The Sooner, the Better: Not Always True with Trusts
It is a story that estate planning lawyers are all too familiar with: a well-intentioned parent or relative establishes a trust for a child, the child reaches age eighteen - the age of distribution specified by the trust, and bam! The trust funds are gone in a flash; an inheritance spent on cars, clothes, or fancy vacations - not at all what the grantor of the trust had in mind for the beneficiary.
Here is what estate planning lawyers have long known: just because a child reaches age 18 (the legal age of majority) or his early 20's does not mean that he or she is prepared to properly handle an inheritance. While age may be just a number, maturity certainly is not. Maturity, more often than not, happens long after someone is officially considered an "adult." It seems like more and more grantors understand this reality, as evidenced by later ages being written into trusts. These days, it is not atypical to see trust distribution ages in the 30's or '40s.
In addition to mismanagement concerns, there are other reasons to delay an heir's access to a trust. In today's world, major life events are occurring much later. Marrying, buying a house, and having kids all happen at older ages than they did in generations' past. This fact can be chalked up, at least in part, to current financial times and longer life spans. Just a few decades ago, a twenty-five year-old would likely be married and set on his career path. Now? Twenty-five year-olds are often still living in their parents' basement, looking for a job. If the grantor's intention is to provide funds for certain milestones in a beneficiary's life, such as a first house down payment, it makes logical sense to consider pushing back the distribution age.
Even if full trust access is not given to an heir, it does not mean that he or she is cut off completely. A trustee can make payouts at scheduled intervals or when the need arises. Of course, the trustee will ultimately retain control. As a beneficiary ages, and thus becomes more likely to manage his or her own finances, limited access can lead to disputes between the beneficiary and trustee. However, I think many grantors would agree that they would prefer to protect the beneficiary by having them wait longer for distribution rather than blowing it at an early age.
When establishing guidelines for a trust, grantors should remember that sooner is not always better. Likewise, beneficiaries should keep in mind that an inheritance is always better late than never.