Many parents should consider using the technique of contingent trusts as a valuable estate planning enhancement to reciprocal Wills between spouses with children. These contingent trusts provide two very important benefits:
- They serve to postpone the distribution of funds to the next generation in the event of the death of both parents.
- They serve as an attractive alternative to a guardianship of the estate.
Due to the increase in the exemption from federal estate tax, many married couples no longer need the standard A/B trusts to maximize use of their estate tax exemptions. Simple Wills bequeathing all assets to the spouse may be sufficient for achieving their primary estate planning goal of providing for their spouse. These types of Wills may also provide for the estate to be distributed at the second death to the children in equal shares.
If both spouses die together, or if both spouses die before all children reach the age of maturity, a contingent trust is a useful estate planning tool. Without a contingent trust, the assets would be distributed outright to the beneficiaries. If the beneficiaries are minor children, Ohio law requires the establishment of a guardianship for management of the funds.
Because guardianships are supervised by the probate court, they are a matter of public record. Consequently, the details of the guardianship account can be viewed by anyone. The law requires that the guardian of the estate obtain court approval prior to withdrawing any funds for the minor child. In addition, periodic accountings must be filed with the court to reflect all receipts and disbursements. This process is cumbersome, non-confidential and results in additional legal fees.
The biggest drawback to guardianships of the estate is that the assets are paid to the child at the age of eighteen. Most parents would not want their children to receive such a sum of money at this young age. Many children at such an age are pursuing higher education, and guidance would be needed for the investment and disbursement of funds, particularly if both parents are deceased.
A contingent trust serves to extend the distributions to the ages determined by the parents as set forth in the trust agreement. Distributions can be made for stated purposes such as health, education, maintenance and support without the intervention and supervision of the probate court. More importantly, because the trust is an agreement separate from the Will, it is confidential. The named trustee can invest, manage and distribute the funds without having to account to the court.
Contingent trusts serve to give parents of younger children peace of mind to provide for the unlikely but possible event that something may happen to both of them before their children area able to handle finances on their own. Please contact your Stark & Knoll attorney, for additional information on this or other estate planning strategies.