Every estate planning situation is different, so there is no single approach that is universally right for everyone. As a layperson, you simply are not going to know all of your options, and this is why professional assistance is invaluable.
With this in mind, we will look at an estate planning solution that is very useful if you have a spendthrift on your inheritance list.
Revocable Living Trust
If you were to use a last will as your vehicle of asset transfer, unless you include a testamentary trust, your heirs would receive direct, lump sum inheritances. This can be a problem if you have someone in the family that has consistently proven that they cannot manage money effectively.
People like this invariably need financial help from time to time, and you will not be around to provide it. Under these circumstances, you may want to implement a strategy that would allow for measured distributions over an extended period of time.
This can be done through the utilization of a revocable living trust. First, it is important to understand the fact that you would not be surrendering control of the trust while you are living.
As the grantor, you can act as the trustee and the beneficiary, so you can take assets out of the trust and make changes along the way. Of course, you can also convey assets into the trust after it has been created.
In fact, you would have the power of revocation, so you could choose to dissolve the trust and take back direct personal possession of the property that was placed into it.
To account for the events that will unfold after your passing, you name the spendthrift heir as the beneficiary, and you would also empower a trustee to succeed you. The trustee can be someone that you know personally, but longevity would be a source of concern.
Plus, it is wise to use someone with a high level of financial acumen, and this is especially important if there are assets that will be invested. If the trust is well-funded, you may want to engage the services of a professional fiduciary. Banks and trust companies offer trustee services, and this can be the ideal choice.
You set the terms with regard to the nature of the distributions that will be passed along to the beneficiary. Many people will have the trustee distribute the earnings that are generated by the assets that are in the trust.
This can be a permanent arrangement, or you could instruct the trustee to distribute portions of the principal at some point. If you expect assets to remain in the trust after the death of the first beneficiary, you could name a successor.
It should be noted that the living trust would become irrevocable at the time of your death. The beneficiary would not be able to touch the principal, and they could not change the terms.
To account for potential legal actions that could be initiated by the creditors of the beneficiary, you can include a spendthrift provision. This would put the creditors into the beneficiary shoes.
Since the beneficiary can’t touch the principal, they would not be within reach of litigants seeking redress.
The spendthrift angle is just one of the many benefits that you gain when you choose a living trust as the centerpiece of your estate plan. We will leave it at that, but we will cover all of the advantages in another blog post.
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Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021.
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