Like many people, you probably created an estate plan to ensure that your assets are used to provide for loved ones after you are gone. Making direct gifts within your estate plan is one way to do that; however, you may not want to make a direct gift if the assets are valuable and/or the beneficiary is unprepared to manage the assets. In that case, you may wish to stagger the distribution of the inheritance you gift to a beneficiary. The North Andover trust attorneys at DeBruyckere Law Offices explain how to use a living trust to stagger an inheritance.
Your Last Will and Testament
Your Last Will and Testament likely serves as your initial estate planning document. Your Will allows you to make both specific and general gifts to as many beneficiaries as you wish to include. The potential problem in using a Will to gift assets is that any assets you intend to gift a beneficiary in your Will must generally be gifted all at once. Moreover, once those gifts are made, you have no control over how the beneficiary uses the assets. If a beneficiary is a young adult, he/she may not yet have the experience necessary to handle a lump sum inheritance. A beneficiary who has a history of addiction can also present a problem if you are passing down a valuable inheritance. Then there is the spendthrift beneficiary. Most families have one – that person who simply isn’t good with money. In each of these scenarios, you run the risk of an inheritance being squandered if you pass it down using your Will as a lump sum gift. Using a trust to stagger the inheritance you leave a beneficiary is often a better option.
What Is a Living Trust?
A trust is a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s (trust creator) Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Using a Living Trust to Stagger an Inheritance
A living trust offers an excellent alternative to making direct gifts in a Will when staggering an inheritance is your goal. As the Settlor of the trust, you create the trust terms. If a term is not illegal, impossible, or unconscionable, you can create any term you wish. If you are concerned about leaving a lump sum to a beneficiary, you can use those terms to stagger the distribution of that beneficiary’s inheritance. You might distribute a portion right after your death and/or when the beneficiary reaches the age of majority and then increasingly larger portions every few years until the entire inheritance has been distributed. Another option is to distribute very small sums on a monthly or yearly basis. In the meantime, the remaining inheritance will be managed and protected by the Trustee you appointed when you created your trust. Finally, if you are concerned about how the beneficiary may use the inheritance you leave behind, you can also use the trust terms to control, to a large extent, how the assets are used. For instance, you might dictate that the assets can only be used for living expenses or for educational expenses.
Contact North Andover Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions about using a trust to stagger an inheritance, contact the North Andover trust attorneys at DeBruyckere Law Offices by calling (603) 894-4141 or (978) 969-0331 to schedule an appointment.
A common mistake people make when creating a trust is to appoint a spouse or family member as the Trustee without giving sufficient thought to the individual’s qualifications. Given the complex legal and financial nature of a trust, you may wish to consider a professional Trustee.
Only an experienced trust attorney can help you decide which type of living trust to use; however, keep in mind that you cannot revoke or modify the terms of an irrevocable living trust once it is activated.
Yes. A Living trust can also help your estate avoid probate and help you plan for the possibility of incapacity. An irrevocable living trust can also help with goals such as tax avoidance and Medicaid planning.