If you’re planning to leave your children an inheritance of any amount, you likely want to do everything you can to protect what you leave behind from being lost or squandered.
While most lawyers will advise you to distribute the assets you’re leaving to your kids outright at specific ages and stages, based on when you think they will be mature enough to handle an inheritance, there is a much better choice for safeguarding your family wealth.
A Lifetime Asset Protection Trust is a unique estate planning vehicle that’s specifically designed to protect your children’s inheritance from unfortunate life events such as divorce, debt, illness, and accidents. At the same time, you can give your children the ability to access and invest their inheritance, while retaining airtight asset protection for their entire lives.
Last week, we discussed how Lifetime Asset Protection Trusts differ from the standard way that most revocable living trusts and wills distribute assets to beneficiaries. Today, we’ll look at the Trustee’s role in the process and how these unique trusts can teach your kids to manage and grow their inheritance, so it can support your children to become wealth creators and enrich future generations.
Total discretion for the Trustee offers airtight asset protection
As mentioned last week, most trusts require the Trustee to distribute assets to beneficiaries in a structured way, such as at certain ages or stages. Other times, a Trustee is required to distribute assets only for specific purposes, such as for the beneficiary’s “health, education, maintenance, and support,” also known as the “HEMS” standard.
In contrast, a Lifetime Asset Protection Trust gives the Trustee full discretion on whether to make distributions or not. The Trust leaves the decision of whether to release trust assets totally up to the Trustee. The Trustee has full authority to determine how and when the assets should be released based on the beneficiary’s needs and the circumstances going on in his or her life at the time.
For example, if your child was in the process of getting divorced or in the middle of a lawsuit, the Trustee would refuse to distribute any funds. Therefore, the Trust assets remain shielded from a future ex-spouse or a potential judgment creditor, should your child be ordered to pay damages resulting from a lawsuit.
What’s more, because the Trustee controls access to the inheritance, those assets are not only protected from outside threats like ex-spouses and creditors, but from your child’s own poor judgment, as well. For example, if your child develops a substance abuse or gambling problem, the Trustee could withhold distributions until he or she receives the appropriate treatment.
A lifetime of guidance and support
Given that distributions from a Lifetime Asset Protection Trust are 100% up to the Trustee, you may be concerned about the Trustee’s ability to know when to make distributions to your child and when to withhold them. Granting such power is vital for asset protection, but it also puts a lot of pressure on the Trustee, and you probably don’t want your named Trustee making these decisions in a vacuum.
To address this issue, you can write up guidelines to the Trustee, providing the Trustee with direction about how you’d like the trust assets to be used for your beneficiaries. This ensures the Trustee is aware of your values and wishes when making distributions, rather than simply guessing what you would’ve wanted, which often leads to problems down the road.
In fact, many of our clients add guidelines describing how they’d choose to make distributions in up to 10 different scenarios. These scenarios might involve the purchase of a home, a wedding, the start of a business, and/or travel. Some clients choose to provide guidelines around how they would make investment decisions, as well. This is something we can support you with if you decide to use a Lifetime Asset Protection Trust.
An educational opportunity
Beyond these benefits, a Lifetime Asset Protection Trust can also be set up to give your child hands-on experience managing financial matters, like investing, running a business, and charitable giving. And he or she will learn how to do these things with support from the Trustee you’ve chosen to guide them.
This is accomplished by adding provisions to the trust that allow your child to become a Co-Trustee at a predetermined age. Serving alongside the original Trustee, your child will have the opportunity to invest and manage the trust assets under the supervision and tutelage of a trusted mentor.
You can even allow your child to become Sole Trustee later in life, once he or she has gained enough experience and is ready to take full control. As Sole Trustee, your child would be able to resign and replace themselves with an independent trustee, if necessary, for continued asset protection.
Future generations
Regardless of whether or not your child becomes Co-Trustee or Sole Trustee, a Lifetime Asset Protection Trust gives you the opportunity to turn your child’s inheritance into a teaching tool.
Do you want to give your child the ability to leave trust assets to a surviving spouse or a charity upon their death? Or would you prefer that the assets are only distributed to his or her biological or adopted children? You might even want your child to create their own Lifetime Asset Protection Trust for their heirs.
We offer you a wide variety of options that can be tailored to fit your particular values and family dynamics. Be sure to ask us which options might be best for your particular situation.
Is a Lifetime Asset Protection Trust right for you?
Of course, Lifetime Asset Protection Trusts aren’t for everyone. If your kids are going to spend the vast majority of their inheritance on everyday expenses and consumables, they probably don’t make much sense. But if you want the assets you are leaving behind to be invested and grown over the long term, a Lifetime Asset Protection Trust can be immensely valuable.
Meet with us to see if a Lifetime Asset Protection Trust is the right option for your family. In the end, it’s not about how much you’re leaving your loved ones that matters. It’s about ensuring that what you do pass on is there when it’s needed most and put to the best use possible. Schedule a Family Wealth Planning Session today to learn more.
Proper estate planning can keep your family out of conflict, out of court, and out of the public eye. If you’re ready to create a comprehensive estate plan, contact us to schedule your Family Wealth Planning Session. Even if you already have a plan in place, we will review it and help you bring it up to date to avoid heartache for your family. Schedule online today.