Like many individuals, you have likely devised an estate plan to ensure that your assets serve the well-being of your loved ones in the aftermath of your passing. While direct gifts within your estate plan are a conventional approach, it may not be suitable for valuable assets or if the beneficiary isn’t adequately prepared to handle them. When that is the case, you might consider staggering the inheritance you leave behind to a beneficiary. To better explain, the attorneys at Wilcox Attorneys, PA explain the benefits of staggering an inheritance.
Your Last Will and Testament
Typically serving as your primary estate planning document, your Last Will and Testament empowers you to allocate specific and general gifts to multiple beneficiaries. A potential drawback to using your Will to make gifts is that assets designated for a beneficiary in your Will are usually transferred all at once. Furthermore, once the transfer occurs, you lose control over how the beneficiary manages and uses the assets. This can pose challenges, especially if the beneficiary is a young adult lacking the experience to handle a lump sum inheritance. Issues may also arise with beneficiaries grappling with addiction, mental health issues, or those known for financial imprudence. In such scenarios, the risk of the inheritance being misused increases. Opting for the use of a trust to stagger the inheritance handed down to these beneficiaries often provides better control over how the assets are used, protecting your gift and your loved one.
Understanding Trusts
A trust is a fiduciary legal arrangement that allows a third party (Trustee) to hold and manage assets on behalf of one or more beneficiaries. Trusts come in various forms, broadly categorized as testamentary or living (inter vivos) trusts. Testamentary trusts activate after the death of the Settlor (creator of the trust) and are triggered by a provision in the Settlor’s Last Will and Testament. Conversely, living trusts become active during the Settlor’s lifetime and can be further classified as revocable or irrevocable.
Staggering and Inheritance Utilizing a Living Trust
When the goal is to stagger an inheritance, a living trust serves as an excellent alternative to direct gifts in a Will. As the Settlor, you establish the trust terms, permitting you to create any legal and feasible conditions. If you are concerned about a lump sum distribution, the terms can be designed to stagger the inheritance, such as distributing a portion upon your death or when the beneficiary reaches the age of majority, followed by progressively larger distributions over subsequent years. Alternatively, smaller sums can be distributed monthly or yearly, while the remaining inheritance is safeguarded and managed by the appointed Trustee. To exert control over the use of the inheritance, trust terms can dictate specific purposes, such as living or educational expenses.
By using a trust to stagger the inheritance you pass down to a beneficiary you ensure that the assets gifted are not squandered shortly after the beneficiary receives a lump sum inheritance. In addition, you have the ability to appoint a professional Trustee to manage the trust assets and ensure that the beneficiary uses distributions wisely.
Do You Have Additional Questions about Staggering and Inheritance by Using a Trust?
For additional information, please download our FREE estate planning worksheet. If you have additional questions about how to stagger and inheritance using a trust, contact the experienced Washington County, Fayetteville, Springdale, Rogers, Bentonville, and Northwest Arkansas estate planning attorneys at Wilcox Attorneys, PA by calling 479-443-0062 to schedule your appointment today.
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