Daughter has high anxiety and may be bi-polar. Let’s name her “Mary.” The other two children function well. One is married to a man with a steady job and she is a full-time mom, three children. The third child has steady employment with no health issues, two children.
Mary’s conditions have grown worse over the years. She is 45 years old, she often has long stretches of unemployment. She is currently divorced and has no current interest in meeting new people. She has no children and lives in a rental property owned by her parents. She has no drug abuse and is a decent person overall.
Her parents are worried that when they die Mary will suffer undue hardship financially. While they cannot protect her from her emotional conditions, they express concern that she will not have a safe place to live when they are gone. The mother is matter-of-fact when explaining the situation to me and the father is expressive when sharing some specifics of Mary’s situation. They clearly love Mary and are concerned.
The parents were in to see me about establishing a Living Trust to avoid probate and to draft “ancillary” documents such as wills and powers of attorney. The parents have a primary residence and a rental property. They are Middle-America financially, some retirement but certainly not “rich.”
Living Trust Solution
I suggested that they could establish a Living Trust with a “carve-out” provision for Mary. One of the rental properties or the primary residence can be set-aside in the Living Trust such that the other children cannot force Mary from her home. The other children aren’t vindictive, but unless something is done, the other children would have a right to have the home sold and receive their fair share of the proceeds. Mary would receive her fair share, but now the home is gone and it may not be long before Mary has spent the money, perhaps unwisely, thus leaving her paying rent at an apartment complex. At the trajectory she’s heading emotionally and financially, it wouldn’t be long before she couldn’t afford a safe apartment complex.
The carve-out means that the Living Trust provides a specific gift of the property to be held in trust for the benefit of Mary. Mary can be the managing trustee of her little trust but the home cannot be removed. As the beneficiary, she is entitled to use and enjoy the home for her life. When she dies, the trust directs all the trust assets go to the other children. If Mary predeceases her parents, the gift lapses and the home will fall to the other two children to be divided equally.
After the parents die, if Mary gets a divorce or has a lawsuit or a bankruptcy, the Living Trust can be drafted such that the Mary’s home cannot be invaded by these “outside” invaders.
Mary’s little trust is simple in it’s terms, easy to run and poses very few administrative burdens. It is still vulnerable to Mary being dishonest, but the parents are not concerned about that. Yes, Mary could be manipulated by a boyfriend, but, once again, the parents feel it is better to keep Mary’s trust simple rather than have professional trustee fees or involve the other children.
The parents simply want to ensure that Mary has a home and that nothing can force the home from the trust.
The parents can change their mind at any time and retain full control over all the property in their Living Trust.
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