Trusts for Beneficiaries
Is your child’s marriage a little shaky? Does he/she have creditor issues? Do you have a piece of property that you would like to stay in the family? When considering how to leave assets to your beneficiaries, you may want to consider leaving it to them in trust.
There are two basic ways a beneficiary can receive assets from your estate: outright or in trust. In outright distributions, the asset(s) are simply retitled in the name of the beneficiary with no further oversight, parameters, or protections. Often, a check is simply cut in the name of the beneficiary and the beneficiary can then do whatever he/she likes with it. In Virginia, we have an additional concern: Virginia has a unique legal structure which allows real property to “drop like a rock” through an estate, allowing real property to pass outright to beneficiaries immediately upon death of the landowner. Without proper planning, this structure can create substantial problems among beneficiaries. Outright inheritance provides no protection for beneficiaries from their creditors, lawsuits, or divorce.
Alternatively, through a well drafted estate plan, you can direct that your beneficiaries receive an inheritance in trust. In this arrangement, upon your passing, the assets are initially titled in the name of the trust and not in the name of the beneficiary. The trust then directs distributions as you have designed, based on your particular goals and objectives. If you know that one or more of your beneficiaries is facing creditor issues, a likely divorce, or other legal issues, a trust can give you confidence that those assets will be safe from these sorts of claims.
Each trust can be specifically designed to suit the needs and goals of your family. For example, a trust can be designed to allow your children to inherit a certain piece of real property and at their death can be further directed to stay in the family, instead of passing to a son-in-law or daughter-in-law. Planning for generations!
For younger beneficiaries, you may create a trust allowing staggered distributions to occur over time, such as in thirds at various ages of the beneficiary, i.e. 1/3 at age 25, 30, and 35.
More commonly, trusts are designed so that each beneficiary is given their own trust after your death. The trust assets are divided into as many subtrusts as there are beneficiaries (in much the same fashion as would occur in the absence of a trust). Then each beneficiary can be given some or all control of the management and distributions of their own subtrust when they reach a certain age. However, because of the trust, the beneficiary may have some very significant asset protection, depending on the particular trust design.
Trusts can be designed in a myriad of ways, giving great flexibility in design and implementation. Consider leaving assets in trust to your beneficiaries, speak with an estate planning attorney to find out how!