Dealing With Your Problem ChildBy Jim Gianelli
Ah, the age-old issue: How to deal with your problem child. This often produces uncomfortable pauses, silence and embarrassment in the parents’ first interview with a lawyer.
Many parents don’t want to admit that their grown sons or daughters are addicts, deadbeats or just ungrateful offspring who have come to hate their parents. Actually dealing with these black sheep is even more difficult.
Yet the issue is common and nothing to be ashamed of. It is just another part of life shared by millions of parents nationwide and by many in our own community.
There are almost as many ways to deal with wayward offspring as there are individual family situations. Here are four common estate-planning scenarios.
1. The problem child addicted to drugs or alcohol
Let’s assume your addicted adult child has a “fair to good” relationship with you, but no matter how hard he tries, is unable to stay in recovery. With this inability come other problems: financial woes, relationship and honesty issues, dependence on public assistance, etc.
You have bailed this child out several times and now realize that it is harmful to continue doing so. You would prefer offering a “hand up” instead of yet another “hand out.” You have two other children who are relatively stable and well-adjusted. You want to be fair to all of your offspring, but don’t see the sense of leaving a third of your estate to a problem child who will just blow the money or spend it in harmful ways.
A common solution is to build into your revocable living trust an irrevocable trust for your problem child.
Distributions to the problem child from such a trust can be at the discretion of your designated trustee (or manager), and can be based on net income only or on a fixed percentage of the principal. Rather than bequeathing a lump sum to such a child, money can be paid out annually, quarterly or monthly over the life of your problem child or for a fixed number of years after your death.
Or such limited distributions can remain in force until your problem child can pass a series of objective tests, such as achieving negative random drug test results for a period of, say, five years. At that time, the trust would terminate and your former problem child would get a full share of the estate.
There are many variations to this theme, but the underlying intent is to provide your problem child with some financial help without giving him control of the principal or the method of distribution (which you will dictate).
Who should you choose to manage such a trust? It could be one or both of your other children, but make this choice carefully, as it may force them to deal with their problem sibling in an unhealthy way for the rest of their lives. Some children can easily deal with such issues, some cannot.
A better solution may be a third-party trustee, someone who knows the family situation but is not caught up in it.
2. The problem child who owes child support, creditors, the IRS
Let’s say that your daughter is not an addict, but struggles with money and is constantly ducking creditors. Let’s assume that she is one of three children and that you would like to be fair to her.
As was the case with the addict child, an irrevocable trust may be the solution. The type to set up here is an “asset protection” trust, one that doles out income or principal at the discretion of the trustee and not of your daughter. Such a trust must be carefully drafted and must include what is referred to as a “spendthrift clause.”
3. The problem child who hates you
This is a child who has no addiction or financial problems. He just despises you and blames you for everything that has ever gone wrong in his life. You have tried and tried to mend fences, but your latest attempt has resulted in a letter writing you off and promising you will never see your grandchildren again.
The solution? Sometimes there is no way around it: Just disinherit this son. Just because this child was born to you doesn’t mean you are obligated to provide for him after you die – especially when your other two children, raised in the same fashion, seem to like you.
When you disinherit a child, you must provide in your revocable living trust a “no contest” clause that is specific enough to comply with probate code provisions enacted in 2010. No longer can you simply provide that any child who dares contest the trust receives a dollar and is otherwise shut out.
4. The problem child who is on public assistance
The solution here may be a “special needs trust,” which can help provide for a child who for various reasons may be unable to manage his or her own assets. Consult an estate-planning attorney for details of this more complex estate-planning tool.
As you can see, you must be candid and open about the issues surrounding your problem child. When you are, it is always possible to come up with a solution that will meet your needs and desires and give your beloved (or not so beloved) child what he or she deserves.