Lifetime Trust or Outright Distribution – How to Leave Your Assets to Your Beneficiaries

Estate Planning Practice Group

By Estate Planning Practice Group

There are several ways you can leave your children (or other beneficiaries) your assets upon your death.

One option is an outright distribution. I call this the “here’s your inheritance” method. Upon your death, after payment of expenses and debts, your child receives their full share of the assets outright.

A second option is the staggered distribution method. This method gives your child a percentage of their inheritance at certain ages, dates, or events. A typical example is upon your child turning 30, he or she will receive one-third of their inheritance, at age 35 another third, and final distribution of the entire amount at age 40. In the meantime, your child would typically receive distributions of the principal and income of his or her share for needs such as a house down payment, educational expenses, or even a monthly stipend for living expenses. Another example would be an incentive based trust. With this trust, your child will receive 1/2 of his or her share if he or she graduates college and the remaining distribution if he or she maintains full-time employment for at least two years.

A third method for leaving your child an inheritance is known as a lifetime trust or dynasty trust. With this method, the share remains in trust for the child’s entire lifetime. Your child receives distributions from the trustee for health, education, and support. For example, if your child needs funds for a house down payment or private school tuition for his or her children, the trustee can make a distribution from his or her share. Distributions can be mandatory, meaning your child can compel the trustee to make distributions if the trustee refuses a reasonable request or purely discretionary, where the trustee has sole discretion to make distributions. While a lifetime trust can mean more administrative costs, it is also a form of asset protection. Creditors and divorcing spouses cannot reach the assets in a lifetime trust.

Whatever method you choose when discussing your estate plan with your attorney should be tailored to fit the needs of your family. Each method has pros and cons that should be carefully weighed to meet your goals for your family.

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