The Benefits of Trusts for Beneficiaries – Why Delayed Distribution is often Superior to Outright Distribution
Whether you have accumulated a little or a lot of wealth over your lifetime, it is likely that you have some particular thoughts on how you would like those assets to be used by loved ones after your death. Maybe you would like the assets to be used as a down payment on a home, be applied toward college tuition, or fund a dream vacation. Unfortunately, without specific guidance from you, money that is left outright to your loved ones may not be used the way you would like. For these reasons, and many more, leaving a delayed inheritance may be the best option to help create the legacy you want for your children and grandchildren.
Benefits of Delay vs. Outright
There are several reasons not to leave an outright distribution to your loved ones. Too often, people overlook the benefit of leaving assets in a trust – even for adult children. When a trust is set up, you can limit annual distributions or give the trustee discretion to determine the distributions. You can have the trustee – or the individual in charge of managing the funds – pay the beneficiaries’ expenses directly to providers instead of distributing money to your loved one. You can also give a trustee the authority to stop distributions and resume them according to your wishes. You may even have the beneficiary serve as their own trustee under the right circumstances, or have a professional trustee properly and efficiently carry out your wishes for the benefit of your loved ones.
Aside from having more control over how the assets will be used, there are also several protections that come from a trust as opposed to an outright distribution. A trust can protect the wealth from the beneficiary’s creditors – most states allow for creditors to assert claims only against income and principal the beneficiary is entitled to receive. If the distribution is discretionary, or otherwise has some ascertainable standards, the creditor can only seize the money once it has been distributed to the beneficiary, or which the beneficiary is entitled to receive outright. Likewise, a trust protects the beneficiary in marriage and divorce. When a distribution is made outright, the beneficiary’s spouse may claim a share of those assets in divorce or separation as marital property, or may even inherit those funds after the death of the beneficiary. When assets are bequeathed in a trust, they are typically not considered part of the marital estate and can be safely passed down to grandchildren without the risk of those assets leaving the family bloodline.
Bottom line: While a trust may not be appropriate in every situation, delaying inheritances as opposed to issuing an outright distribution often enhances the inheritance through additional protections and helps ensure that the legacy you worked hard to build can be passed to the next generation.
If you have questions about distributions, trusts or any other estate planning concerns, contact us today.