It is no surprise to find that parents want to provide for their children and grandchildren both during life and after a parent’s death. To this end, many smart parents employ some form of estate planning, most commonly through the use of trusts. However, the manner in which the trust is structured can greatly affect whether your dispositive wishes are fulfilled. Without proper planning, circumstances such as a child’s divorce or financial irresponsibility can result in unintended beneficiaries of your hard-earned assets.
A trust can be an ideal arrangement for holding assets for the benefit of a child or grandchild. It can fulfill your desire to provide for your beneficiary’s financial well-being, while at the same time, allowing you to exercise substantial control over when and how your beneficiaries receive the trust assets. You can give your beneficiaries varying degrees of access to the income and principal of the trust assets. However, have you considered this: what would happen if ten years after creating your trust, a beneficiary experiences financial difficulties? Would his or her creditors be able to attach those trust assets? This depends greatly upon your particular state law, but there is a good chance that the creditors of your trust beneficiaries may be able to reach the assets you intended for your beneficiaries’ well-being.
For the most part, however, the situation is not hopeless. It may be possible to structure the trust to prevent unintended beneficiaries from accessing a beneficiary’s trust share. One such method is to include special provisions in your trust agreement instructing the Trustee of your trust to withhold distributions of trust assets that otherwise would be provided for under the trust terms, if, in the trustee’s discretion, failing to do so would be contrary to your intent in creating your trust. Without a trust distribution, the creditors have nothing to attach.
These provisions can also be very advantageous in a situation where a trust beneficiary has “Special Needs.” This can be the case where a child is in an accident or where a grandchild is born with a disability, subsequent to the trust creation. Allowing a special needs beneficiary access to trust assets may disqualify them from receiving government benefits. Your beneficiaries may not be receiving government benefits at the time you create your trust, but the withholding provisions can be used to protect such beneficiaries should the need arise.
The following is a brief list of compelling reasons that may prompt a Trustee to delay distributions to a trust beneficiary:
- The susceptibility of the beneficiary to undue influence or duress by an individual or a group;
- Alcohol or substance abuse by the beneficiary;
- A pending marital separation or dissolution of marriage or divorce of the beneficiary;
- Potential financial difficulty or a proven inability of the beneficiary to manage money;
- A serious tax disadvantage upon distribution to the beneficiary.
- The beneficiary’s disability which has created a reliance on government support programs.
This list, of course, is not all-inclusive, and you can include other provisions that you feel would necessitate delaying a trust distribution. The particulars should be discussed with a qualified estate planning attorney. Only an attorney specializing in estate planning will be familiar with this type of advanced drafting, so be sure to choose your attorney wisely.
Mr. Morrison is a board-certified estate planning attorney with experience in both simple and complex estate matters. He can prepare an estate plan for you that achieves your goals of passing your assets to whom you wish. The firm has helped thousands of clients meet their estate planning goals and pass on lasting legacies to their loved ones. To learn more about how you can achieve your estate planning goals, please call (504) 831-2348 or visit our website at www.morrisonlawplc.com.
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