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February 17, 2002 at 07:00 PM
Some years ago an estate-planning tool that was widely discussed was the “sprinkling trust.” Proponents of the concept argued that this was the ideal way to distribute an inheritance among a group of heirs.
The idea was that the trustee could “sprinkle,” or distribute, income and principal to the heirs on the basis of their respective needs. The reasoning was that this is pretty much the way an estate owner would favor heirs if still living. The theory sounded great, but did it really work?
Most trust officers I have talked with agree that such arrangements created more problems than they solved. The major flaw in the sprinkling trust was that it tended to reward laziness and penalized or disinherited those heirs who were successful. The ne’er-do-well son or daughter seemed always to have needs the trustee was authorized to supportwhereas the successful heir, being self sufficient, was not eligible for a rightful share of the estate.
The unintended consequences of this kind of planning often resulted in bitterness and even litigation to alter the provisions of the trust.
Most, if not all, estate owners that I have dealt with encouraged their children to become successfulhence their support of college educations and business ventures. They also abhorred the idea of fostering or rewarding irresponsibility.
Of course, there were always exceptions where the heir was physically or mentally challenged, but such cases can easily be taken care of without cutting off the rest of the family.
At any rate, I have not heard much about the “sprinkling trust” in recent years and I believe it is because its execution was contrary to the idea that encouragement to be responsible citizens was a more important goal than providing a handout to those who shirked personal responsibility.
I thought about this flawed estate-planning principle when I read about the “Victim Compensation Fund” relating to the events of September 11. As I understand this piece of legislation passed by Congress and signed by the President, there are two objectives: first of all is the desire to compensate the families of persons killed in the disaster and also the people injured. The second objective is to choke off probable litigation that would surely occur in the aftermath of the tragedies.
Like the sprinkling trust, I believe this legislation is severely flawed and unless modified will create more problems than it solves, no matter how well intentioned it may be.
