One of the key decisions in preparing your estate plan is deciding who your beneficiaries will be upon your death. A sub-part of that decision is deciding in what manner you will leave your assets to these beneficiaries. Years ago it was quite common to leave inheritances outright to beneficiaries. In more recent times, “staggered” distributions were favored, which distributed the inheritance to the beneficiary in pieces – such as one half at death and the balance five years later, or one-third when the beneficiary attained ages 25, 30 and 35.
With the recent proliferation of lawsuits, and the divorce rate at about 50%, these types of distribution plans are becoming less common. More and more often, parents are leaving inheritances in trust for their children and grandchildren. The advantages of leaving an inheritance in trust are many:
- Lawsuit protection, if the trust is properly structured;
- Protection from a divorcing spouse of the beneficiary;
- A potential reduction in estate and generation-skipping transfer taxes at your death as well as at the death of future generations through the use of generation-skipping trust provisions;
- In the case of a “spendthrift” beneficiary, or one who is prone to drug, alcohol, or gambling addictions, the ability to have a third party manage the inheritance for the beneficiary;
- In the case of a “special needs” beneficiary, the ability to avoid disqualifying the special needs beneficiary from receiving valuable government benefits such as Medicaid or Supplemental Security Income (“SSI”) while, at the same time, making inheritance funds available for their supplemental needs.
If you’d like to learn more about how divorce affects your estate plan, contact our office today.
Parman & Easterday
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