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Does Your Estate Plan Protect Your Adult Beneficiaries?

Posted on: April 7th, 2015

Does Your Estate Plan Protect Your Adult Beneficiaries?

If you think a discretionary lifetime trust is just for young beneficiaries, problem beneficiaries, or financially inexperienced beneficiaries, then think again.  In this day and age of frivolous lawsuits and high divorce rates, inheritance trusts need to be considered for all of your beneficiaries, minors and adults alike.

What is an Inheritance Trust?

An Inheritance Trust is a type of irrevocable trust that you can create after you die so that the inheritance you leave will be transferred into the trust for the benefit of your beneficiaries. 

An Inheritance 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.

In addition, you can include the beneficiary in the decision making by including him or her as a co-trustee. This will provide most of the benefits of an outright inheritance with substantial protection for the beneficiary.

How Does a Trust Protect an Inheritance?

With a discretionary Inheritance 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. The strength  of the box will depend on exactly how the trust is drafted.

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.If you want to give your primary beneficiary more control over what happens to remaining assets at death, the trust can provide discretion to select among beneficiaries you designate.

What Should You Do?

Does all of this sound too good to be true?  It’s not.  I am available to discuss how you can incorporate Inheritance Trusts into your estate plan.  Your family will certainly be glad you did.
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