Using A Beneficiary Controlled Trust In Your Estate Plan

If you’re leaving property to someone else, you may think there are generally two ways to leave property to your chosen beneficiaries.

You could leave it in your will. The problem with that is that the beneficiary gets all of it, unconditionally, and immediately, upon your passing, and that may not be exactly what you want to happen. There can be tax consequences, and the property may be subject to creditor claims.

You could use a trust, and put terms and conditions to the use and distribution of the trust property. But that entails appointing a trustee, and sometimes, giving that trustee power to make determinations about what is given to whom and when. That can lead to conflicts or frustrations, if the trustee doesn’t distribute when and how your beneficiaries want the assets put in the trust.

What About a Beneficiary Controlled Trust?

But there is actually a third option, which is a blend of the two: The beneficiary controlled trust.

A beneficiary controlled trust is an actual trust, but instead of a trustee that manages the property, and who determines what is distributed, how and when, the beneficiary himself makes that determination.

Yes, the beneficiary is obviously an interested party—most people won’t deny themselves assets from a trust if it is available to them—so a beneficiary controlled trust isn’t the best option if you’re trying to avoid waste, or you’re leaving property to someone who you think needs oversight, or to a minor, or if you want to continue to control how the trust assets are distributed.

Advantages of a Trust

But a beneficiary controlled trust does have some other important advantages. It allows someone to access the property you’re leaving to them, but the property continues to be legally owned by the trust, so your beneficiaries get all the benefits of property being in a trust.

For example, property in trust avoids probate, so it may avoid the need for a probate case, avoid the public records, and can allow beneficiaries to access the property faster than they would be able to do if the property went through probate, as it would in a traditional will.

Trusts also provide good creditor protections, so beneficiaries with creditors can avoid their creditors taking the property that you are leaving to them, they way they could if the property was left in a will, and thus, subject to creditor claims in probate court.

This asset protection includes divorces, so if you’re leaving property to a beneficiary where you’re concerned divorce may be in the future, a beneficiary controlled trust may be a good idea.

If the beneficiary wants a higher degree of creditor protection, the beneficiary can even appoint another trustee, thus limiting the beneficiary’s access to funds, but giving the trust a greater level of creditor or asset protection. Beneficiaries often appoint friends or other family members in this case, separating the beneficiaries from the trust property, but not separating them too much.

What kind of trust is right for your estate plan? Call the Torrance probate will and estate attorneys at Samuel Ford Law today.

Sources:

kiplinger.com/retirement/estate-planning/603425/what-a-beneficiary-controlled-trust-can-do-to-protect-your-legacy

wealthcounsel.com/articles/2013/the-beneficiary-controlled-dynasty-trust