If you have not given the matter a lot of thought, you could fall into a paradigm of limitation that many people accept what they don’t seek estate planning guidance from a licensed attorney. Far too many people assume that a last will is the only asset transfer vehicle to use if you are not very wealthy. They assume that trusts are for high net worth individuals that have to make fancy moves to avoid the estate tax.
Someone that adopts this perspective will look at the estate planning process as a final act. They are expressing their wishes with regard to the way that they want their assets to be distributed after they are gone. The resources will be bequeathed in lump sums, and the matter will be closed forever.
There are those that feel as though this is a fact of life, even if they would rather not give inheritances to some of their heirs all at once for one reason or another. This is not uncommon, but in fact, there is a type of trust that can be utilized when these circumstances exist.
Freedom of Choice
A revocable living trust is a legal device that can be much better than a last will on a number of different levels. If you create a revocable living trust, you are called the grantor or settlor. The trustee is the person or entity that administers the trust, and the beneficiary can receive monetary distributions from the trust.
As the grantor of a revocable living trust, you can be the trustee and the beneficiary while you are living, so you retain total control. You can remove assets from the trust or convey assets into the trust at any time after it has been created. It is also possible to change the terms of the trust after it has been established.
In the trust declaration, you name a successor trustee to administer the trust after you are gone. This trustee could also be empowered to manage the trust if you ever become incapacitated. The heir that you want to provide for would be the beneficiary of the trust. It is possible to have multiple beneficiaries, but for the purposes of simplicity as we provide this explanation, we will assume there is one beneficiary.
As for the choice of a successor trustee, you can name someone that you know that is a competent money manager that you can put your faith in. (It should be noted that you can make the beneficiary the trustee of a revocable living trust if you are comfortable handing everything over all at once.)
Another option would be to use a professional fiduciary such as a trust company. There are considerable expenses involved, but there are also advantages that can be beneficial if there are significant assets in the trust. The trustee would have professional-level financial planning acumen, and there would be no longevity concerns.
Getting back to the notion of lump sum inheritances, you do not have to go this route if you use a revocable living trust as your vehicle of asset transfer. When you are establishing the terms of the trust, you can leave instructions with regard to the way that you want the assets distributed to the beneficiary.
For example, if you have income producing assets in the trust, you could allow for distributions of the income while the principal remains intact. You could alternately provide a lump sum that is equal to a percentage of the total immediately after your passing, and subsequent large distributions every five years or something to that effect.
These are a couple of different possibilities, but the point is that you have the freedom to leave behind specific instructions. You can also add a beneficiary to succeed the first beneficiary if you think that there may be assets remaining in the trust after the death of the initial beneficiary. This is a good idea even if the person is relatively young, because some people do pass away before their time.
Download Our Estate Planning Worksheet!
Our attorneys have devised a valuable worksheet that you can use to find out where you stand from an estate planning perspective. It is free, and you can visit our worksheet download page to obtain access to your copy.
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