If you intend to leave a substantial inheritance for your spouse, children or other loved ones, you might want to think twice about having money or other assets distributed to them “outright” when you pass away. Simply handing over an inheritance to a beneficiary in one lump sum can spell trouble, and it can deprive your loved one of the protections provided by a lifetime trust.
What is a Lifetime Trust?
When you establish a lifetime trust, you appoint a trustee to manage certain assets on behalf of your loved one, who is named beneficiary of the trust. You also establish written ground rules for how the trust assets are to be managed, and under what circumstances they are to be distributed to your beneficiary. The trustee is under a legal obligation to follow your instructions and manage the funds in the interests of your beneficiary.
As the name would suggest, when you establish a lifetime trust, the assets transferred into the trust are held there for your beneficiary’s lifetime, with the trustee making distributions at certain predetermined intervals, or when your beneficiary reaches certain milestones.
The Benefits of a Lifetime Trust
When you leave your loved one a substantial inheritance in a lifetime trust, the money retained in the trust does not belong to your beneficiary, meaning that it is protected from a number of outside forces.
First, it’s protected from your beneficiary’s creditors and from potential lawsuits. If your love one is sued and owes money damages, property held in a lifetime trust is generally not included in the assets that are subject to collection in payment of those damages.
Second, it’s protected from scams, bad investment opportunities, and get-rich-quick schemes. When a beneficiary receives a large, outright inheritance, he or she becomes an easy target for being taken advantage of. When an inheritance is held in trust, it is the trustee and not the beneficiary who decides when and for what purposes money should be released. This helps to shield your beneficiary from unwanted outside forces.
Third, it’s protected from a beneficiary’s poor decisions. Especially when a beneficiary is young and inexperienced with money, a large, lump-sum inheritance is just too tempting. It can be hard to make wise spending and investing decisions when you’ve just come into a windfall, and more than one beneficiary has dissipated an inheritance on frivolous purchases. A lifetime trust puts the trustee in the driver’s seat and helps to ensure that your loved one’s inheritance is not wasted.
So, a lifetime trust allows your beneficiary access to his or her inheritance while ensuring that the inheritance is preserved for as long as possible.
Stephen A. Mendel, Estate Planning Attorney
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