The specifics of your unique situation have everything to do with the estate plan that is appropriate for you. There is no one universal course of action.
In this post we would like to look at some of the specific circumstances that may play a role in the decision-making process.
Proclivities of Your Heirs
To put it bluntly, some people are good money managers, and some people aren’t.
You may have family members on your inheritance list who are quite responsible. They have demonstrated the ability to handle their own financial affairs effectively, and shown good judgment in how they live. You may have no reservations about leaving someone like this a direct inheritance.
Or you may have a spendthrift in the family. You may be concerned about this individual squandering his or her inheritance if you leave it with no conditions, specifications, or limitations.
You could react to this by creating a spendthrift trust. The trustee would manage the funds, not the beneficiary. There are many options as to how to design a spendthrift trust. The main idea is that the beneficiary does not get to “control the checkbook” for the inheritance until the time you specify, if ever.
Instead of letting a spendthrift beneficiary be the decision maker about using his or her inheritance, someone you hand pick as Trustee(s) will be in charge. You can name a trusted family member or friend. If you name a trust company or bank as trustee, distributions would be made according to your wishes and the assets would be professionally managed. Or you can team up a trust company and a friend or relative to act as Co-Trustees.
There is also an incentive trust. You can include stipulations in the trust agreement that must be met before distributions are made. Stipulations could be designed to guide individuals away from destructive behavior or provide incentives toward specific positive behaviors — such as those good for the welfare of the beneficairy and that would carry out your personal hopes and wishes for the beneficairy.
If your assets exceed the $5.25 million federal estate tax exclusion amount you could lose quite a chunk to estate taxes unless you position them in a tax efficient manner. Someone who is exposed to the estate tax has to take steps that others do not.
Let’s say that you have children from your first marriage and you decide that you would like to get married again. Statistics indicate that most second marriages fail.
To make sure that your own interests are protected as you plan ahead for the well-being of your children certain estate planning techniques should be implemented.
These could include a prenuptial agreement and the creation of a qualified terminable interest property trust.
Special Needs Planning
Including a person with special needs in your estate plan can be tricky because many people with disabilities are receiving government benefits like Medicaid and Supplemental Security Income that have resource (asset) limits in order to become and stay qualified.
If you leave a direct inheritance to someone receiving these benefits you could be doing more harm than good because the benefits would be suspended until the money is spent for care.
As an alternative you could create a supplemental or special needs trust for the benefit of an individual who is receiving government benefits. The distributions could be utilized to improve this individual’s quality of life without jeopardizing much-needed benefits.
These are just some of the circumstances that can exist. Each case is different and unique. Assuring clients have all relevant options and information and make decisions most likely to achieve intended results is part of the art of the estate planning lawyer.
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