How to Protect Your Legacy from Immature Financial Decisions

As you work with your lawyer to develop your estate plan, you will consider the legacy you want to leave to the people you care about most. But sometimes the people we love need to be protected from themselves. This is where a spendthrift provision comes in.

If someone you love is dealing with substance abuse or debt, or who is simply too immature to make sound financial decisions, there are estate planning tools available that allow you to leave a financial legacy to the people you care about, even if they are struggling.

Including a trust as part of your estate plan can allow you to maintain control over trust assets and protect your financial legacy. You can also provide instructions for successor trustees on how to manage those assets once you have passed away.

Using a Trust to Protect Your Financial Legacy

A trust is created by the trust-maker, also known as the grantor, and overseen by a trustee for the benefit of the trust beneficiary. Placing assets in a trust allows the grantor to maintain control over trust assets during their lifetime and include instructions on how trust assets will be managed after their death.

Once assets are placed in a trust, the beneficiary will receive trust assets through distributions that are overseen by the trustee. Trust assets may be distributed in the form of direct payments or through distributions that are limited to goods or services purchased for the beneficiary and paid for by the trustee.

Trusts are commonly used to restrict how trust assets can be spent, or to limit distributions that can be made until a beneficiary turns 18, 21, or even later. A trust may also permit discretionary distributions under certain conditions, such as for educational purposes or to purchase a house. A spendthrift provision can also be added to the trust, which can further limit the beneficiary's access to the trust and only allow them access through the designated trustee.

By placing assets in a trust, the grantor can protect the beneficiary against immature financial decisions and preserve financial assets for future use. Once assets are placed in a trust, the beneficiary’s creditors generally cannot access trust assets.

When to Consider a Trust as Part of Your Estate Plan

A trust is a beneficial estate planning tool that can be used when the grantor wants to leave money or other property to a beneficiary but is worried that the beneficiary will squander trust assets. With the added benefit of a spendthrift provision, immature financial decisions can be less of a worry when designating your beneficiaries.

The grantor might have concerns that the beneficiary:

• Is not good with money
• Suffers from addiction that will cause him to misuse the funds
• Could easily be the victim of fraud or deceit
• Might fall into debt

If any of these situations apply, you should consider using a trust to provide for the beneficiary without the risk that the trust principal will be wasted on drugs, gambling, excessive debt, or a bad relationship.

Questions to Consider When Using a Trust to Protect Your Financial Legacy

If you think a trust--with or without a spendthrift provision--could be a beneficial piece of your estate plan, Ann Arbor estate planning attorney Bill Ager can help. During your initial consultation, Bill will ask you to consider questions such as:

• How long should the trust remain in effect?
• Will the provisions of the trust change if there is a change in the beneficiary’s circumstance, such as if the beneficiary dies or becomes able to manage the trust assets?
• How should trust provisions change when the grantor dies, and trust assets are managed by a successor trustee?
• Should the trust allow for distributions in special circumstances, such as if the beneficiary is suffering from a long illness, or wishes to purchase a home or pursue higher education?

The trustee and successor trustee play key roles in preserving a financial legacy and the trust must describe the trustee’s role and responsibilities in detail. Additional questions to consider include:

• Will the trustee pay the beneficiary every month?
• Can the trustee decide not to make any payments to the beneficiary at all?
• Will the trustee make cash payments, or will the trustee only be empowered to purchase goods or services on behalf of the beneficiary?
• Will payments be in a set dollar amount? A percentage of the principal? Or a percentage of trust income?
• If the trustee is empowered not to make payments to the beneficiary at all, under what circumstances can the trustee make that decision?
• Is the trustee empowered to release assets for large expenses, such as higher education tuition, or to purchase a house or car?

If you think you need a trust as part of your estate plan, contact Michigan estate planning attorney Bill Ager to schedule a confidential consultation to discuss your needs.

Ager Law Office: Superior Service for Reasonable Fees

If you want to pass on a financial legacy but are concerned that a loved one will squander their inheritance or make poor financial decisions, a trust might be right for you. Ann Arbor estate planning attorney Bill Ager can help by creating a comprehensive plan to protect your financial legacy.

Bill offers reasonable flat fees for estate planning services and proudly serves people and families in Ann Arbor, Michigan, and throughout Washtenaw County.

To speak with Bill about including a trust as part of your estate plan, call (734) 649-0784, email bill@agerlawoffice.com, or use our online contact form.