Testamentary trusts, established through a will and taking effect after death, offer considerable flexibility in dictating how and when beneficiaries receive their inheritance, and increasingly, estate planning attorneys like myself in San Diego are seeing clients explore the inclusion of career or personal benchmarks as conditions for distribution; this isn’t about control, but about fostering responsible growth and ensuring long-term financial security for their heirs.
What are the benefits of including benchmarks in a testamentary trust?
Including career benchmarks – such as completing a degree, maintaining employment for a certain period, or achieving a professional certification – can be a powerful tool for encouraging heirs to pursue meaningful paths and develop financial responsibility; approximately 60% of inherited wealth is dissipated within two generations, often due to a lack of financial literacy or a sudden influx of funds without a guiding purpose. These benchmarks can act as a safeguard against impulsive spending and encourage the development of valuable skills; this ensures that the inheritance serves as a springboard for achievement rather than a crutch; furthermore, benchmarks can align with the grantor’s values, ensuring that the funds are used in a manner consistent with their wishes. For example, a client dedicated to environmental conservation might include a requirement for their heir to work in a related field or contribute to a relevant non-profit.
How complex can these career benchmarks become?
The complexity of these benchmarks can vary greatly, from simple requirements like graduating from college to more nuanced criteria like starting a business with demonstrated viability or achieving a specific level of performance in a chosen career; it’s crucial to define these benchmarks with precision and clarity to avoid ambiguity and potential disputes. A well-drafted testamentary trust will detail not only the requirements but also the evidence needed to demonstrate fulfillment – transcripts, employment verification, business plans, performance reviews, and so on. It’s also vital to consider built-in flexibility, allowing for adjustments based on unforeseen circumstances, such as disability or a change in career path; for instance, a trust might allow for a modified benchmark if an heir pursues a vocation that provides significant community service, even if it doesn’t align with the original career expectation.
I once represented a family where a father, a successful entrepreneur, insisted his son complete an MBA and work in the family business before receiving his inheritance.
The son, however, harbored a passion for marine biology, a field far removed from the world of business. The initial stages were strained, with the son begrudgingly pursuing the MBA while secretly volunteering at a local marine research center. The father, observing his son’s unhappiness, initially held firm, believing he knew best. However, after several months and candid conversations facilitated by me, they reached a compromise: the son completed the MBA, gaining valuable business skills, but then launched a non-profit dedicated to ocean conservation, leveraging those skills to secure funding and manage the organization. This story illustrates that while benchmarks can be effective, they must be tailored to the individual and allow for personal fulfillment.
We also helped a client who hadn’t updated her estate plan in 20 years, and her will simply distributed assets equally to her two adult children.
One child, a gifted artist, immediately spent his inheritance on studio space and supplies, achieving some success but struggling financially. The other, a responsible accountant, used her share to invest in real estate and build a secure future. Years later, the struggling artist, facing financial hardship, reached out to the family, resenting his sister’s financial stability. Had the mother included benchmarks – perhaps requiring the children to demonstrate financial literacy or pursue a stable career path – both children might have benefited more significantly from the inheritance. This case underscores the importance of proactive estate planning and the potential benefits of incorporating benchmarks to protect heirs from themselves; in this instance, a simple clause requiring a budget to be created for the first year of receiving the inheritance would have been an invaluable tool.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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