Funding Choices in the Estate Plan

 John and Josie Grantor have a revocable trust, of which they are the co-trustees and co-beneficiaries. If something happens to either of them, the survivor will have access to the interest and principal for the rest of his/her life.
The Grantors have two children, 20 and 22. Under the terms of the Trust Agreement, the children share equally in whatever assets are left upon the deaths of both John and Josie.
Recently, John Grantor opened two payable-on-death CDs: $400,000 for their daughter and $200,000 for their son. Then the Grantors asked my opinion of this arrangement. I observed:
The Grantors may treat their children unequally, either inside or outside of the parameters of their Trust.
A Payable on Death account will work here, provided that:
Grantors won’t need this money if John dies before her;
The children both survive their parents;
Each of the children is mature enough to handle an inheritance of this size.
A payable-on-death account is easy to set up, but it isn’t flexible. If, for example, one of the children does not survive John, to whom should her/his account pass: To the deceased child’s (as yet unborn) children? To the surviving child?
What if one of the children is not yet fiscally prudent by the time John dies? Would she/he blow through an inheritance?
The Trust may provide a better, more flexible vehicle for carrying out the Grantors’ wishes. A sub-trust could be created for each child (or for only an immature child) authorizing the Trustee to distribute income and principal for the child’s health, welfare, education and support, including purchase of a vehicle, a condo, a business or any other non-speculative, worthy investment. The Trust provisions would dictate at what age the child should receive unfettered access to the remainder of her/his Trust share, and to whom any balance of the Trust share should be distributed if the child dies before becoming entitled to final distribution.
The payable on-death account may nevertheless be preferable in two situations: (a) to provide the convenience of quick access to small amounts of money at the decedent’s death, and (b) to provide bequests to non-family members, who would not otherwise be entitled to information about the trust’s provisions.
For more information, please contact Jerry Kessler in Santa Clarita at 661-255-1001.