"MORE AND more of my clients are setting a ceiling on a child’s inheritance." --Donna E. Morgan

There has been a general recognition among parents that giving children substantial wealth may not truly benefit them in the long run. More and more of my clients are setting a ceiling on a child’s inheritance so that the child will be motivated to pursue an education and a career. Also, there is less secrecy about finances among families, so that even college-age children are involved in family meetings with advisors or have a say in which charities or causes the family foundation should benefit. This early exposure to financial matters, and the accompanying sense of being at least partly responsible for the family fortune at an early age, has proved very beneficial.

Thoughtfully drafted trusts can also help to steer a child’s life in the right direction. In this regard, clients often suggest that their children receive only matching distributions from a trust, meaning that the trustee can distribute an amount equal to the child’s earned income and nothing more. That is a bit extreme, however. There are many admirable careers such as teaching and social work that do not generate a high income. A child may wish to be a stay-at-home parent. A child may become ill and unable to work. Thus, I caution my clients against such rigid standards. Upon reflection, parents usually opt for a trust that either pays the child an annuity for life or permits withdrawals by the child of certain amounts at certain intervals—say one-third at ages 30, 35 and 40.

I expect that all parents, regardless of their financial circumstances, get a true sense of satisfaction if they can provide a terrific launching-off point for their children so that they may lead fulfilling lives. For affluent parents, the tax savings that can be achieved by using certain techniques to accomplish that is often viewed as a bonus.

Donna E. Morgan, Mayer Brown, Chicago

To paraphrase Warren Buffett, how do clients know when they have left enough to their children that they can do anything that they want, but not so much that the children can do nothing? It is a difficult question that clients of substantial wealth must ask in consultation with their advisors. I believe parents have a responsibility to raise their children in a loving environment, to instill confidence and to provide the best possible education in order to increase their likelihood of becoming productive members of society. However once their child’s education is complete, there should be no moral or ethical imperative requiring parents to leave their wealth only to their offspring.

"ONCE THEIR child’s education is complete, there should be no moral or ethical imperative requiring parents to leave their wealth exclusively to their children." --Todd M. Villarrubia

We have assisted numerous clients in working through the myriad issues that are involved when a client has little or no contact with the child, when clients have some children who work in the business and others who do not, and when clients feel that some of their wealth should be set aside for other important objectives, such as charitable causes. We are seeing an increased use of testamentary trusts that are established for the longest term allowed by law, so that the client’s wealth can be held in an asset-protected environment, and so that the wealth can be better managed for the benefit of the benefi-ciaries. We are also seeing the increased use of private foundations and other charitable-planning vehicles for clients who believe that they have wealth in excess of the amount that their children would reasonably need. We all know people who have worked hard to establish their business at the cost of spending time with their children, and we are all familiar with the difficulty some of those children have in appreciating the effort that went into creating such wealth.

Unfortunately, when a client decides to bequeath unequal amounts, children may be upset by the estate plan and attempt to change the terms of the plan in court. We have seen an increase in the number of litigated issues that are being raised in the estate planning arena. Factors include the increasing prevalence of blended families and clients living longer, sometimes with diminished capacity. With an estimated $30 trillion being passed from the baby boomers to their children during the next several decades, this trend will surely increase.