Oldest vs. Youngest - The Measuring Life

So, you've decided to delay the age at which your kids will receive their inheritance. For today, let's assume you want your children to inherit at age 25. Your estate planner puts your decision into your will and you put it out of your mind. Over the next five years, you begin to accumulate weath. You start an IRA or three and start an investment account with a financial advisor. One day your financial advisor asks if you have considered life insurance as part of you financial plan. You decide life insurance would be a strong addition and take the plunge. You make your testamentary trust the beneficiary of the policy and put that out of mind as well.

Now, assume you die before all of your children reach the age of 25. Your oldest two children are 27 and 25, so they are not beneficiaries of your testamentary trust, receiving their inheritance outright instead. Your youngest child is 21 and is therefore a beneficiary of the testamentary trust. Your life insurance pays $500,000 to that testamentary trust. Do you see the problem? The youngest child is, effectively, the only beneficiary of the life insurance policy because he is the only beneficiary of the testamentary trust. Since your older kids were above the age you set, they were never beneficiaries of the trust and have no claim to the insurance proceeds. They have been disinherited to the tune of $166,666.66 each.

How do we fix this situation? One effective way is to begin distributing your children's shares of your estate when the youngest child reaches the age of 25. This way, your older children remain beneficiaries past the age of 25. This minor inconvenience is easily justified in the situation described above; it ensures an additional $166,666.66 for the two older kids. Who could complain about that?

(Take note, though, that there are other ways around the problem. Stong drafting can allow you to make distributions to your children as they reach 25. The point is to make sure you don't end up disinheriting your kids through careless drafting.)

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Lawyer Joke of the Day:

Q: When a lawyer dies in the desert, why don't vultures eat his body?
A: Professional courtesy.