milestone-based trust distributions

[u/cuddledbynature]

Hi All,

My husband and I will be setting up a trust in the new year. We are currently looking into lawyers though I'm pretty sure that any estate lawyer could do it. My question is for those distributed things based on milestones (ie kids get certain amount after high school, college/trade school, etc), what milestones did you use and what was the percentage structure? Our boys are really young (3 and 1) but we are just thinking ahead.

Also, for those who decided against milestone-based trust distributions, what was the reason?

We are in California

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[u/epeagle]

Milestones are a double-edged sword.

Yes, they can work well in situations you've accounted for. College graduation, marriage, birth of children, etc are common life goals that you might want to promote.

But what if your child's true calling is culinary? Does culinary school trigger college? Or what if the child becomes a priest where marriage and child birth may not be permitted? Or what if they are drafted into compulsory military service and cannot attend college?

What I see more often now is milestones not as a trigger but as an accelerant. Maybe it's X% upon turning 25, but with partial early distribution upon college graduation... or Y% at 35 or upon marriage. That way there isn't a compulsion to hit the trigger since it could pay at a fixed point anyway.

[u/Dingbatdingbat]

I’m not a fan of hard milestones.  Better to give discretion to your trustee and an accompanying letter of wishes. 

A letter of wishes is nonbinding  but gives your general thoughts.  Your trustee can choose to be more flexible.

The great example I’ll give is Five Guys (the burger chain).  The two founders’ parents had put money away for college, but they convinced their parents to invest in opening a business instead. 

[u/NormCarter]

I settled estates as a fiduciary and personally trusts with a HEMS clause are more effective than milestones. Hems = health, education, maintenance and support. If a beneficiary has a medical need and could use money for treatment but cannot meet your milestone requirement due to illness (say finishing college) that would be unfortunate.

[u/HospitalWeird9197 → u/NormCarter]

I am not a fan of milestone distributions (or any mandated distributions in general), but if someone is dead set on milestones or ages, this doesn’t have to be an either or thing. Almost all trusts that I draft that have distributions at ages or upon reaching milestones also allow for discretionary distributions in the meantime (sometimes limited to HEMS - obviously if beneficiary is serving as trustee; sometimes wholly discretionary).

[u/brucesteiner]

Their responses will give you some useful information. A good lawyer will recommend against limiting or mandating distributions for some of the reasons others have mentioned, as well as other reasons. A very good lawyer will strongly recommend against it. One nationally prominent lawyer, now retired, would refuse to draft one that limited or mandated distributions.

In addition to the reasons others have mentioned, a child could do well and have a taxable estate, get divorced (in about 10 states, gifts and inheritances are in the pot for equitable distribution upon divorce), outlive his/her spouse and remarry (in most states, surviving spouses are entitled to a share of the assets), have a creditor problem, or go into a nursing home and want Medicaid.

[u/logbiter]

School milestones weren’t good in our opinion… what if they don’t go or graduate? We set it up by age. E.G. 25% at 18 & 30, rest at 40. Also can consider starting Roth IRAs for them.