Some people think that you have to use a will when you plan your estate unless you are very wealthy. If there are drawbacks or limitations, that’s the way it goes. In reality, you have options, and you can provide for each inheritor in the ideal manner.
Every named beneficiary would receive lump-sum inheritances if you use a simple will with no other provisions. This can be disconcerting if you are going to be leaving inheritances to loved ones that are not particularly good with money.
Someone can have a history of poor money management. And then there are those individuals who simply have no experience. There are also individuals who have never had any difficulties in the past who could have unexpected problems that can result in creditor claims.
Fortunately, there is a response in the form of a revocable living trust with a spendthrift provision. A lot of people hear the word “trust” and run away because they do not want to lose control of their assets. This is understandable, but it is a misunderstanding in this instance.
When you establish a living trust, you will be the trustee. This means you will have complete control of the assets in every way throughout your life. Since this would be a revocable trust, you could even dissolve the trust entirely and it would no longer exist.
The point is to use it as your estate plan centerpiece. When you draw up the trust, you name a successor trustee to manage the trust after your death, and your heirs would be the beneficiaries.
After your death, your trust would become irrevocable. The beneficiaries would not be able to access the principal directly. In addition, they would not be able to make any decisions on behalf of the trust. Since they would not be able to reach the assets, the same arrangement would apply to their creditors.
You do not have to allow for lump-sum distributions all at once. You could instruct your trustee to distribute a certain amount each month for a number of years. This is one way to structure the distributions. The terms, however, will be up to you when you establish the trust.
Incentives to Provide Guidance
You can use an incentive trust to guide people toward a preferred behavior. With this type of trust, stipulations must be met before assets are distributed.
For example, you could instruct the trustee to cover college tuition and all expenses as long as the beneficiary stays in school. To instill a good work ethic, you could allow for a dollar for dollar match of money that is earned on the job after graduation.
This type of trust can also be used to incentivize a beneficiary to steer clear of self-destructive behavior. An incentive trust can sound like an ideal choice, but a beneficiary could become resentful and rebellious when they receive an inheritance with strings attached.
Special Needs Planning
Many people with disabilities get their health insurance through Medicaid, and Supplemental Security Income is a source of monthly cash. These benefits are available to people with significant financial need, so an inheritance can cause a loss of eligibility.
If you have a person with a disability on your inheritance list, you can use a supplemental needs trust to preserve benefits. The trustee could use the assets to make the beneficiary more comfortable, without negatively impacting government benefit eligibility.
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These are a few of the targeted solutions that exist, and there are others. There is no one-size-fits-all estate plan is right for everyone, and as you can see, there are different approaches that can be taken. Personalized attention is key, and this is what you will receive when you work with our firm.
If you are ready to get started, you can send us a message to request a consultation appointment, and our Oklahoma City estate planning office can be reached by phone at 405-843-6100.