"The perfect inheritance is enough money so that they feel they can do anything, but not so much that they could do nothing."

-- Warren Buffett

Plenty of parents seem to be siding with America's favorite down-home billionaire. They want their kids to not be overburdened by the cost of living -- but they don't want them sitting on their duffs all day, either.

Parents of the baby boomer generation are passing on enormous wealth to their children -- an estimated $10 trillion over the next 20 years. Jeff Scroggin, a lawyer based in Roswell, Ga., says the vast majority of these parents come from middle- or lower-class backgrounds and made their own money.

An incentive trust can ensure the kids don't squander the parents' hard-earned money. It allows parents to pass on their inheritance with as many or as few stipulations as they wish. Someone -- probably an adult child who stood to inherit a small fortune -- likened it to attaching strings from the grave. Scroggin doesn't buy that.

"This whole 'ruling from the grave' issue is misplaced. I don't hear that from clients," he says. "The perfect inheritance should build character, encourage the person to be successful in life -- and they don't mean that the child has to make a lot of money."

Trusts with strings attached
Traditionally, trusts have allowed parents to pass on wealth the way they see fit. But parents are doing more than just stipulating how the estate will be divided among the children -- they're adding incentives.

"Trusts have always been used as a safety net for family members, a source for loans or as investment capital," says Lexington, Ky., lawyer Michael Palermo. "The incentive thing is new: 'I'll only pay for her education if she maintains a B or C average.' "

Some trusts stipulate that a child who has drug or alcohol abuse problems won't gain control over their share of the money.

Scroggin says he's adamant, however, that provisions not be punitive.

"One wanted every family member between the ages of 13 and 30 to be tested for drugs and if they tested positive they'd be disinherited. I refused to draft it. What if someone slipped a drug into the kid's drink when he was in college -- something he didn't even know was happening?"

Scroggin also says he refuses to write trusts that say, for example, children will be disinherited if they marry into the "wrong" race.

"Some of these things would be unenforceable," he says. "And I think it creates a conflict you need to avoid."

Family first
Scroggin says there's been a revolution in estate planning. Twenty years ago, the idea was to pass as much wealth on to the next generation as tax-free as possible. Now, he says, while the assets are important, parents seem to want to protect and preserve the family first, not the assets.

"It changes how you look at the planning idea. If you have one kid who's responsible and one who isn't, why treat them the same? Take into account how they are as people," says Scroggin. "I know a family where the son is very successful but the daughter has been married nine times. Her money is in a trust where she can't have direct access to it -- the son has direct access to his."

Scroggin says his clients generally have three things in mind when they set up a trust. They want to create a safety net that will provide a level of existence for their heirs.

"We're not going to give you a lavish lifestyle, but here's a source to keep you from poverty. No Lamborghinis."

And they also want to include incentives and some protective provisions in case an heir suffers from mental or emotional problems or substance abuse.

Palermo says some trusts rely on the judgement of a trustee when doling out money for worthy purposes such as education, buying a home or starting a business.

"That doesn't mean a newlywed should buy a mansion," says Palermo. "If money would be made available for a business, it should be a business appropriate to the age, training and experience of the child. If a 20-year-old wants to buy a used pickup to expand a lawn-mowing business, that might be appropriate. On the other hand, buying a topless nightclub might not be appropriate."

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-- Posted: Aug. 2, 2000