(This article appeared previously on MarketWatch.com. Since this commentary piece was published, representatives of Robin Williams's estate have stated that the 2009 trust documents in which the author's analysis is based are no longer in effect. MarketWatch has updated the article to reflect that information.)
Robin Williams was many things — a genius comedian, an Academy Award winning actor and generous philanthropist. He was also a father.
Early reports suggest that he also tried to protect his children from the hazards of “affluenza
” often seen when children receive a massive inheritance at one time, when they are potentially too young to manage it.
(MORE: Robin Williams, Depression and Suicide)
A Graduated Trust
“Under the trust, his kids, 22-year-old Cody, 25-year-old Zelda and 31-year-old Zachary received money … but in steps … When each turned 21 they got one-third of the share. When they turned 25 they got half of what remained. When they turned 30 they each got their full share.”
Trusts are meant to be private, and the fact that this document exists does not necessarily mean that the trusts are still in place. There are strategies which in some cases allow trust assets to be moved from one trust to another with different terms.
Williams' publicist, Mara Buxbaum, told Investment News that the plan referenced by TMZ was two old insurance trusts that aren't currently part of the actor's estate or estate plan.
Answering the questions of “How much is enough?” and “When is the right time?” on children's inheritance, though, is a worthy topic of discussion.
(MORE: How Robin Williams' Kindness Touched My Family)
According to the report, the trusts for the actor’s children weren't dependent upon his death, so he had taken steps to set up and fund the trusts before his death. This is a common move for wealthy individuals who may have children from prior marriages or an estate-tax issue.
Every family's situation and goals for bequeathing assets to their adult children are different. Here are my thoughts on questions you can ask yourself to plan how to leave money to your children:
1. Do you leave it to your children while you are still alive?
Some people decide, as Robin Williams apparently did, that it's better to hand down wealth to adult children while you, the parent, are still alive. (Of course, you have to have more than enough assets for yourself to be able to do that.) One benefit is that you will have some ability to help guide your children's decisions, and it can be hugely rewarding to watch them build their lives responsibly with the help of the gifts you have given them.
If you have an estate-tax issue, making substantial gifts while you are alive can help to get the future appreciation of the assets out of your taxable estate — which saves tax dollars down the road.
Finally, being able to see a trial run of how your children handle money can also help you to make decisions about what happens at your death. With children from prior marriages (especially if one spouse is younger), making transfers while you are alive can help to avoid complications or relational issues at your death.
(MORE: What Inheritance Do You Owe Your Kids?)
2. If you leave assets for your children upon your death, do you give the funds to them outright? Or do you plan to have the funds held in trust?
If you leave assets to your children outright upon your death, you may be risking leaving a large amount of wealth in a lump sum to someone who may not be fully ready to manage the funds responsibly. Many wealthy individuals choose to have assets for their children held in trust, where they can create criteria for when and why the funds will be distributed.
Trusts can also offer some asset protection from creditors and divorce.
3. Do you hold the assets in trust for their lifetime? Or do you distribute principal at points in time?
Robin Williams's decision to have the money distributed in three segments at different ages is a common solution.
In 2009, when he created the trust, his children were either in or close to adulthood. His decision to distribute assets at three different ages allows for them to have a second and third chance. If they make a mistake with how they spend the first distribution, they have five years to learn and mature before receiving the next. Williams' plans actually demonstrate a level of trust in his adult children as many high-net-worth families choose to have funds held in trust for their children's lifetimes.
It surprises me a bit that he would have the assets distributed to them at such young ages, even though his trust spreads out the disbursements over several five-year periods. The age of 21 just seems young for receiving assets. Perhaps this particular trust wasn't that large from an asset standpoint.
Trust terms, which dictate how accessible funds are to heirs while the assets are in trust, can vary quite a bit. In some cases income is paid out each year and principal is only available for specific circumstances like health, education, weddings or starting a business. In other cases these decisions are made by the trustee — which can be anyone from the beneficiary to a family member to a corporate trustee.
4. Who should draft a trust for your heirs?
In my experience, I have seen many mistakes from people trying to “do it themselves” with a trust that they have downloaded from the Internet or tried to draft themselves. To me, when it comes to money, it is extremely important to seek competent advice from the right professionals. That's why my firm always recommends that a reputable estate-planning attorney handles our clients' legal documents, whether a trust or a will or power of attorney.
Annika Ferris Cushnie is a wealth advisor and partner at Brightworth, a wealth management firm located in Atlanta, Ga., serving clients nationally.
This article is reprinted with permission from MarketWatch.com. © 2013 Dow, Jones & Co., Inc. All Rights Reserved.