Young parents with several children (or who anticipate having more than one child) are usually aware and concerned about the contingency that both parents might die before all of the children are out of the nest. Without Last Wills that address that contingency, the “laws of intestacy” determine how the parents’ assets are to be distributed among the children if both parents die. That default estate plan in some circumstances does not work well at all.
Consider a family with a mom, a dad, and three children. The parents die in an accident while on vacation. They leave behind a 22 year old son who has just graduated from college and is starting a good job; a daughter still in college, a sophomore with two more years to go; and another son, a ninth grader. The parents do not leave Last Wills. Under the laws of intestacy, the parents’ assets are to be divided immediately among the three children in equal shares, regardless of their relative needs.
Think about the unfairness with such a division of the parents’ estate, especially to the younger children, and most especially to the ninth-grader. The oldest child’s complete college education has already heavily impacted the family’s economic resources when his parents die. The support of the middle child through two years of higher education has similarly depleted what the parents may have accumulated. Yet those two children each are to get a share equal to the share that goes to the youngest child. That one-third share must support the youngest child through the balance of high school and through whatever further preparation that share can buy him after his high school diploma. His older siblings have each received “off the top” very significant resources before the parents died, both economic and social. The youngest child is at a very significant disadvantage. He may never get launched.
Think also about how the parents would have managed the family assets had they lived. Yes, they may have paid for the oldest child’s college degree, but that would be it for him – he now has a job. Then the parents would have devoted the remaining family resources to the younger children, in getting the middle child to college commencement and getting the youngest child through the rest of high school and through further preparation for his own adulthood. There might be very little left of the family’s resources by the time that third one has taken wing, which would not be unusual. With the third child prepared for independence, the parents would turn their attention to rebuilding their drained resources in preparation for their middle and elder years, and all the contingencies those stages of life offer. The “plan” that the laws of intestacy describe is not the plan that the parents would have adopted. That plan is a disaster, especially for that third child.
A “pot trust” in the Last Wills of the parents would have put a trustee in their place and would have gone far to solve the problem. The pot trust plan would call for the family’s economic resources to remain intact and under management at the death of the parents and not to be mechanically divided and distributed in equal shares among the children. In other words, there would be a single trust for all three children. Equally important, the trustee of that trust would have the discretion to devote trust resources on a disproportionate basis among the three children, depending on their needs from time to time. (The trustee need give the oldest child nothing, because he is already financially independent.) The trust would remain intact until the youngest child reached a given age, say 22, and had a fair opportunity to get the right education. Whatever is left at that point, if anything, would only then be divided into equal shares, one share for each child. Providing for such a “pot trust” plan in a fairly simple set of Last Wills is not rocket science for a competent lawyer. And not that expensive either, considering what is at stake.