(Reuters) – When Juliann Reynolds’ husband died of cancer in 1992, she had to decide how to plan her own estate.
The now-retired speech therapist from Rancho Cucamonga, California, knew she had to safeguard the future of her young daughter, Maren. Still, the possibility that her daughter might receive a large chunk of money when she reached the age of consent on her 18th birthday was worrisome, says Reynolds, who is now 65.
Her solution: Stagger the inheritance, so that Maren, now 26 and a mother herself, would have the funds to cover major life events like going to college or buying a first home. Other family members would manage it as trustees in the meantime, but her daughter would not actually have full access to the estate until she was into her 40s.
Reynolds is one of a growing number of parents who are requiring their heirs to wait until they are older before they can collect their inheritances.
“Back in the day, you used to see trusts liquidated and distributed when the kids were 18, 21 or 25,” says Milwaukee lawyer Bob Alexander, president-elect of the National Association of Estate Planners & Councils. “Now those typical ages have been going up and up, and are more like 30 or 35.”
Estate-planning lawyers like Alexander are seeing later ages written into trusts for a variety of reasons. Foremost among them: Kids may be maturing later, because major life events – leaving the nest, starting a steady job, marrying and having kids, buying a house – all tend to happen later.
Roughly 29 percent of young adults age 25-34 are now living with their parents, according to the Pew Research Center. That is up from a mere 11 percent in 1980.
The average age for a first marriage has also climbed in the United States, to 27 for women and 29 for men, according to the Brookings Institution.
“Baby boomers are the ones planning their estates right now, and there is a prevailing assumption that younger generations would waste their inheritances,” says Matt McClintock, vice president of education for WealthCounsel, a Madison, Wisconsin, organization of estate planning lawyers.
According to a recent WealthCounsel survey, 35 percent of people are crafting their estate plans to avoid mismanagement by their heirs. They are setting up trusts, naming third-party trustees to manage their bequests and delaying the age that heirs receive them.
The delayed payout from a trust is also a way for parents to shield assets from Junior’s potential creditors.
Estate planners note than even if a child does not get full access to a bequest until later in life, he or she may still benefit from it in the meantime. It is just that a trustee is making key decisions about how and when to distribute the money.
“A trustee can say, ‘You want a new house? No problem, let the trust buy it for you,'” McClintock says. “That is actually a lot more powerful than receiving a check outright, because then nobody can ever come after those assets.”
Of course every case is unique, depending on family circumstances and the size of the estate.
Even the costs of setting it all up can vary widely. Preparing a will for yourself and trusts for the kids, along with related issues like powers of attorney, will generally run from $3,000 to $4,000, according to Steve Hartnett, associate director of education for the American Academy of Estate Planning Attorneys.
An institutional trustee, like a bank, would then handle the trust for a fee based on a percentage of assets, probably between 0.5 percent and 1.5 percent. Alternatively, a lawyer or accountant is likely to charge differently, based on a monthly retainer, hourly fees or some combination of the two.
One downside: the potential for conflict that arises when a 35- or 40-year-old adult is having his or her financial life determined by someone else, whether that trustee is a relative or not. If the heir happens to have a financial crisis like unemployment or a health problem when the money is still locked up, watch out for fireworks.
“Of course it can lead to frustration,” says Alexander. “But you are not trying to make your beneficiary happy. You are trying to be a good steward.” Some folks have been taking things a bit far, estate planners note. “Occasionally you get people who do not want to give their kids access to their trusts until they reach age 65,” says Hartnett. “That seems a bit overboard.”
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