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Unintended consequences and estate planning

When doing estate planning in California, much of the focus is going to be on setting up a plan so that money is distributed at the right time to the right people. This is often done with a trust. There will also be some focus on how this can help from a tax perspective. While this is all well and good, it can accidentally ignore the human element of the process. This can lead to some unintended consequences.

For example, take the story of a 21-year-old woman who had a trust fund set up for her by her relatives. She received money every month that was intended to cover the cost of college, thus providing her with a free education. However, she had dropped out of college and was simply using the money that she got to live her life, taking advantage of the free money and ignoring her education.

Moreover, she was using the money to gamble. A lawyer found out that this was going on when a holiday delayed how quickly she got her payment, and she panicked. While gambling, she had been writing checks, counting on them to go through when her monthly payment arrived, but she knew that when the payment from the trust didn't arrive on time that at least a portion of those checks would not clear.

It is sometimes easy for people to abuse money that is left to them in a will or a trust. As you do your estate planning, remember the human element. Consider whether the heirs to whom you are leaving the money will use it in the way you intend. Then take steps to ensure that your actual intentions are going to be fulfilled.

Source: The New York Times, "Focusing on the Human Element of Estate Planning" Paul Sullivan, Dec. 02, 2014

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