I recently wrote about choosing your Successor Trustee based on how much flexibility versus protection you’d like the beneficiary to have upon administration of your Trust. Now, let’s talk about a common misconception about trusts and when distributions could or should be made to beneficiaries.
Some clients hesitate to establish trusts for their children in trust because they want their child to be able to use the inheritance to buy a house, start a business or invest for retirement. Just because an inheritance is left in trust does not prevent it from being used for these purposes. The Trustee can invest in any reasonable asset—the only difference is that title to the asset will be in the name of the trust and not that of the beneficiary.
This difference in how title is held seems small, but it makes a significant difference if a spouse files for divorce or the beneficiary is sued by a credit card company. It can be the difference between losing the house and being able to continue to live there and pass it on at death.
Trust distributions can be structured many ways. One is to allow the beneficiary to demand distributions at any time. This offers great flexibility and freedom, but minimal asset protection other than against a divorcing spouse.
A second way is to distribute all income or a fixed percentage of trust assets. This provides better protection, although anything distributed may be subject to claims of divorcing spouses and creditors.
A third way is to give the Trustee discretion as to when and if to make distributions. This offers the greatest divorce and asset protection. Trusts for spendthrift beneficiaries are usually drafted this way.
Finally, a special needs trust will provide protection against government claims and not cause the beneficiary to lose eligibility for government assistance programs.
To explore if any of these strategies is best for you and your family, please call Pam at 405-562-7409 to schedule a complimentary consultation.
Jerry Shiles
Author, Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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