A column on estate and financial planning for everyone
Most people understand trust arrangements are beneficial for their minor children. Until kids are financially mature, parents and grandparents do not want their children and grandchildren to receive an outright inheritance. However, more clients are beginning to realize the benefits of lifetime trust arrangements, and in particular, “beneficiary controlled trusts”.
A beneficiary controlled trust is an estate planning technique designed to give a beneficiary substantial control and flexibility over inherited assets, while protecting those assets from the beneficiary’s creditors. Once learning more, adult beneficiaries – even those who are financially responsible – may prefer to receive their inheritance in this type of trust arrangement.
The design features of a beneficiary controlled trust typically include the following:
- A parent or grandparent establishes and contributes assets to an irrevocable trust, either during their life or at their death.
- The beneficiary of the trust cannot establish the trust, nor can he or she contribute their own assets to the trust.
- Once established, the trust is irrevocable and the assets cannot be withdrawn, except in accordance with the terms of the trust agreement.
- The beneficiary, either immediately or upon attaining a specific age, may serve as trustee; provided, however, depending on specific factors and in certain jurisdictions, a co-trustee or design alternatives may be required or advisable to achieve the desired level of protection from creditors.
- The trustee has considerable flexibility regarding the use and investment of the trust assets. For example, the trustee may acquire assets for the beneficiary’s use and enjoyment, such as a vacation home, invest in a business venture of the beneficiary, or lend money to the beneficiary on favorable terms.
- The trustee may distribute income and principal to the beneficiary for his or her health, education, maintenance, and support.
- Trust assets are not subject to the claims of the beneficiary’s creditors, law suits, ex-spouses, or tax liens; that is, third parties cannot force a distribution of trust assets in satisfaction of a claim against the beneficiary.
- When the beneficiary passes away, the remaining assets pass to his or her descendants, perhaps in continued trust for multiple generations.
Our society experiences a high rate of divorce and also high levels of litigation. Consider whether your descendants could benefit from a beneficiary controlled trust structure and then work with an experienced estate planning attorney to put the structure in place.
ABOUT THE
AUTHOR
I am a shareholder of Koley Jessen P.C., L.L.O., located in One Pacific Place. My practice is focused on estate and tax planning. Outside of the office, I enjoy spending time with my husband and our three children. For help with your family’s estate planning needs, please contact me directly at
lisa.lehan@koleyjessen.com or 402.343.3881.
