Irrevocable trusts can protect the assets created by a family over a lifetime, according to The Chattanoogan in “Keeping Your Family from Losing Its Inheritance.” They can also provide protection from events, such as divorce and substance abuse.
If we are lucky, we are able to leave a generous inheritance for our children. However, that doesn’t necessarily mean we should give them easy access to all or some of the assets. Some people, particularly younger adults who haven’t yet developed money management skills, or others with problems like a troubled marriage or a special needs family member, aren’t ready or able to handle an inheritance.
In some cases, like when there is a substance abuse problem, handing over a large sum of money at once, could have disastrous results.
Many people are not educated or experienced enough to handle a large sum of money. Consider the stories about lottery winners who end up filing for bankruptcy. Without experience, knowledge or good advisors, a large inheritance can disappear quickly.
An irrevocable trust provides protection. A trustee is given the authority to control how funds are used, when they are given to beneficiaries and when they are not. Depending on how the trust is created, the trustee can have as much control over distributions as is necessary.
An irrevocable trust also protects assets from creditors. This is because the assets are owned by the trust and not by the beneficiary. An irrevocable trust can also protect the funds from divorces, lawsuits and bankruptcies, as well as manipulative family members and friends.
Once the money leaves the trust and is disbursed to the beneficiary, that money becomes available to creditors, just as any other asset owned by the person. However, there is a remedy for that, if things go bad. Instead of distributing funds directly to the beneficiary, the trustee can pay bills directly. That can include payments to a school, a mortgage company, medical bills or any other costs.
The trustee and not the beneficiary is in control of the assets and their distributions.
The person establishing the trust (the “grantor”) determines how much power to give to the trustee. The grantor determines whether the trustee is to distribute funds on a regular basis, or whether the trustee is to use their discretion, as to when and how much to give to the beneficiary.
Here’s an example. If you’ve given full control of the trust to the trustee, and the trustee decides that some of the money should go to pay a child’s college tuition, the trustee can send a check every semester directly to the college. The trustee, if the trust is written this way, can also put conditions on the college tuition payments, mandating that a certain grade level be maintained or that the student must graduate by a certain date.
Appointing the trustee is a critical piece of the success of any trust. If no family members are suitable, then a corporate trustee can be hired to manage the trust.
An estate planning attorney or a probate attorney can advise you on creating an estate plan that fits your unique circumstances and may include irrevocable trusts.
The attorneys and team at Nickerson Law Group help families with estate planning, probate, guardianship, and special needs trust planning in Austin, Cedar Park, Round Rock, Georgetown, Lakeway, Bee Cave, Dripping Springs and the central Texas area. For more information and to learn about our firm, visit Nickerson Law Group’s website. www.estateplanningaustintexas.com
Reference: The Chattanoogan (July 5, 23019) “Keeping Your Family from Losing Its Inheritance.”