1st Oct 2015
Trusts are not just for wealthy families who need tax planning; they can also provide great flexibility for you and significant protection to your loved ones. When it comes to asset protection, threats to an inheritance come in many forms—from the individual’s own spending habits, substance abuse, divorce or bankruptcy. Leaving an inheritance or gift in trust rather than outright is highly recommended to protect from both foreseeable and unforeseeable threats.
Last month’s newsletter discussed the various options available when limiting withdrawals from a trust. Most of the questions in response were regarding the actual structure, division and distribution of a trust. The chart below illustrates how George’s assets can be held for his spouse, Betty, during her life and then pass to his children, Bobby and Suzie, and be protected along the way.
Utilizing a Revocable Living Trust in your estate planning provides endless possibilities. For example, assume that Bobby and Suzie are George’s children from a previous relationship. By leaving assets to Betty in trust rather than outright, George can ensure that assets remaining after Betty’s death will pass to his children rather than her new spouse or children. A trust would also allow George to direct that his assets should be divided between his children and Betty immediately upon his death, if he so desires.
Minimizing Conflict Among Beneficiaries
In addition to protecting against outside threats, a properly drafted trust minimizes the likelihood of conflict among beneficiaries. In this particular example, Bobby and Suzie’s equal shares are divided immediately rather than upon distribution. Alternatively, if Bobby and Suzie were both making withdrawals from a pot trust, the inequality of such distributions may lead to a strained relationship or litigation. Additional protection can be achieved by utilizing a third-party trustee to manage and distribute trust assets in accordance with the terms of the document.
How a Trust Will Benefit You and Your Family
Every individual’s and family’s circumstances are unique. A trust is an extremely flexible document that should reflect your wishes and values while also protecting your loved ones from themselves, creditors, divorcing spouses and each other. Too often, individuals and couples assume that their situation is simpler than it actually is, leading their family directly into landmines that could have easily been avoided. Meeting with your estate planning attorney to discuss your goals and wishes is the first step to ensuring that you maximize the value of your estate plan.