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  • Overview of Controlling Distributions
    What to know:
  • A will alone cannot hold assets after the decedant has passed
  • Both a testamentary trust and living trust can hold assets after the decedent has passed
  • Trustees manage assets in the trust
  • Trusts can set conditions, such as specific ages when beneficiaires receive an inheritance
  • Trustees can approve early distributions for reasonable requests
  • The trustees controlling distributions can be different than the guardians children
  • Special needs beneficiaries need controls so not to disrupt government assistance
  • Controlling Distributions

    A common objective for many families in estate planning is controlling when and how young beneficiaries receive an inheritance. For families with adult children, many estate plans have distributions for deceased beneficiaries going to the deceased's children if he or she has children before being split among remaining beneficiaries.

    A family does not need a large portfolio of assets to have an estate worth setting up controls. Many estate and insurance professionals will instruct parents of young children to purchase life insurance before taking any other estate steps. With today's longer life expectancies and inexpensive term life insurance it is not uncommon for each parent to be insured for $500,000 each, meaning beneficiaries could potentially receive $1,000,000 if both parents pass!

    If a child is under age 18, a financial fiduciary is put in place to manage money until the child reaches age 18, at which point the child then receives control of the assets. Many parents would cringe if their 18-yr-old received even just $25,000 with no strings.

    Hence, many parents will utilize some type of trust to control distributions. A last will & testament, which cannot control distributions by itself because it is not considered a legal entity and hence cannot hold title to any assets, can create what is called a testamentary trust. The testamentary trust is created during the probate process to manage a beneficiary's inheritance. The other common option is a living trust which is created before the decedent's pass, often for the additional purpose of avoiding probate.

    Who Controls The Trust?

    Both a testamentary trust and living trust offer a variety of controls. First, both trusts can appoint trustees to manage assets in the trust for young beneficiaries. When creating a will or living trust, you choose who to name as trustee. These trustees have a legal, fiduciary responsibility to follow the trust's instructions.

    Setting Conditions

    A trust can set a variety of benchmarks, such as age or education, prior to a distribution. For example, the trust might state a beneficiary cannot receive his or her inheritance free and clear until he or she reaches age 30. Or the trust might state a beneficiary receives one-half at age 30 and the remainder at 35 to help protect the beneficiary from hastily spending an inheritance.

    If a beneficiary or the beneficiary's guardian needs money prior to the ages set in the trust, the trustee often has the authority to grant partial early distribution for reasonable requests in the following areas:

    • Health
    • Education
    • Maintenance
    • Support

    This language is broad and can cover requests covering college tuition, money for a vehicle or for the down payment on a home. Hence, it is important when selecting trustees to pick people who understand your values.

    Special Needs Beneficiaries

    Any beneficiary receiving disability income could have their benefits interrupted if they receive an inheritance. Hence, parents with special needs children can incorporate a special needs trust which withholds that beneficiary's inheritance. The inheritance remains in the special needs trust and is not calculated as an asset of person receiving disability income. The successor trustees are able to make purchases for the special needs beneficiary and make distributions when needed, but often after careful calculation and review of how it may affect any government assistance.

    Other Uses For Controlling Distributions

    A trust can control the use of assets for other purposes, such as caring for pets, maintaining a home for dependent children, a spouse in a blended family or for other family members and most other needs one could want to accomplish. Learn more about these additional planning topics.

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