Life is messy sometimes. Divorce, bankruptcies and lawsuits happen, and they can potentially wipe out the inheritance you’ve carefully set aside for your loved ones. But there are many trust options to help keep life from ruining your legacy.
Many estate planners believe that their job is done when the beneficiaries avoid probate and receive their inheritance. However, when beneficiaries receive their inheritance in their name outright, that needlessly exposes the legacy you leave to the claims of creditors, lawsuits, divorce, the loss of governmental benefits they might otherwise receive and even a second estate tax when they die. “Outright” distributions from the trust to the beneficiary in his or her name should rarely occur for large or even relatively modest estates.
A better approach is for each beneficiary’s inheritance to go into his or her own Beneficiary Controlled Trust. If properly drafted and funded, the beneficiary can control, use and enjoy the inheritance with fewer risks than outright ownership. A Beneficiary Controlled Trust will help protect your loved ones from the bad things in life that may occur without any fault of your loved ones. For example, divorce, lawsuits, creditor claims, bankruptcy or even estate tax upon their death. Sadly, bad things happen to good people. On the other hand, a spendthrift trust is traditionally intended to be used for beneficiaries who are not trusted to make good financial decisions. A spendthrift trust is similar to a spigot on a hose. The trustee in his or her discretion can open the spigot to permit spending or close the spigot to restrict or prevent spending by the beneficiary…
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