Judy was nervous, hyped, and talked fast.  As she settled in the chair across from me, she rapidly explained that she had just celebrated her thirty-fifth birthday and that her uncle had given her a document three years ago, just before his passing, and told her to contact a lawyer when she reached age 35.  Scanning my office, Judy exclaimed “I sure hope I’m not wasting your time and my money.”

I perused the document as Judy continued to nervously expound, explaining that she had no family connections.  Her father had disappeared when she was a baby; her mother died when she was 20; and the one extended relative she had known (that uncle) died three years earlier.  Her sole marriage had ended with an ugly divorce, bankruptcy, and a booze problem. She was slowly rebuilding her self esteem, credit rating, and life.  She struggled to fund her basic needs by working as an assistant to a real estate broker, a job she loved but always feared losing.

The document, an old trust, was twenty-four years older than Judy.  Judy did not recognize the name of the trust’s maker. The trust contained a standard contingent beneficiary provision for unborn descendants of the maker’s heirs.  The designated age of distribution was 35.  There had to be a connection.  So Judy signed a power of attorney, and I was off and running.

Within five days Judy was holding a check for several hundred thousands of dollars.  Her life had just changed in a big way.  She thanked me profusely as I repeatedly explained that I had done nothing. It was all the doing of a person that Judy knew nothing about – a gentleman who had died long before Judy was born.

What impressed me most about this unique situation was an observation Judy made during our little celebratory meeting.  Judy said (her thoughts in my words):

The smartest thing the guy did was not let me get the money until I was 35.  If he had set the magic age at 25, I would have received only half as much, I’d be broke now, and my life would probably be even more screwed up.  As I have been struggling these past ten years, a smart trustee has doubled my money.  Hopefully, I now have the maturity and enough horse sense to wisely make this good fortune help me for the long haul.

I’ve recounted this true story many times in helping couples pick the ultimate age of inheritance – that point when their kids or grandkids will get their inheritance free and clear of trust, with no strings attached.  Some wrongfully perceive that this is an issue only for the rich.  It goes far beyond the one percent.  It’s an important decision for any individual whose death could trigger the transfer of a home equity, a retirement account, life insurance, a business, or any other valuable asset.

So what is the best age of distribution?  There’s no single right answer.  I’ve observed over many years that the age tends to escalate as people grow older.  Many young couples are convinced that their gifted newborn will be capable of anything by age 25.  Many older couples shudder at the thought of their kids getting their hands on any serious money before age 40.  It’s a judgment call that requires a look into the future and that needs to be revisited from time to time to factor in changed circumstances.

There are risks whenever a pot of money is dropped into a person’s lap. The recipient may have no capacity to manage or invest the money or, under a false sense of security, may manufacture excuses to short circuit or abort challenging educational or personal development efforts.  Priorities are soon messed up, resulting in needless waste and triggering a string of awful regrets.  Overtime, the money disappears along with the individual’s hopes and plans for a productive future.  It’s been the sad fate of countless lottery winners and those who have received an inheritance too soon. Parents struggle a lifetime to build a nest egg that, when all is said and done, just ends up screwing up their kids.

There are various factors to consider in setting the age of inheritance.  Here’s my take on six big ones.

1. Money Still Flows. As property remains protected in a trust, the kids can still receive cash distributions from the trust to cover living expenses and major items, such a buying a home or investing in a career opportunity.  The trust may be customized for each situation to authorize a wide range of mandatory or discretionary distributions.  Managing and protecting property in a trust does not stop cash from flowing.

2. Equal Treatment Not Required. There is no need to treat all the children the same.  One child, for example, may never have the capacity to manage money or may be married to an irresponsible, dominating mate who will take charge and squander the assets.  For that child, it may be best to leave the property in trust for the child’s lifetime.  The trustee would manage and protect the property while making liberal distributions to the child throughout the child’s lifetime.  In select situations, it may be best to not specify any age of distribution and, instead, to give the trustee the discretion to pick the time of distribution based on how the trustee sizes things up along the way.

3. Bite Sizes Allowed.  Some prefer to designate multiple ages of distribution.  The trust, for example, may provide that a third of the trust will be distributed at ages 30, 35 and 40.  This gives the child three shots to make things work or mess things up, as the case may be. The idea is that the child will have a chance to learn with part of the inheritance before getting the final installment.

4. Protection from Creditors.  Property is off limits to a child’s creditors while it is in trust.  This might be a compelling factor for the child who is in a risky business or profession or who has a financially irresponsible spouse. The trust can survive a personal bankruptcy and stay clear of creditor hassles.

5.  College Costs.  A core challenge of many children is funding the future college costs of their kids. Over the last 25 years, average tuition hikes have outpaced the growth in medium family incomes by more than three times, and all indicators suggest the pace of future increases are going to be worse.  For nearly all parents, college costs can’t possibly be squeezed out of their incomes during the actual college years.   So the challenge is to save, and that’s where some smart grandparent’s trust planning might really help.  Keeping a portion of the inheritance locked in trust and targeted for grandkids’ college costs will reduce the heat on the parents, provide protection from creditors, and may help in qualifying for financial aid opportunities.

6.  Kids’ Retirement.  Many boomers are starting to sweat the retirement prospects for their thirty-something kids. They know that the only politically feasible plan to “save” Social Security is to slash benefits for young Americans. Odds are that, thirty years out, Social security will pay only a fraction of what it pays today, and it’s anyone’s guess as to what retirees will face at that time.  One option to help is to establish an extra retirement fund for each child by leaving a portion of that child’s inheritance in trust, smartly invested for the long term and off limits to creditors and the temptation of a new car, boat or bigger home.

The bottom line is that, during the course of the planning process as these and other issues are factored into the mix, the players often end up buying in to the lesson of Judy’s tale: bumping up the age of inheritance may be a smart move.