One common reason to create an estate plan is to ensure that your assets are used to provide for loved ones after you are gone. Making direct gifts within your estate plan is one way to do that. There are times when you may not want to make a direct gift if the assets are valuable or the beneficiary is unprepared to manage the assets. An Oklahoma City trust attorney at Parman & Easterday explains how you can use a living trust to stagger an inheritance instead of gifting it outright.
Your Last Will and Testament
Your Last Will and Testament likely serves as your initial estate planning document. Your Will allows you to make both specific and general gifts to as many beneficiaries as you wish to include. The problem in using a Will to gift assets is that any assets you gift to a beneficiary in your Will usually must be gifted all at once. Once those gifts are made, you have no control over how the beneficiary uses the assets. If a beneficiary is a young adult, he or she may not have the experience necessary to handle a lump sum inheritance. A beneficiary with a history of addiction can also present a problem. Then there is the spendthrift beneficiary. Most families have one – that person who simply isn’t good with money. In each of these scenarios, you run the risk of the inheritance being squandered if you use your will to pass it down as a lump sum gift. Using a trust to stagger the inheritance you leave a beneficiary is often a better option.
What Is a Living Trust?
A trust is a fiduciary legal arrangement that allows the Trustee to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. All trusts fall into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are activated by a provision in the Settlor’s (trust creator’s) Last Will and Testament and do not become active during the lifetime of the Settlor. A living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
How Can a Living Trust Be Used to Stagger an Inheritance?
A living trust is an excellent alternative to making a direct gift in a Will if staggering an inheritance is your goal. As the Settlor of the trust, you create the trust terms. If a term is not illegal, impossible, or unconscionable, you can create any term you wish. If you are concerned about leaving a lump sum to a beneficiary, you can stagger the distribution of that beneficiary’s inheritance. You might distribute a portion right after your death or when the beneficiary reaches the age of majority and then increasingly larger portions every few years until the entire inheritance has been distributed. Another option is to distribute very small sums on a monthly or yearly basis. In the meantime, the remaining inheritance will be managed and protected by the Trustee you appointed when you created your trust. Finally, if you are concerned about how the beneficiary may use the inheritance you leave behind, you can also use the trust terms to control, to a large extent, how the assets are used. For instance, you might dictate that the assets can only be used for living expenses or for educational expenses.
Contact an Oklahoma City Trust Attorney
For additional information, please join us for an upcoming FREE seminar. If you have questions or concerns about using a living trust to stagger an inheritance, contact an experienced Oklahoma City trust attorney at Parman & Easterday by calling 405-843-6100 to schedule your appointment today.
Only an experienced trust attorney can help you decide which type of living trust to use. You cannot easily revoke or modify the terms of an irrevocable living trust once it is activated.
A common mistake people make when creating a trust is to appoint a spouse or family member as the Trustee without giving sufficient thought to the individual’s qualifications. Given the complex legal and financial nature of a trust, you may wish to consider a professional Trustee.
Yes. A Living trust can help your estate avoid probate and help you plan for the possibility of incapacity. An irrevocable living trust can help with goals such as tax avoidance and Medicaid planning.
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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