Using a living trust for spendthrift children

A living trust can be the correct estate planning tool for spendthrift children.

Attorney Tom Olsen: I want to tell you about new clients I had last week, a married couple, they've got six children and they're all adults, but they clearly-- the idea in mind was that three of those adults are responsible and, okay, they get their share of mom and dad's estate. There's to do with as they please, but three of the kids not so responsible and they want their share doled out to them over a number of years. Well, the parents, before they came to see me, they had a way of doing that, and that is this. They have substantial IRAs, retirement accounts and life insurance.

On that they named the two oldest children as the beneficiaries of them and said, "Oh, they'll get the money and they'll take care of their siblings." I say, "Good luck with that." I don't even know their kids, but I know that money is funny. No way you're going to convince me that that's a workable plan. What was a workable plan for them? It's really quite simple. They created a living trust. They're using a living trust for two purposes. The purpose that everybody else out there is using it for, the purpose of avoiding probate.

When I say avoid probate, I really mean avoid attorney's fees, and then purpose number two is to put their wealth into that trust and then when they pass away saying, "Yes, these three kids get their one sixth share of our estate, our trust estate." Rather than it going to them outright, it will remain in this trust. It will be managed by one of the siblings and they will be the ones to dole it out to these not financially responsible kids over the next few years.

A great solution for them. To me, it's so obvious, that was-- I didn't have to think very long about that one, but the point about that story is a lot of people out there, they think, "Hey, I can do this myself. I can do this estate plan myself. I don't need a lawyer", and I'm going to suggest otherwise folks.