Does Your Estate Plan Protect Your Adult Beneficiaries?
If you think you only need to create discretionary lifetime trusts for young beneficiaries, problem beneficiaries, or financially inexperienced beneficiaries, then think again. In this day and age of frivolous lawsuits and high divorce rates, discretionary lifetime trusts should be considered for all of your beneficiaries, minors and adults alike.
What is a Discretionary Lifetime Trust?
A discretionary lifetime trust is a type of irrevocable trust that you can create while you are alive – in which case you will gift your assets into the trust for the benefit of your beneficiaries – or after you die – in which case your assets will be transferred into the trust for the benefit of your beneficiaries after death.
The trust is discretionary because you dictate the limited circumstances when the trustee can reach in and take trust assets out for the use and benefit of the beneficiaries. For example, you can permit the trustee to use trust funds to pay for education expenses, health care costs, a wedding, buying a home, or starting a business. If the trust is funded with sufficient assets that are invested prudently and you choose the right trustee to carry out your wishes, the trust funds could last for the beneficiary’s entire lifetime.
How Does a Discretionary Lifetime Trust Protect an Inheritance?
With a discretionary lifetime trust each of your beneficiaries will have a fighting chance against lawsuits and divorcing spouses because their inheritance will be segregated inside of their trust and away from their own personal assets. By creating this type of “box” around the inherited property, it shows the world that the inheritance is not the beneficiary’s property to do with as they please. Instead, only the trustee can reach inside the box and, based on your specific instructions, pull funds out for the benefit of the beneficiary. Creditors, predators, and divorcing spouses are generally blocked from reaching inside the box and taking property out.
When the beneficiary dies, what is left inside their box will pass to the heirs you choose. You could decide, for example, to have the assets pass to your grandchildren inside their own separate boxes and on down the line, thereby creating a cascading series of discretionary lifetime trusts that will protect the inherited property and keep it in your family for decades to come.
You can even name the beneficiary as the trustee and provide an “ascertainable” standard for him/her to make discretionary distributions for their health, education, maintenance and support.
What Should You Do?
Does all of this sound too good to be true? It’s not. Our firm is available to discuss how you can incorporate discretionary lifetime trusts into your estate plan. Your family will certainly be glad you did.