If you’re planning to leave your children an inheritance of any amount, you likely want to do everything you can to protect what you leave behind from being lost or squandered.
While most attorneys will advise you to distribute the assets you’re leaving to your kids outright at specific ages and stages based on when you think they will be mature enough to handle an inheritance, there is a much better choice for safeguarding your financial wealth for future generations.
A Lifetime Asset Protection Trust is a unique estate planning vehicle that’s specifically designed to protect your children’s inheritance from unfortunate life events such as divorce, debt, illness, and accidents. At the same time, you can give your children the ability to access and invest their inheritance while retaining airtight asset protection for their entire lives.
In Part 1 of our blog post on Lifetime Asset Protection Trusts, we discuss how they differ from the standard way that most Revocable Living Trusts and wills distribute assets to beneficiaries. Today, we’ll look at the trustee’s role in the process and how these unique trusts can teach your kids to manage and grow their inheritance so it can support your children to become wealth creators and enrich future generations.
Total Discretion for the Trustee Offers Airtight Asset Protection
As mentioned in Part 1 of this blog post, most trusts require the trustee to distribute assets to beneficiaries in a structured way, such as at certain ages or stages. Other times, a trustee is required to distribute assets only for specific purposes, such as for the beneficiary’s “health, education, maintenance, and support,” also known as the “HEMS” standard.
In contrast, a Lifetime Asset Protection Trust gives the trustee full discretion on whether to make distributions or not. The Trust leaves the decision of whether to release trust assets totally up to the Trustee. The Trustee has full authority to determine how and when the assets should be released based on the beneficiary’s needs and the circumstances going on in his or her life at the time.
For example, if your child was in the process of getting divorced or in the middle of a lawsuit, the trustee would refuse to distribute any funds. Therefore, the Trust assets remain shielded from a future ex-spouse or a potential judgment creditor should your child be ordered by a judge to pay money resulting from a lawsuit.
What’s more, because the trustee controls access to the inheritance, those assets are not only protected from outside threats like ex-spouses and creditors, but from your child’s own poor judgment, as well. For example, if your child develops a substance abuse or gambling problem, the trustee could withhold distributions until he or she receives the appropriate treatment.
A Lifetime of Guidance and Support
Given that distributions from a Lifetime Asset Protection Trust are 100% up to the trustee, you may be concerned about the Trustee’s ability to know when to make distributions to your child and when to withhold them. Granting such power is vital for asset protection, but it also puts a lot of pressure on the trustee, and you probably don’t want your named trustee making these decisions in a vacuum.
To address this issue, you can write up guidelines to the trustee with direction about how you’d like the trust assets to be used for your beneficiaries. This ensures the trustee is aware of your values and wishes when making distributions rather than simply guessing what you would’ve wanted, which often leads to problems down the road.
In fact, it is recommended to add guidelines describing how you’d choose to make distributions in different scenarios. These scenarios might involve the purchase of a home, a wedding, the start of a business, or travel. You may choose to provide guidelines around how your children would make investment decisions as well. This is something a Lifetime Asset Protection Trust can accomplish.
An Educational Opportunity
Beyond these benefits, a Lifetime Asset Protection Trust can also be set up to give your child hands-on experience in financial matters like investing, running a business, and charitable giving. They will learn how to do these things with support from the trustee you’ve chosen to guide them.
This is accomplished by adding provisions to the trust that allow your child to become a co-trustee at a predetermined age. Serving alongside the original trustee, your child will have the opportunity to invest and manage the trust assets under the supervision of a trusted mentor.
You can even allow your child to become sole trustee later in life once they have gained enough experience and is ready to take full control. As sole trustee, your child will be able to resign and replace themselves with an independent trustee, if necessary, for continued asset protection.
Future Generations
Regardless of whether or not your child becomes co-trustee or sole trustee, a Lifetime Asset Protection Trust gives you the opportunity to turn your child’s inheritance into a teaching tool.
Do you want to give your child the ability to leave trust assets to a surviving spouse or a charity upon their death? Or would you prefer that the assets are only distributed to his or her biological or adopted children? You might even want your child to create their own Lifetime Asset Protection Trust for their heirs. In the Lifetime Asset Protection Trust, you get to determine who is eligible to receive your child’s inheritance when they pass away.
There are a wide variety of options that can be tailored to fit your particular values and family dynamics, but be sure to choose the options might be best for your particular situation.
Is the Lifetime Asset Protection Trust Right For You?
Of course, Lifetime Asset Protection Trusts aren’t for everyone. If your kids are going to spend the vast majority of their inheritance on everyday expenses and consumables, it probably doesn’t make much sense. But if you want the assets you are leaving behind to be invested and grown over the long term and protected, a Lifetime Asset Protection Trust can be immensely valuable.
In the end, it’s not about how much you’re leaving your loved ones that matters. It’s about ensuring that what you do pass on is there when it’s needed most and put to the best use possible.
Dahl Law Group
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