Planning for the well-being of your family requires that you take into account the special circumstances or needs of each member. While one person has the training and ability to manage money well, others may not be so fortunate.
Since every person is unique, the question is how you can best support each family member so that they are a success and are provided with comforts that you want them to have. How can you support them so that they continue to develop and achieve their goals?
A well-designed trust can address the needs of each beneficiary in a way that supports them and conserves their resources for as long a period as possible. You might wish to consider implementing the following clauses in your trust:
» Keeping assets in trust: Surveys have shown that the average inheritance is spent within eight months of receipt.
You can provide that a beneficiary’s assets remain in trust so that the beneficiary receives regular income payments and the trustee has discretion to expend the principal as needed. You can define the standards to be used in making discretionary payments.
Keeping assets in trust also has the advantage of protecting assets from creditors. For example, if one of your children divorces, there would be no danger of their spouse making claims against the trust.
» Trustee’s discretionary distribution: With a trust, we try to look as far into the future as possible so as to anticipate how children or beneficiaries develop into adults. Because we cannot anticipate every event, many people use a clause that allows the trustee to postpone distributions to a beneficiary if the trustee determines that the beneficiary has substance dependency problems or is unable to prudently manage their financial affairs, are subject to a creditor’s claim, or subject to an existing or pending divorce proceeding.
By giving the trustee discretion to postpone payments, the odds of the distribution being used improperly or contrary to the wishes of the trust creator are maximized.
» Spendthrift clauses: A trust can provide that a beneficiary’s income or principal is not subject to transfer, either voluntary or involuntary. This is a “spendthrift clause” and prevents a judgment debtor’s interest in a trust from being subject to enforcement of a money judgment until payment is made to the beneficiary.
As it is usually up to the trustee’s discretion to determine when those payments are made, that may never happen. The exceptions to this rule are debts for child support or alimony, money owed to the federal or state government, or where the debtor is both the creator and beneficiary of the trust.
» Special needs trusts: A special needs trust can be used for beneficiaries who are disabled and receive some form of government benefits. The beneficiary may be a developmentally disabled minor or adult.
A special needs trust is fully discretionary. Its purpose is to provide a means for allowing funds to be used for a disabled beneficiary tht will not interfere with the government benefits the beneficiary is receiving, for example, Medi-Cal, Supplemental Security Income (SSI), or services through a local regional center.
These trusts are not required to contain “pay back” provisions, so the trust may provide for assistance during a beneficiary’s lifetime, then can be distributed to others.
» Co-Trustees: It is often advisable to use a co-trustee to assist a family member in administering a trust and making investment decisions. A co-trustee is also useful if you anticipate that there may be disagreements between the beneficiaries, such as siblings.
By using a trust department, accountant or financial planner as a co-trustee, the family member trustee will find the job to be much easier and they will be insulated from the typical family disputes.
By recognizing and accounting for the special circumstances or needs of a beneficiary, you can leave not only a financial legacy, but also a legacy of peace, support and well-being.
Trusts can be uniquely crafted to meet your exact requirements and wishes and fully support your family.
— Chris Jones is an attorney at Rogers, Sheffield & Campbell LLP, a Santa Barbara law firm. Click here to read previous columns. The opinions expressed are his own. This article is not intended to provide legal advice. For legal advice on any of the information in this post, click here for the form or phone number on the Rogers, Sheffield & Campbell Contact Us page.