Dear Mr. Miller:
I have a Living Trust. Ok, so that makes me about like everyone else. But I am bothered as to what I have in the document. I have three kids, 9 grandkids, and 7 great grandkids; and there could be more eventually. The kids get the lion’s share, but we have the grandkids in for 1% each and the great grandkids in for 0.025 % each. If anyone dies before us, then that person’s share goes to his own kids.
We are not wealthy. But my wife thinks this is the way to say “I love you,” and that is the purpose of those small gifts. I’m worried that it will cause problems. What do you think?
Large Groups Become Unwieldy
Higher Attorneys Fees
Challenges of Sales
Challenges of Financial Reports
Deaths Out of Order
Solution–Dollar Amount, Not Percentage
Amending the Trust
In my opinion, your Trust creates all sorts of potential future problems and extra expense. I’d like to give you something clever to say to your spouse but, if she is dead set on doing this it may be difficult to talk her out of it. Hopefully, she wants to maximize what everyone gets and will listen to reason.
Large Groups Become Unwieldy: So far you have 20 beneficiaries, with more potentially on the way. Obviously, the larger the group the more unwieldy it gets. But when we are talking about settling an estate, when feelings and emotions can often be raw, it can be much worse than just unwieldy.
Higher Attorneys Fees: From an attorney’s standpoint, I will have to communicate with all 20 of these beneficiaries. That means getting addresses, social security numbers (for estate income tax returns), birth dates from each (to determine if each is an adult or a minor). Maybe we’ll have to trace someone (or hire an heir search firm) because no one has that person’s contact information. So there’s going to be some investigative time expended. And then some are going to have questions–the more people involved the more are going to have questions. All of this is going to be reflected in my fee, whether it is a flat fee that I quote, an hourly with an estimate, or whatever. In other words, it is going to raise the price of the attorney fees.
Challenges of Sales: But so far, we have just scratched the surface. The more people involved, the more likely someone is going to get upset about something. For example, if the house is sold, one of the grandkids (or great grandkids) may object saying the house was sold for far less than it was worth and that decreases that person’s dollar amount that he/she will receive. It doesn’t really matter whether it is true or not. As a now retired judge told me once, “Anyone can sue anyone, at any time, about anything–whether they can win or not is a separate question.”
Challenges of Financial Reports: We will have to send financial reports (called accountings) to all 20 people. This report reflects the starting values for each asset owned, all of the receipts, disbursements, sales, gains, and losses during the period for which the accounting is issued. Any of those people can get upset about any entry in that financial report and question it. And that is more attorney time being involved and more stress and aggravation to whomever is acting as the trustee to settle the estate (very possibly one of your children).
Deaths Out of Order: The more people named as beneficiaries, the more likely one will die before you. If a great grandchild dies, his/her children step into that person’s shoes. So now we could be dealing with more than 20 people, and minors, in which case we are dealing with the parent who would be the in-law. Does your trustee/child get along with all of his/her siblings, as well as his nieces/nephews, and grand nieces/nephews–and all of the in-laws? If the answer to that last question is yes, then your family is a very special one because that would be rather rare. Attorney fees for these things can be expensive, sometimes over $150,000. Even if the Trustee/child is completely exonerated–that won’t make it any easier on him.
Solution–Dollar Amount, Not Percentage: There are various solutions. At least if the grandkids/great grandkids gifts were flat dollar amounts, we could simply pay them that amount early on in the settlement and they would no longer be involved. Sales of assets, or any other transaction, would be irrelevant to them as their gift would not vary one way or the other.
Solution–LifeTime Gifts: An even better idea in my mind is to take them out of the Trust entirely. Give them lifetime gifts, then you can see them enjoy it. If some are minors, maybe contribute to a college account so they won’t be in such debt once they graduate. If you can’t afford to make these gifts in one lump sum, do it over several years. Remember, this is an “I love you gift,” just to let the person know you had an affection for him/her. Don’t make it miserable for everyone else.
Amending the Trust: Absolutely, positively, don’t leave it the way you have it. It is going to run up the fees and cause your Trustee/Child to remember you with a very negative connotation. The good news is you are not locked in. Trusts can usually be amended. If you can get your spouse on board, give us a call at 760-436-8832 for a complimentary initial consultation so we can discuss in detail how to avoid the problems.