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Wednesday, January 25, 2012

The fine line between protecting and punishing

Today I spent two hours talking with a client about her estate plan. On our previous meeting, we spent almost four hours. This is exceptional in terms of the amount of time spent; usually things can be wrapped up in significantly less time when a client doesn't own a business or a farm. But this particular client is trying to find the line between protecting her daughter and punishing her.

Here's the situation. My client has two children, each of whom will inherit about half a million dollars when my client passes away. My client's two stated goals are to be scrupulously fair to both children and to prevent her daughter's husband and step-children from getting any of the money the daughter might inherit.

She has her reasons for wanting this. I'm not her conscience or her moral yardstick so it's not up to me to say whether that's a "good" goal or not. Plenty of parents don't want money going to sons-in-law or daughters-in-law, especially if there are step-children. It's her money and her will and my job is to help bring about the legal plans she wants and needs. I just make sure that all angles of the arrangements are talked through and understood before my client makes a decision.

My client has told me that her two kids will get exactly half of the estate. One of her children can have their inheritance straight up, no strings attached. The inheritance of the other, the one with the less-than-desirable husband, will be held in trust for the daughter's lifetime. The daughter will receive a monthly amount from the trust. This effectively protects the funds from being given in bulk to the husband.

Is this really fair? Are the children really being treated equally? One child receives half a million dollars which can be used in any way the child wants. It can be saved for retirement (the kids are already in their 50s) or can be used to buy vacations, a cottage or anything else. The funds can be shared with the child's spouse or given to their kids. On the other hand, the daughter will never actually receive the full amount of her share. She will be given a monthly stipend in an amount she did not determine. She can't change her lifestyle in any way. While the trust is being designed to prevent her husband from using the money, it is also having the effect of preventing the daughter from using the money. The argument can be made that the child receiving the money outright is getting a heck of a lot more than the one whose share is held in trust for her entire life.

She may well perceive this as being punished for making what her mother believes is a poor choice of husband. Is the daughter being protected, or is the money being protected? Or is that the same thing?

We will be putting this daughter's share into a trust. We are hammering out details and amounts, but there is no question that she will be prevented from ever receiving her full inheritance. This is the most effective tool we have for this particular client to ensure that her son-in-law doesn't scoop the inheritance money and disappear. But it seems to me that if my client wanted to punish her daughter for marrying someone the mother doesn't like, we'd take exactly the same steps. The line between protection and punishment can be pretty blurry sometimes.

1 comment:

  1. Would it not be possible to put her share in trust, but with a condition that if the husband signs over any present or future claims to any portion of that money for himself and his children, then she is receives the full amount? Almost like a prenup?


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