Yesterday we asked and answered the question "Should I have a Trust?" Today, we will get down in the weeds a tad further regarding the "why" behind the answer ...
Especially in the context of inheritance planning.
We turn to a timely article in The Marietta Daily Journal’ titled “Using trusts to pass inheritance to minor children.”
Q: What happens when a minor child inherits assets when no trust is in play to administer his or her inheritance?
A: A probate judge will appoint a guardian or conservator to manage their assets.
So far, so good?
Typically, this property guardian is not necessarily the minor child’s parents or legal guardian.
You see, one major issue this guardian/conservator will need to face is the "outright distribution" of the full inheritance when the child reaches age 18.
Most 18-year-olds are incapable of handling such a financial windfall.
A parent may try to find a way to get around this. (What if the inheriting young adult is a cocaine addict?)
And the parent may get in trouble with the court for doing so.
Not so good.
When selecting a minor child as your beneficiary, consider placing those assets in a trust to protect the inheritance from him or her as well as for him or her.
As the original article corrects notes, trusts are simply a legal vehicle through which a person (the grantor, settlor, donor or trustmaker) transfers assets to a beneficiary (or beneficiaries). The beneficiary, in turn, receives the assets as provided under the trust instrument.
A trustee manages the trust assets and enforces the terms of the trust.
The original article also observes that trusts can transfer assets in installments or at a later date.
Say a minor child (or a child who has simply gotten older without reaching adulthood) is too young or immature to deal with an inheritance. In that case, the trust instrument can provide that trust assets can be used only for the health, education, maintenance and support of the beneficiary until a specified age.
I prefer to take it a bit further and have the trust last as long as possible.
In Kansas, that means until the 21st birthday of your great-grandchildren. In Missouri, an inheritance trust can last as long as you have beneficiaries and the trust has assets.
Along the way, these trusts (I call mine "multi-generational long-term discretionary trusts with spendthrift provisions") protect the inheritance from squandering, divorces, lawsuits and bankruptcies.
Pretty sweet, yes?
In addition, creating a trust and placing assets in it before death will let families or individuals to distribute property without a probate process. However, the probate process in Kansas and in Missouri is rather straightforward.
The probate "horror stories" you hear tend to be those one-off cases where the estate assets are a mess and/or the family is hyper-dysfunctional.
The estate was going to be a train wreck anyway.
The solution to avoiding such problems: organization and communication.
Estate planning attorneys can structured a trust to fit your family situation, and your wishes for the distribution of your assets so it will be carried out efficiently and properly.
Note: I addressed the distinction between "revocable living trusts" and "testamentary trusts" yesterday.
The former avoids probate if the revocable living trust is funded at least at the moment you are no longer living. The latter comes into existence after probate and is actually created in your last will.
When it is all said and done, the "inheritance trust" walks, talks and acts alike regardless whether is was formed outside or as part of the probate process.
Trusts are designed to help families address issues such as reducing estate taxes, avoiding probate court if desired, transferring assets efficiently or protecting those assets as an enduring inheritance.
To structure a trust for your specific situation, contact an experienced estate planning attorney.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Marietta Daily Journal (August 14, 2015) “Using trusts to pass inheritance to minor children”