Prince Harry and Estate Planning for your Kids
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.
Think like a lawyer…but not for too long or your brain might hurt
Two axioms I hear all the time about the law and lawyers:
1. Law school doesn’t teach the law, it teaches you how to think like a lawyer.
2. Lawyers are [insert deragatory term here].
I find truth in both of these statements but for different reasons. Law school really does teach a person to think like a lawyer…but how? And sometimes lawyers do get a bad rap, primarily because we are known to give the classic post-modern lawyer answer: “it depends.” So let’s explore this.
I love the horse races. There are no better gambling pursuits than horses and craps. There just aren’t. So of course I was excited to head out to Arlington Park this past weekend to watch the ponies run. As I was taking a look at the Arlington Park website to see what is and what is not allowed in the track, I came across this statement:
Prohibited Items Include:
-Glass Containers
-Alcohol
-Commercially packaged foods
-Liquids and non-alcoholic beverages will be allowed only in their original sealed container
I brought this to the attention of my wife and as we discussed these rules…primarliy the one disallowing commercially packaged foods…it became clear that we had completely different views on what this meant. And herein lies a perfect example to show how lawyers think.
Start with a Rule
Usually, lawyers start any analysis with a rule. A client has a problem and needs to know what to do…we need a rule to guide us. So, the problem here is I want to bring some food and drink into the racetrack, but the rules are that (1) I’m not allowed to bring in anything commercially packaged; (2) I must bring in beverages in their original packaging; and (3) no glass.
Continue with additional interpretation
The rule itself doesn’t clear up the entire issue for a few reasons. First, I’m not exactly sure what “commercially packaged” means in this context. Second, the beverage rule seems to be an exception to the rule against bringing anything into the track that is commercially packaged. If these rules were laws (as in, enacted by the legislature), there would be countless other resources I could look to that would aid my interpretation of the rule.
There would no doubt be cases upon cases where judges define the term “commercially packaged” and “beverage” and then apply those definitions to cases before them. Even these cases wouldn’t say the same thing, though. They may all use the same definitions of key terms, but many would come out in opposite places in their application of the rules to the facts at hand.
There would also likely be administrative regulations providing further guidance on these rules, written by the government agency tasked with enforcing the laws. In this case, the Department of Home-Brought Food and Beverage might make some rules also defining the terms and providing some examples for everyone to peruse.
Finally, there would be treatises and other analyses written by attorneys who practice in the home-brought food and beverage area. These resources would describe the key cases at issue and how the courts apply previous case law, regulations and their own judicial preferences in ruling on similar cases.
End by testing the rule in real life
In the end, somebody has to be the guinea pig and show up to the track with questionable materials to see how far the rule extends. Three examples:
(1) I show up with a container of hummus that I bought at the store. Seemingly, this is “commercially packaged” BUT I rip all of the labels off of the container so it now resembles a tupperware container. Is this allowed? The letter of the law says no…the hummus was commercially packaged (in that, it came straight from a manufacturer) and it’s not allowed. But does that make sense? What if I had a tupperware container that was the exact same as the container that the hummus originally came from? It would be okay if I transfer the contents of the hummus to the new container, but it is not okay if I leave it in an identical container?
(2) I show up with a glass jar of salsa. The catch here is that I enjoy the salsa as a tasty beverage (it’s the thin kind). I run afoul of the “no commercially packaged” food rule AND the rule against glass containers. However, since it’s a non-alcoholic beverage I’m required to bring my salsa into the track in its original, sealed container. Is this a rule that cannot be complied with in this case? Which rule wins? Does salsa qualify as a beverage solely because I drink it?
(3) I bring into the track 50 pizzas on dollies. The pizzas are from Dominos. The pizzas are not commercially packaged since they’re cooked and packaged at a retail location…but this obviously violates the spirit of the rules allowing food and drink. Right?
Clearly, thinking like a lawyer makes the brain hurt and/or ooze from one’s ears. But these are the types of issues lawyers are faced with everyday…makes the “it depends” answer more reasonable…I hope.
Adoption Expense Tax Credit: Part II
Here is Part Deux to a four-part series on the Adoption Expense Tax Credit…a nice benefit for adoptive parents. This installment: Adopting Special Needs Children.
http://www.growninmyheart.com/special-needs-adoption-tax-credit
Top Chef: Business Law and Ceviche
Ever watch Top Chef and wonder how on earth any of the contestants, no matter how talented, become
Babysitters Club: Tax and Business Law Aspects
The Babysitters Club was a fictional group of young girls who, in a series of books and movies, babysat for extra money and entertained pre-teen girls all around America. Although the Babysitters Club books were geared toward exploring the angst of adolescence, a very important lesson can be learned about business. Don
