You worked so hard to save your money. You put plenty away for your retirement, you paid off your home, and your financial house is in order. It took years of sacrifice and planning to put these things together. You did such a great job that your kids will have a good head start getting through college and providing for their families, something you didn’t have when you were starting out. You know that creating an estate plan to ensure your kids are protected is a good idea, and a while back you created that living trust plan that said the kids can only spend their money for their education until they are 35 or so, when they can manage their own money. You are thinking your kids are set, that the plan will work out to benefit your kids, right?
Well it turns out that only your home was in the living trust. What happened to the retirement accounts? You had beneficiaries named on the retirement accounts, right? You sure did. You had your kids named on the accounts as beneficiaries. But you forgot to rename the trustee of your trust as the account beneficiary. Those retirement accounts had $250,000.00 in them. Now your kid, like in Ferris Bueller’s Day Off, is off to the races in a newly leased Ferrari. Ouch!
There are two takeaways to this story. First, wealth building and handling money is something children need to be taught at an early age. Learning how to save, give, and spend money is a huge set of skills that should be learned early to ensure your family legacy is carried on. I cannot tell you how the lessons my parents taught me about saving money and that money comes from work helped me out later on in life. I cannot thank my mom enough for making me save for a family vacation I went on with them when I was about 7 years old. Those fundamental skills should be taught to your kids, and those values should be incorporated in your estate plan.
The second takeaway from this is that items not in a living trust, such as bank and retirement accounts that have beneficiary designations, transfer outside the living trust if they are not directed to the living trust. If you named your kids as beneficiary to accounts such as these, be aware that they will be getting the contents of those accounts free and clear of any distribution scheme set up in your trust. Don’t end up paying for your kid’s Ferrari unintentionally!
