By: Martin M. Shenkman, CPA, MBA, JD
So Junior wants to spend his inheritance faster than you can earn it and has his eye on a new red Lamborghini. You wonder what you can do to assure that Junior will not burn through his inheritance faster than a meteor hitting the Earth's atmosphere (for you science buffs re-entry temperatures can reach as high as 3,000 degrees F). Here is a checklist of things you can do:
Buy an annuity. Mandate that your executor take some portion of Junior's inheritance and buy a non-cancellable annuity that will pay Junior an inflation adjusted amount every month or quarter for the rest of his life. This will assure Junior has enough money to buy chips and beer forever.
Trust. Put all of Junior's inheritance in a trust and name a tough trustee who will be able to withstand Junior's whining and begging so that the funds can be used judiciously over Junior's life.
Incentive Trust. Make distributions from Junior's trust in part based on Junior's performance and conduct. If Junior earns $50,000, let the trust match it plus pay certain other expenses. If Junior earns nothing limit the trust to cover just basic needs and expenses.
Charitable Lead Trust. Put some portion of Junior's money in a charitable lead trust ("CLT"). A charity will get an annuity payment for some stated period, say 20 years. You could have that payment made to a donor advised fund so Junior can appoint the money to charities he selects. This can help teach Junior about philanthropy in addition to Gucci. At the end of 20 years Junior will get the money in the trust (or it can be paid into a further trust to continue to protect him). This approach defers Junior's access to this portion of the inheritance, provides something analogous to a retirement plan in case he burns through everything else, and hopefully improve his values during the interim.
Go Skiing. Hey, if all else fails do like the bumper stickers in Boca Raton say, SKI! Spend Kids Inheritance.
The above is a summary of a radio show on MMFN Money Matters Financial Network, with host Gary Goldberg, of Gary Goldberg Planning Services, Inc. in Montebello, New York, and his guest Martin M. Shenkman, Esq. an estate planner in Paramus, New Jersey. Listen to the audio clip of this segment on www.laweasy.com.
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