Special Planning Problems for Elderly Person (Single)

The posts have discussed in detail methods of protecting the elderly. However, often a parent will have issues with a child. The problems addressed in this post are not those of a disabled child, but deal more with the typical problem of a will for a child-beneficiary with creditor issues or a child-beneficiary who may be unable to handle money.

This post will discuss one approach for the will of the elderly parent who is survived by a creditor-prone child with other beneficiaries such as siblings or issue. For purposes of this article, I will assume that the child has both siblings and/or issue.

Numerous possibilities come to mind when providing for a child. Clearly, if the funds are devised to the child outright, the funds upon receipt will be subject to claims of creditors. The method by which the elderly individual should provide for such child is clearly by trust under the parent’s will (testamentary trust).

The trust that provides maximum protection would give the trustee pure discretion to distribute the income and/or principal. If the trust had language allowing distributions for the child’s support, etc., such distribution might be subject to a creditor’s claims. However, if the trustee could distribute income and/or principal at the trustee’s discretion, that would be a better approach and render the child’s inheritance less available to creditors.

After considering this problem in great detail and discussing the matter with bankruptcy lawyers, I have concluded that I would desire a trust that accomplishes the following goals:

1. Distributions can be made to the child when needed.

2. Render the trust as immune to creditors as possible.

3. Be available to the child if his or her problems have been resolved.

The trust that I recommend given the above issues would allow the trustee to distribute income or principal to or amongst the child and his issue or the child and his siblings or both.

A creditor seeking to attach the child’s interest would be faced with the argument that a trust which is purely discretionary for the child and other relatives is not available to creditors since there is no interest in a trust of the child alone since the trust is discretionary for the child and others.

Perhaps the most important aspect of the trust is its discretionary nature, which would allow the trustee to terminate the trust and distribute the principal to the child if the situation changes and the creditor problems are deemed to no longer exist by the trustee.

The key to such planning is that there must be a trustee designation (and presumably contingent designations) that provides confidence that the intent of the will is carried out.

Disclaimer: This article does not constitute legal advice and each person may have unique facts for which legal consultation may be necessary.
© May 2009, Post 85