Creating a successful estate plan requires you to take a wide range of factors into consideration as well as blend numerous goals into one cohesive plan. Deciding who you wish to pass down your assets to is only the beginning for most people. You may also need to decide how you wish to pass down those assets. This is particularly true if you have a beneficiary to whom you are hesitant to gift a large lump sum inheritance. The Westport living trust attorneys at Nirenstein, Horowitz & Associates, P.C. explain how to use a living trust to stagger an inheritance instead of handing down that lump sum.
Traditional Gifting through a Will
For most people, a Last Will and Testament serves as their initial estate planning document. It may also continue to provide the foundation of their estate plan for many years to come. A Will allows you to make both specific and general gifts to as many beneficiaries as you wish to include. The potential problem in using a Will to gift assets is that any assets you intend to gift a beneficiary in your Will must be gifted all at once. Moreover, once those gifts are made, you have no control over how the beneficiary uses the assets. This can be of concern with some beneficiaries. If a beneficiary is a young adult, for example, he/she may not yet have the experience necessary to handle a lump sum inheritance. A beneficiary who has a history of addiction can also present a problem if you are passing down a valuable inheritance. 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 an inheritance being squandered if you pass it down using your Will as a lump sum gift. Fortunately, there is another option – using a trust to stagger the inheritance you leave a beneficiary.
What Is a Living Trust?
A trust is a fiduciary legal arrangement that allows a third party, referred to as a 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 can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s (trust creator) Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Using a Living Trust to Stagger an Inheritance
One of the many benefits to using a trust to distribute some, or all, of your estate assets is the ability to stagger the inheritance you leave a loved one. As the Settlor of the trust, you create the trust terms. As long as a term is not illegal, impossible, or unconscionable, you can create any terms you wish. If you are concerned about leaving a lump sum to a beneficiary, you can use those terms to stagger the distribution of that beneficiary’s inheritance. You might distribute a portion right after your death and/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. This offers yet another layer of protection against the possibility that the beneficiary will squander the assets you leave behind.
Contact Westport Living Trust Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about using a living trust to stagger and inheritance, contact the experienced Westport living trust attorneys at Nirenstein, Horowitz & Associates, P.C. by calling (860) 548-1000 to schedule an appointment.
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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