Adult Education
 Americans cherish their personal
independence. Each of us has the freedom and responsibility to make our own personal, health care and financial decisions upon reaching adulthood (e.g., age 18 in most states). If you have loved
ones who are young adults, or soon will be, then you should share this article with them. We will review some of the fundamental threats to personal independence encountered by young adult
Americans.
Incapacity
The print and electronic media remind us every day that life can take some rather unexpected and unpleasant turns. From automobile accidents to tornadoes, people are
often seriously injured. Aside from injuries, however, many more people are incapacitated due to various illnesses, even though reports of their suffering rarely make the evening news...except
in the recent case of Terri Schiavo. The threat of incapacity looms over us all, without playing favorites. And oftentimes the incapacity is permanent.
Whatever the cause, incapacitated Americans may lose more than the ability to care for themselves. In the absence of proper legal planning, they also will lose the
ability to select their own backup decision-makers for personal, health care and financial matters. By default, a court will make that selection after a legal process that employs at least three
lawyers, can cost thousands of dollars and exposes private personal and financial information to the public record. Thereafter, the backup decision-maker selected by the court will remain under
its supervision, further adding to the ongoing expense and red tape. Truly, an ounce of legal prevention is worth a pound of legal cure.
Insurability
Single, young adults are immortal.
At least according to the images promoted by the advertising
wizards on Madison Avenue and the entertainment gurus in
Hollywood. A more realistic picture of youthful immortality,
however, can be found in the obituary section of your local
newspaper. For a variety of reasons, young adult Americans
should demonstrate their personal responsibility by acquiring a
permanent life insurance policy as part of their long-term
financial plan.
The best time to secure a permanent
life insurance policy is at the earliest insurable age. When it
comes to life insurance, health actually buys the policy
and money merely pays the premiums. And premiums are
lower the younger the insured. However, injuries and illnesses
can cause even a young adult to be rated (pay more for
the insurance due to less than average health) or to be
uninsurable. [Note: For these reasons, many forward-thinking
parents acquire permanent life insurance on their minor children
to guarantee later insurability for their children as adults, as
well as to pay funeral expenses should death arrive
prematurely.]
In addition, permanent life insurance
builds equity within the policy contract on a tax-advantaged
basis, making it available in the future for personal financial
independence through withdrawals or loans. Once the young adult
marries, the death benefit feature of the policy can provide
valuable financial security for their family. This could make a
radical difference in the quality of life for the loved ones
they leave behind.
Special Needs
Not only do parents of children with
special needs face unique challenges in providing for the daily
special needs of such a child while both parents are alive, but
they face unique challenges in protecting their inheritance
after the parents are deceased and their children with special
needs become young adults. Properly protected, this inheritance
can help provide an essential financial safety net to help
ensure their future personal independence.
Nevertheless, special legal planning is
required to protect both the inheritance of a young adult with
special needs and their access to important assistance programs.
Without such planning, their inheritance may actually disqualify
them from many private and public assistance programs. Then,
once disqualified, what happens when the inheritance safety net
is depleted and the assistance program is discontinued?
Alternatively, careful planning may enable the inheritance to
comply with the letter and the spirit of various rules governing
eligibility.
Conclusion
Adult Americans enjoy many freedoms and responsibilities. Sometimes it is easier to focus on the freedoms at the expense of responsibilities. While
fundamental legal and financial planning for young adults has been the focus of this article, these fundamental threats to personal independence apply to all adult Americans,
regardless of age.
Carrots & Sticks
An inheritance distributed outright to someone lacking financial maturity
may be especially good news for sports car salespeople, travel agents and
high-end electronics dealers. Is that how you want your hard-earned wealth
consumed? And what about the potential long-term damage to your heirs?”
Andrew Carnegie, one of the wealthiest
industrialists of the late 19th century, observed that [t]he
parent who leaves his son enormous wealth generally deadens the talents
and energies of the son. What can be done to avoid the perils of
inherited wealth? One increasingly popular antidote to this dilemma (short
of spending your kid's inheritance, as the popular bumper sticker
proclaims) is the Incentive Trust.
Incentive Trust Antidote
As the name implies, an Incentive Trust is one
in which the Trustmaker sets standards of conduct or achievement that must
be met before distributions are made to or for the benefit of a
beneficiary of the Trust. These standards may include such incentives as
completing a certain educational level, becoming self-supporting through
gainful employment, volunteering for charitable causes supported by the
Trustmaker and even avoiding drug/alcohol abuse.
However, Incentive Trusts may not include
provisions that are considered contrary to public policy. Such provisions
include those that may disrupt family relationships by encouraging
separation or divorce, foster neglect of parental responsibilities,
prevent marriage and discourage the performance of public duties.
Otherwise, the scope of permissible incentives is limited primarily by
your creativity as the Trustmaker.
Communicate for Continuity
Effective communication of your
Incentive Trust objectives can help prevent future litigation
between your Trustee and your heirs, especially over the
requirements you establish for distributions. Some families hold
financial planning retreats for their intergenerational members
to communicate the Trustmaker's objectives. At these retreats,
family members may prepare a written statement of their family
values, a family code of conduct and/or a family mission
statement. Oftentimes, the Trustmaker's professional advisors
attend the retreat and educate family members about the
investment, tax and asset protection benefits of the Incentive
Trust. This can help ensure the continuity of your philosophy of
wealth accumulation, management and distribution for heirs.
Alternative Antidote
Perhaps you are opposed to
influencing the behavior of your heirs after your death, but
don't want your wealth subject to their squandering, divorces,
lawsuits or bankruptcies. If so, you should consider a Discretionary
Trust. As the name implies, such a trust makes distributions
only in the sole and absolute discretion of the Trustee. The key
to a successful Discretionary Trust is selecting and entrusting
an appropriate Trustee with broad discretionary authority to
protect your wealth for and from your heirs. The non-fiduciary
position of Trust Protector can be created to appoint and
even remove such a Trustee to ensure fulfillment of your
objectives, whether the Trustee is too generous or too
restrictive.
Summary
The legal options available to
encourage your heirs to use their inherited wealth to live
responsible and productive lives after your death exceeds the
reach of this brief overview. Accordingly, competent legal
counsel should be sought to explain and evaluate your options.
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