Do Trust, But Verify: Life Insurance Trusts Protect Your True Legacy – Your Kids

Do Trust, But Verify: Life Insurance Trusts Protect Your True Legacy – Your Kids

Parents never stop looking out for their kids, even beyond their final curtain.

No matter my age, mother never stopped calling me Tommy. In my everyday life, I was Thomas, Mr. Lavrakas, TLasaurus Rex – the latter in my last Russian office. Those analysts just wouldn’t play by the rules, ever calling down my editorial whupping hand.

One time – I’m sure you could share similar yarns – my mother was adjusting my scarf and worrying about my missing hat, lest I catch cold walking to the rental car 30 steps from the door. “You know, Mum, I’m 47 now; I’m a grown man” I said. “No, you’re not,” she countered, ending discussion. Mothers speak the darndest truths.

It’s universal: parents are determined to care for their children, come heck, high water or an untimely booking to the afterlife. We’re in the will; you’ve made us, one or many, beneficiaries of your life policy payout. You’re just that kind of loving parent.

Whoops, devoted pater and mater: you just tossed your kids onto the slipperiest slope, and while this is riotous the first time you send us down a snow-covered decline in a rickety toboggan, here you may have truly wound us up. Consider your legacy, as we always encourage – you don’t want us ruing your departed memory for a case of misbegotten generosity. We kids are just that perverse.

Naming minor children as beneficiaries should be impossible, yet we have evidence of its common occurrence. Here is the fatal flaw: life policies cannot make distributions to minors. If you make this mistake, the courts will step in to rectify. As always in the legal system, this means delay, delay, delay – painful in emotional circumstances. The judge will name a guardian for the child, and here rests potential for mishap.

If a loving spouse survives you, there shouldn’t be trouble. Consider the case of a parent who’s single – whether by intent, divorce or myriad chance. Who will be named guardian? A dependable partner in divorce should be OK. But what if the cause of separation was a troubling issue – substance abuse, perhaps. Who will the bench choose in unfortunate circumstances? Your angry older sister? Your gormless younger brother (guess who)? We know about families. Loving sorts can be reckless cannon. Dependable assets can be dry as old toast. The trustee issue should never be left to fate, and that’s how I rate a judge’s ruling or, rather, whim.

The answer is simple: establish a trust to take care of your children. Your life policy can pay out to the trust, and the trustee – whoever you name – can be assigned the most specific instructions on how the money must, can or should never be spent, just so long as it lasts.

Trust beneficiaries need not be limited to minors. I have a grim if darkly jolly story to share of what happens when young adults, so-called, are left too much money. The subject in question is a near, lifelong friend – a successful professional, a writer on lifestyle and equestrian affairs. She’s really made something of herself, finally.

My gal glitters and gleams in the company of horse-folk, her luster concealing a past dark as – how shall I formulate it? Picture her then: long curled black hair; made up like Madonna (not ‘a’ Madonna, mind); miniskirt revealing; vampy lipstick trouble-dealing… it was the ‘80s, you know. No, this is too slick. It’s simple: she was a loose cannon, and when she crossed your path, you’d best jump lively.

Her father died early, alas. Her mother hung on despite diabetes, concerned for her wayward darling. Mother wanted to do right: instead of leaving her money to sweetie, mom instructed the bank: pay for vital expenses, but don’t hand over the balance – considerable, bless old mum – until the miscreant daughter reaches 30. They hail from the smallest of towns, so the instructions were issued by letter. Nothing legal. Who needs it? Trust is everything.

I’m running toward my word limit, so here’s the finale: the daughter was too clever by half, the halfwit. She wrote checks, told the bank – cover it or I’ll suffer. The manager, soft heart, was too weak to resist. The money all vanished, the entire estate, within a year. After wreaking her own private havoc, my friend pondered suing the bank for the irresponsible act of obeying her wishes. I’d like to think I talked her out of it; soon enwrapped in merrier miseries, I think she simply forgot.

Today, my friend is reformed – just. But consider the madness, her self-wrecking japes, and wonder what could’ve transpired had her mother left millions. The tabloids are full of these tales. Yet somehow the most loving and reasonable parents think: it can’t happen here.

Here’s what to do. First, hire yourself an estate attorney. Trusts can only be formulated by experts. This may cost one or two thousand, but bite the bullet – every penny spent is wise. Your estate planner and other relevant figures – financial advisors, family lawyer, insurance agent – should be introduced to your new estate attorney post haste. There are tax issues and complications to consider.

Next, choose a sound trustee and name a few backups. Once the trust is formed, call your insurance specialist and change the beneficiary to said trust. Trust agreement copies must be given to your accountant and any financial planners in your life.

The trust agreement can be as detailed as you like; I just read of a case where the trust would pay for the child’s first wedding, but not for a second or subsequent. I’d counsel not going too far with this running-the-kid’s-life-from-beyond routine, but who am I to tell you how to pester your own children? I must leave all to your creativity.

One last thing: once you have a trustee, you’ll still need a guardian, assuming the child is a minor (or, as in the case of young Madonna above, the adult is childlike). The roles may be combined, but usually, one friend is the money gal, another the loving guy. Eccentric Uncle Tom, the insurance blog writer living in – where is he now? Perhaps a good candidate for trustee. My friend the reformed spendthrift, now established yet still cheery, could make a fine guardian: after all, she has pointed lessons to share.

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