Frequently, determining the beneficiaries of your estate plan is simple. If your spouse survives you, your assets go to your spouse. If your spouse does not survive you, your assets are split equally among your children. But choosing who will ultimately receive your assets and in what proportions is only part of the process. Another part is deciding how and when the beneficiaries receive those assets. You may want to consider a continuing trust – pursuant to which you name a trustee to own the assets, invest them, and distribute them to the beneficiary over time according to the trust’s terms. Such trusts are sometimes referred to as continuing trusts or lifetime trusts, because they continue on and may last for the lifetime of their respective beneficiaries.
Here are four advantages to leaving assets to your beneficiaries in continuing trusts.
- Protection from Creditors. A discretionary lifetime trust that contains a clause prohibiting full access to the assets and prohibiting assignment of the interest to creditors, will generally protect the trust assets from attachment by the beneficiary’s creditors. Assets held outright are generally not protected from creditors.
- Protection in Divorce. In many states, an inheritance is not subject to division as marital property in divorce. However, with an outright distribution, it is easy for inherited assets to find their way into joint accounts or to become combined with other joint assets to become commingled and as a result, subjecting them to division as marital property. With a continuing trust, it is much easier to keep the inherited assets separate from marital property, as the assets that remain in trust must remain in separate accounts that are titled in the name of the trust.
- Continued Control over the Disposition of Assets. You can continue to have some say in where the assets go upon the death of the beneficiary of a continuing trust. For example, you may direct that the remaining assets go only to your descendants or to charities. You may still give your beneficiary the ability to divide and distribute via a power to direct the assets as they wish.
- Incapacity of the Beneficiary. In the event of a beneficiary’s incapacity, assets held by a beneficiary outright may be subject to a court-ordered conservatorship. However, with a continuing trust, the trustee will continue to be able to administer the assets for the beneficiary, without court involvement. If the beneficiary was the initial trustee, the successor trustee simply takes over when the beneficiary can no longer serve.
For questions related to your trust, or for assistance with any legal matters related to your business or estate planning, contact Fournier Legal Services at firstname.lastname@example.org or 860.670.3535 now for a consultation and planning session.
Joseph E. Fournier is an Attorney and a CPA who has more than twenty years of experience in a variety of business legal matters, including start-ups and company formations, drafting shareholder and operating agreements, contracts, employment law, commercial litigation, tax planning and audit defense, and mergers and acquisitions (M&A). He also handles estate planning matters, such as business succession planning, wills, trusts, and probate.