this goes too far in "controlling" from the grave.

As noted, this is only a partial list.  You have the flexibility to prepare the trust with instructions designed to reflect your particular goals.

c. Selecting a Trustee

The selection of a trustee is a very important decision, and one of the more difficult in the estate planning context.  The trustee is the person who will manage your property for the benefit of the beneficiaries that you designate.  The trustee often will be an individual in whose judgment and honesty you have great confidence.  While corporate fiduciaries are available, most practitioners tend to prefer the use of an individual trustee because of their flexibility in exercising the various discretionary invasion and similar powers provided to the trustee.

The trustee is given directions in the instrument creating the trust (the "declaration of trust") so that the trustee has a general idea of how to manage property for the benefit of the named beneficiaries.  Many variations can be included in such an instrument.  See, for example, the discussion above with respect to provisions for children.  Because most day-to-day decisions will not be covered in the specific terms of the declaration of trust, you are relying upon the discretion of the trustee and their judgment, to manage and distribute the trust in the manner that is appropriate and most consistent with your wishes.  This flexibility is not a negative, in that it is very difficult to guess what circumstances will be like at the time of your death (and, in many instances, years after that time).  These issues are usually resolved by providing general directives to the trustee and relying upon the discretion of the trustee.  This means it is important  to be selective in selecting carefully the individual to serve as trustee.

Because the longevity of an individual is an unknown, you should also consider naming several alternates, who generally will be referred to as "successor" trustees.  It is good practice to end your list with a corporate fiduciary as the last designated party.  In some instances where clients do not have individuals in whom they have sufficient confidence to have serve as trustees, a corporate fiduciary is designated as the initial trustee.

In making the selection of trustees, you should also keep in mind that the trustee will generally be compensated for the services rendered.  While rates vary, trustees are normally compensated on the basis of a percentage of the value of the assets which they manage.  These compensation levels may range from one-fourth of one percent of the value of the assets in a very simple procedure, to one percent of the value of the assets in more complex administrations.  In most instances trusts, after your death, will also require the preparation of separate income tax returns.  All of these factors create administrative burdens, and these should be carefully considered in deciding whether to establish trust for the benefit of an individual or to simply make an outright gift.  See further discussion above.

2. Managing Property for Others who have Difficulty in Dealing with Funds

Unfortunately those other than children frequently have difficulty in being able to manage the things you may leave them in an appropriate manner.  Dealing with these issues becomes substantially more difficult.  Individuals in this group include those with mental disabilities, those with drug dependence problems and other with serious incapacities.  Unfortunately, this group also includes adults who have simply never developed the ability to properly manage assets and who are either spendthrifts or simply not emotional or mentally capable of managing a significant amount of money.  In some instances, this group will include those who have become indoctrinated to cults or other groups who have elected to discard material wealth.  The methods for dealing with these types of problems are generally to structure a trust designed to assist the specific incapacities or difficulties the individual has encountered.  Because these trusts are prepared with very specific directions and instructions to assist those with an incapacity, the specifics of their use are generally beyond the scope of this document.  Many of the considerations discussed above related to planning for children are equally important for these types of beneficiaries.  Other concepts which might be considered in this capacity are as follows:

a. You must be very cautious with those who are incapacitated and on government assistance to assure that they are disqualified
    from certain programs that may be available only with government assistance.

b. Where drug abuse or similar problems exist, in many instances a provision of benefits may be conditioned upon confirmation of
    no substance abuse, which in some instances will require confirmation by drug testing or other means.

c. Where “spoiled” children refuse to enter into gainful employment or take actions to make themselves self productive, provisions
    are sometimes utilized which allow matching of their own earnings by distributions from the trust. 

It is strongly recommended that if difficulties of this nature exist in your personal planning that you engage a capable estate planning attorney to discuss the alternatives and assist in structuring a specific vehicle or plan for your circumstances