The number of incentives an advisor and client can devise is virtually limitless, Castleman continues. "I drafted some where once the child is out of college, the trustees will match the amount of money that the child is making, so it encourages the child to go out and get a better job, and the trustee will give him more money. Other people have said, 'Now wait a minute, what if the child wants to become a schoolteacher or go into the ministry, or wants to work for the Peace Corps, they're not going to make so much.' Other people will ask the trustee to encourage the child to do public-service work and to supplement his or her income, within the trustee's discretion, provided the person is making a worthwhile contribution to society. There are so many variations."
Special Needs
Another instance in which a person might leave unequal inheritances to beneficiaries is when he or she is the parent of a disabled child. Depending on the amount of their assets and their goals, parents might be advised to leave more or less to a disabled child, estate-planning attorneys say.
"I have a case where there's three children, and one of the children has had heart trouble his entire life," Stokes says. "He has had multiple operations, he's a junior in high school and the other two are fine. So we're going to have a separate trust for him, and it's going to be a medical trust. We're going to take something off the top and keep it there for him, and then the balance we're going to divide equally between all of the siblings."
Another concern of many parents is that a disabled child receiving government benefits could lose them if money were left to him or her outright or through a trust.
"If a child does have special needs, the parent can establish a special-needs trust, which is designed to supplement the government benefits. Sometimes it's called a luxury trust, and it's just to pay for things the government doesn't pay for. But a lot of people don't like that, because it basically forces the child to live in a Medicaid environment. So those work best for very modest estates, in my opinion," Castleman says. "If the parents have a larger estate, I would set up a lifetime trust for the benefit of the child and provide in it the trustee could distribute directly to the child if appropriate, or distribute to health-care pro-viders or other individuals or entities that provide services to the child."
Gerald Morlitz, an estate-planning attorney in New York City, agrees special-needs trusts may work for parents who want their child to continue qualifying for government assistance. "The problem is figuring what luxuries are as opposed to necessities, and how to get money to the child for other purposes. Really wealthy people will figure the hell with it and do a couple of different trusts, and they will set up a smaller trust that will provide for the child under any circumstances. If the trust gets attacked and the state is successful in using the trust fund to pay for the child's needs instead of providing assistance, a couple hundred thousand has gone down the drain, and that's it," Morlitz says.
Another alternative, he adds, is to leave the money to the siblings and trust they will take care of the disabled child's financial needs. "I work with one family who has a child in his forties who has been in and out of rehab homes. When he's OK, he needs money, and it's not huge amounts of money, but it's for his apartment and basic stuff, and those aren't luxuries. So what you have is the other children taking care of him, and that works reasonably well, for this family," Morlitz says.
Giving money to another child to take care of a disabled one or naming a sibling as the trustee of a special-needs trust often, but not always, is the best choice.
Stokes recently worked with a family who has a grown child diagnosed as maniac depressive. "He's estranged from everyone, only takes his medication fitfully and won't have anything to do with anyone. So we've set up a trust for that child and named a bank as trustee," Stokes explains.