Conan O’Brien made news last week when he cracked his melon against the Tonight Show floor. Luckily, he was fine with just a minor concussion. Obviously, Conan didn’t set out to slip and fall on his head…but he did. Life happens, including undesirable events. This is why people buy insurance, and why most everyone can benefit from a comprehensive estate plan.
Whenever I talk about asset protection, most people have visions of Learjet rides to Barbados with a suitcase full of cash and exotic trust documents. But asset protection can be as simple as having a comprehensive estate plan, for instances just like Conan’s accident. How can an estate plan serve an asset protection role?
Let’s assume for a moment that after Conan hit his head, he wasn’t fine. In fact, let’s assume that he hurt himself to the extent that he became permanently impaired for the rest of his life…unable to walk, talk, eat or competently make his own decisions. This is bad enough of course, but in the days and weeks following the shock of the accident, Conan’s family and advisors would very likely need to be able to deal with his property…this could be something as complex as executing a major media business deal (perhaps the use of his likeness for a new toy doll to be marketed throughout the United States) or something as simple as selling his house.
Either way…Conan needs to sign. Problem is (at least in our example) he can’t sign…he can barely say his name. Without an estate plan in place, Conan’s wife will have to go to court and obtain a guardianship over him. This will give her the power to deal for him. In addition, she’ll need to get a “bond” in the amount of his total assets…this process can be very, very expensive, time-consuming and emotionally trying.
With a comprehensive estate plan, Conan’s wife would have the power as successor trustee of Conan’s trust and as Conan’s agent under power of attorney for property to deal with his property without the delay and cost of obtaining a guardianship. No business deals lost, no additional emotional strain. Pretty good.
So here’s some recent news that, but for the legal angle I’ll describe in this post, I wouldn’t have given a second thought: Prince Harry turned 25. This is news here, here and here not only because it’s Prince Harry, but also because of (as you can read) the dough to which he now has access. And herein lies a lesson for parents who want to control their children even from the grave in case of a premature death…also known as the “dead hand.”
Harry and his bro, William, were left some money when their mom died. Presumably, all of her money. But it was left in trust. This is smart since both Harry and William were not of age at Diana’s death. If she had left the money directly to them (under a standard will) their father, Charles, would have needed to be appointed Guardian of the princes’ estates. By leaving her sons’ inheritance in trust, Diana’s estate plan avoided this unnecessary exercise.
Part of leaving money to young children in trust is the notion that children, or for that matter young adults, should not have free access to loads of cash. You wouldn’t give your 18 year old son or daughter a million dollars, right? So why should young adults get these assets outright if their parents happen to die early? They shouldn’t…which is why provisions like the one Harry apparently has now overcome by turning 25 are contained in standard trust documents.
The way this usually works is as follows, assuming parents execute trusts while they have children younger than 25 or so (which would make the parents smart):
- Assume husband dies…everything goes to wife.
- Assume wife then dies, or husband and wife die at the same time…everything goes into trust for the surviving children with aunt, uncle, grandparent or trusted friend as trustee.
- Trustee has control of trust money, with the direction and duty under the trust to take care of the children, this would include paying for basic needs, schooling, and Jonas Brothers concert tickets.
- The money stays as one big pot until the youngest child reaches some minimum age…usually 23. This is important so that there will be enough money in aggregate to get all of the children through college. If you break up the “big pot” too early into separate shares, each share on its own may not be enough to provide for the younger children.
- Once the youngest child reaches age 23, the big pot of money is split into separate shares…in the case of the royal family, one share for William and one for Harry.
- However, the separate shares are still held in trust for each child. The trustee can then use each share for the respective beneficiary’s benefit.
- Once a beneficiary reaches age 25 (or an earlier or later age), there is a choice to be made. Should the kid get access to the principal, or only the income? This is a choice for parents to make, taking into account their personal feelings and assessment of their children’s ability to handle the money. It appears that in Harry’s case, he only now has access to the income, comprised of the interest and dividends attributable to the stocks, bonds, cash and other property that make up his trust.
- Finally, there is a “kick-out” age where the child has access to all of the money. Usually this is 30. If the parent really wants the kid to do something with his/her life (or just torment the kid from the grave), the age will be 40 or 45.
So there you have it…even though she was royalty, Diana’s estate plan was pretty standard, but smart, stuff.