Thursday, July 4, 2019 - by Martin L. Pierce
Irrevocable trusts may seem like you are trying to keep your children and grandchildren from wasting your life’s work, but they can be a flexible solution. A trust can also be helpful in divorce, substance abuse and other situations.
We all want the best for our family. We work hard to provide for them. Make sure your hard work continues to provide for them once you are gone by investing in thoughtful estate planning.
If we are fortunate, we will be able to leave an inheritance to our children. But that does not mean our children (or grandchildren) should have easy access to any or all the money and possession left for them.
Some people (young adults, those lacking budgeting skills, others with unhealthy habits or in bad relationships, the disabled and more) who would otherwise receive a sum of money or property could meet with disastrous results.
The truth is that many people are simply not equipped to deal with receiving a sum of money. As a comparison, think of the stories you have heard about lottery winners. Their intentions are good, but many of them end up filing for bankruptcy.
So if you want to protect your inheritance, an irrevocable trust may well be just the protection you are looking for by providing a trustee with the authority to control how the beneficiary can obtain, use or receive benefit of the funds. A trust includes limitations on a beneficiary's control of funds held by the trustee in the trust.
An irrevocable trust also protects assets from creditors because the assets are not owned directly by the beneficiary. Further, an irrevocable trust generally protects the trust funds from divorces, lawsuits and bankruptcies, and it can keep money away from manipulative family members and friends.
Of course, once the money is paid out of the trust, that money is available to creditors just like any other assets owned by the beneficiary in his or her own name. But there is a remedy for that oftentimes – instead of distributing funds directly to the beneficiary, have the trustee pay for items directly, whether that be to a school or to a utility company or landlord or other.
The trustee controls how and when the beneficiary receives money
The person establishing the trust (you) determines how much power to give the trustee. You will outline whether the trustee is to make set payments to the beneficiary each month, regardless of circumstance, or whether the trustee has the discretion to decide how much money the beneficiary will receive, when it will be distributed, and under what terms, if any. Again, having the trustee directly make payments for the beneficiary can be more protective.
For example, if you have given the trustee full control over the trust, and the trustee decides that some of the money should be used to pay Ellie’s college tuition, the trustee can write a check for tuition payments each semester and send it directly to the college for Ellie’s benefit. What’s more, the trustee can also put certain conditions on Ellie’s academic performance and pay her tuition if she maintains a certain GPA or graduates within a specific time frame.
For another example, if a beneficiary has or had a substance abuse problem, the trustee can make access to the money contingent on a clean drug test.
Although anyone over the age of 18 could be the trustee, you will want to carefully consider the person (or persons, in the case of co-trustees) you choose to do the job. You can also hire a corporate trustee, such as a professional firm, bank, or investment company to do it for a fee, and you could name a family member or friend as co-trustee with the corporate trustee.
When appointing a family member, remember family dynamics that might come into play between the trustee and the beneficiary.
How to create the irrevocable trust
A certified estate planning attorney can help you determine whether an irrevocable trust makes sense for you and your heirs. You will go over a number of important questions and options so you both understand what you want to accomplish, who might be good candidates for the position of trustee, and when and how you want the trust to end. You will discuss other factors as well to ensure everything is covered in the event of different scenarios occurring.
In any event, an irrevocable trust might be what you need or desire to ensure your assets are protected and your family members are cared for in the long run.
(Copyright ©2019, all rights reserved. Provided by Pierce & Huisman, Attorneys, 648-4303, MPierce@PierceHuismanLaw.com, John@PierceHuisman.com Pierce & Huisman provides Estate, Elder Law, Business, Probate, Guardianship, and Special Needs legal services, among others. Mr. Pierce is a Certified Estate Planning Specialist. Licensed in Tennessee and Georgia.
DISCLAIMER: This article provides general coverage of its subject area. It is provided free, with the understanding that the author, publisher and publication do not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The author and the publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.)