Trusts can benefit you in your relational estate planning goals because they allow you to place restrictions on how your loved ones can use the assets that you leave them.
There are many reasons why you might want to restrict how someone can use funds. They could be too young, too inexperienced, or have a history of making bad decisions. Whatever the reason, we’ve found that it is always best to communicate clearly with that person, so that they understand you have their best interest at heart. You don’t want to strain an important relationship by leaving them feeling like you don’t trust or believe in them.
We strongly encourage all of our estate planning clients to explain to their beneficiaries, in writing, why they made the choices they did. This is especially true when you are implementing control over how someone is able to use the money you are leaving for them.
Different Ways to Set Up a Trust
You have two main options for how to control someone’s use of funds with a trust.
The first is to choose a Trustee and give them the discretion to make decisions based on the purposes you establish, and the second is to set up the trust to react to certain events.
If you go with the first option and choose a Trustee, (remember, the Trustee is the one who controls the trust), you give them discretion about when to allow the beneficiary the ability to use the funds. This is our favorite way of controlling funds. Because the future is uncertain, the best way to decide how to respond to future events is to wait until they happen. And assuming you won’t be around to see them, the only way to do so is to pick someone you believe will make wise, appropriate, and moral decisions.
If you choose the second option, there are three types of events you can designate your trust to react to:
- positive events (like going to college, getting married, starting a business, or getting a job),
- negative events (like positive drug tests or getting a divorce), or
- neutral events (like reaching a certain age or annual happenings).
Ways You Can Help A Loved One by Creating A Trust
You have a lot of options for how to carry these two types of trusts out. The following is a list of how we’ve seen people craft trusts to help their loved ones:
- Allow the beneficiary to receive a certain amount of money each year or month. This can be a specific amount or it can be however much the trust earns.
- Allow the beneficiary to receive a specific percentage of the trust assets as they reach certain ages.
- Give the beneficiary an amount equal to the amount they earn each year or the amount they save for retirement each year.
- Cut off funds in the event the beneficiary fails a drug test or does not have a job for a period of time.
- Give funds upon the completion of college or having a job for a period of time.
- Combine several of these options to address your unique circumstances.
A trust is not necessarily the right estate planning tool for every family. But depending on your specific family situation, it may be what you need to accomplish your goals for the future. If you would like to discuss these or other options for trusts, please contact us to request your free estate planning consultation.