There are ideal approaches to every estate planning situation, and they can often be quite elegant in their simple efficiency. This would definitely apply to inheritance planning for someone that has a tendency to spend money too freely.
With this in mind, let’s look at the ways a revocable living trust can be used to protect a spendthrift heir.
You Maintain Control
A lot of people assume that you can no longer access assets that you convey into a trust, and for this reason, they never consider the possibility. The first thing we want to emphasize is the fact that you maintain complete control of assets that you convey into this type of trust.
You would always have the right to revoke the trust, and when you are alive and well, you would act as the trustee and the beneficiary. The trust would technically be the owner of the assets that you sign over to it, but you would be the controller of the trust, so nothing would really change.
In the trust declaration, you would name a trustee to act as the administrator after you are gone, and the loved one that you want to provide for would be the beneficiary. When it comes to the choice of trustee, you could appoint a trusted friend or family member, or you could consider the utilization of a trust company or the trust department of a bank.
The professional fiduciary would have industry-standard investment management abilities, and there would be no emotional connection to the beneficiary or longevity concerns. This can be a good choice under certain circumstances.
To protect your loved one’s inheritance, you could include a spendthrift provision when you create the trust. The principal would be protected from the beneficiary’s creditors, but they would be able to go after assets that have been distributed to the beneficiary.
You can instruct the trustee to distribute limited assets on an incremental basis over an extended period of time. For example, you could allow for the earnings that are generated by income producing assets to be distributed. The annual accrual can be broken up into monthly payments.
In addition to the fact that you would be restraining the beneficiary, there would never be anything available to creditors.
The trustee could be instructed to distribute portions of the principal when the beneficiary reaches certain age plateaus. This is just one example of a commonly used trust structure, but you would have complete control over the way the assets are distributed to the beneficiary.
Other Living Trust Benefits
When you have a living trust, you would name a disability trustee to act as the administrator in the event of your incapacity. This is a key consideration, because cognitive impairment is common among elders.
The assets that comprise your estate would be consolidated if you establish a living trust, and this streamlines the administration process. Depending on the circumstances, a married couple can benefit from the creation of a shared revocable living trust.
Another advantage is the avoidance of probate, which is a costly and time-consuming legal process that strips your family of privacy.
Access Our Free Estate Planning Worksheet!
You can explore this blog to obtain information about countless different estate planning and elder law topics, and it is not the only resource that is available to you on this website. One of the most valuable tools is the estate planning worksheet that we are offering free of charge.
If you take the time to go through it, you will come away with a more complete understanding of the estate planning process. To get your copy, visit our worksheet access page and follow the simple instructions.
- Donor Advised Funds: Too Good to Be True? - September 15, 2021
- Changing “Irrevocable” Trusts Through Judicial and Nonjudicial Modification - September 8, 2021
- Reasons to Supplement Your Estate Plan With Life Insurance - September 7, 2021