At our firm, we have found that many of our clients do not want minor children (and even young adults) to inherit the assets outright, but would prefer that someone with more maturity and financial experience should manage the assets until the beneficiary turns a particular age. Sometimes, clients want this option regardless of the beneficiary’s age. Even adult children may not be financially responsible. Some clients do not wish for their child with a substance abuse problem or gambling issue to inherit outright.
An Inheritance Trust is used as an alternative to leaving the inheritance outright to a beneficiary. It can be drafted to allow someone else to be the “trustee” and control the beneficiary’s distributions. The Trustee can be given sole discretion to make distributions only when it is in the beneficiary’s best interest, or even over the beneficiary’s lifetime. The Trustee can even be directed to distribute a percentage to a beneficiary in stages. The Trust can also be drafted to end at a predetermined time or beneficiary’s age. This depends on the intent of the person establishing the Trust.
An Inheritance Trust also has benefits beyond of controlling the distributions. For example, it allows the beneficiary to protect assets from a divorce situation and creditors. It also allows you to direct who receives the money if your beneficiary passes away down the line. You might say that if your child were to pass away, you can direct that the remaining inheritance at their death go to your grandchildren rather than to their spouse (and potential new spouse). You can also direct that if one of your children dies without leaving children of their own, then their trust assets may be distributed to their surviving brothers and sisters.
Those in a second marriage may also want to consider an Inheritance Trust, as it allows you to leave assets to a spouse and direct who receives the remainder if the spouse dies or remarries. Maybe you and your spouse have separate assets, but you want to provide for your current spouse if you die first? An Inheritance Trust allows you the option to limit the distributions. You might say that the distributions are limited to investment income or a percentage of the Trust’s value. Alternatively, you might say that it up to the Trustee’s discretion to determine the distributions based on the spouse’s needs and best interests. Without an Inheritance Trust, you will have no control over any inheritance remaining at the spouse’s death, and it will be left to their children or heirs, or even their new spouse, and not your children or grandchildren.
As you can see, there are several benefits to bequeathing assets in an Inheritance Trust rather than directly to your beneficiary. If you are unsure how to best distribute your estate, call our office at (404) 260-1901 to discuss the options.