The name sounds like you might be trying to keep children and grandchildren from being irresponsible with the assets you’ve amassed through a lifetime’s work but irrevocable trusts offer a flexible solution. They are also helpful in cases of divorce, substance abuse and other situations, reports The Chattanoogan in an article titled “Keeping Your Family from Losing Its Inheritance.”
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. Speak with a qualified estate planning attorney, to learn if an irrevocable trust is a good idea for your situation and also to determine whether or not a family member should be named the trustee.
For more information about estate planning in Orlando, FL (and throughout the rest of Central Florida), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: The Chattanoogan (July 5, 23019) “Keeping Your Family from Losing Its Inheritance.”