Financial Safeguards A Pivotal Tool In Financial Planning
Understanding the need for thorough safeguards in the trust administration process is essential for relatives with special needs or beneficiaries with perhaps untrustworthy spending habits. The trust administration process offers several safeguards for many situations.
Financial security is vitally important as the Baby Boomer generation (or really anyone) moves toward its golden years. Unfortunately, bad financial moves leave many Americans scrambling to figure out how they’re going to cover medical expenses on top of routine living costs. 1 Deciding early on what you want to be done with your assets is a safe and sure way to ensure financial security throughout old age. Leaving your assets and your future without a thorough plan is dangerous for both you and your wealth. 2 Without the proper planning the estate administration process can be long, difficult, and unwavering to your wishes.
Many trusts limit distributions to HEMS—Health, Education, Maintenance, and Support Expenses. These costs are subjective and based on each family’s definition and importance of different values. While some families transfer the vast majority of their estate to charities, most Americans transfer their wealth to their children and grandchildren. 3 Proper safeguards provided by the trust administration process allows a backup plan for many scenarios, including the possibility of mental or physical incapacitation. Brooke Astor, the New York City-based widow of an Astor heir slipped into dementia while enduring years of abuse by her money-hungry son. 4 After the legal battle leaked to the press, Ms. Astor will be remembered less for her philanthropy and more for the tabloid coverage of the
elder abuse she endured. 5
Proper estate planning with a third party neutral that has the right to step-in when a health crisis occurs is a vital safeguard of proper property trust administration. When a Manhattan doctor stole his mother’s last $800,000 prosecutors called the case an “Astor copycat” in that wealth crimes affect all classes and all walks of life. “I think people think this sort of thing doesn’t happen in families like that, that it’s somehow a lower-economic tragedy.” 6 Similar to the Astor case, the doctor lived lavishly off his mother’s wealth while she faced eviction when he stopped paying her bills. 7 Experts have repeatedly urged the safety of a proper trust administration with safeguards for elder and financial abuse. 8 This pre-planning is not only smart, it is essential to protecting the long-term safety of your wealth and well being through the trust administration process.
These safeguards are important for families with young children, too. For “the protection of their rights and interests” the New York Supreme Court appointed a former New York City mayor as guardian of nearly $6 million in trusts for the grandchildren of a wealthy heiress. 9 The mayor had no connection to the family and stood to make a sizable fee administering the trust. The children’s mothers contested and spent money meant for the children on attorneys’ fees and court cost—all because of bad trust administration. These issues are easy to address and can be remedied by creating a special needs trust based on a handicap if occurred at birth or after the parents or grandparents pass away. At this point, separate trusts for each beneficiary become even more important as one beneficiary with more expensive needs can easily drain the trust. 10
Cautious trust creators concerned with beneficiaries living above their means can limit trust disbursements through a spendthrift provision. A spendthrift provision is a safeguard in the trust administration process to prevent beneficiaries from wildly living above their means and eroding the wealth earned through their parents or grandparents work. 11 One statistic estimated the average person buys a new car within 19 days of receiving an inheritance. 12 In England, trust friendly laws meant the 25-year- old Duke of Westminster inherited an estimated $13 billion on his father’s death in an unbroken chain of inheritance by the firstborn male that has gone on for centuries. 13 Because of safeguards in the trust, future beneficiaries are protected from spending too much or depleting the estate by current beneficiaries.
Additional benefits of trust administration safeguards including protecting your assets from bill collectors, divorcing spouses, and lawyers seeking to collect against your beneficiaries. And assets inherited by a beneficiary with special needs may ultimately lose access to government benefits or lose their inheritance to pay for government services. 14
In sum, placing safeguards within the trust administration process is an easy and secure way to ensure the disbursement of your assets as you see fit while protecting your beneficiaries from themselves, greedy ex-spouses, or mounting medical debt.