How to Keep Heirs From Getting All the Money at Once

by Marie Murdock
    A trust estate may force heirs to be more frugal.

    A trust estate may force heirs to be more frugal.

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    If you die without a last will and testament, state laws of inheritance control who acquires your assets, and your entire estate will be disbursed to them. Individuals named as devisees or beneficiaries in your will generally receive their full share upon probate. However, creating a trust estate during your lifetime or through your will may provide for incremental future distributions to minor children, special needs individuals or to others you designate to inherit.

    Step 1

    Draft your will so that it establishes a testamentary trust. These trust provisions contained in your will state which and what percentage of your assets are given to the trust upon your death, and they describe in detail how those assets are to be distributed. They also name the trustee or trustees who are authorized to manage trust assets, and they state which shares will be given to whom, in what increments and when the beneficiaries will receive those shares. The trustee will be given powers, which may be very specific or broad in his management of trust assets. These are often governed by state law.

    Step 2

    Create a living trust that is effective during your lifetime will often bypass the probate process. Convey your assets to the trustee of the trust who was appointed by the agreement or declaration to manage those assets. You may be the creator of the trust and the acting trustee, so that you retain management rights and control. The acting trustee or named successor trustee will manage the assets of any living trust that survives your death, pursuant to the terms of the trust agreement. The agreement may provide for your minor or young adult children to receive distributions in increments. Those distributions may be based upon age, college attendance, earnings or on any number of other determining factors. The trustee may also have the authority to pay bills or to make emergency distributions on behalf of the beneficiaries, as needed.

    Step 3

    Establish either a testamentary trust or a living trust to provide for a special-needs child or a loved one who has mental health or substance abuse issues. An heir may lack the mental capacity to handle her own affairs, and could make decisions that could result in a total loss of inheritance, within a matter of days or months. Name a dependable trustee who will distribute assets when legitimately needed, and who will act to preserve your loved one’s inheritance and any existing disability or medical benefits. The trustee may be called upon to work closely with a guardian of a mentally challenged individual or may be one and the same as the guardian. Include spendthrift provisions in the trust agreement to avoid trust assets being attached by creditors of an heir who habitually overspends. A spendthrift provision basically states that none of the assets contained within the trust are subject to the rights of a creditor until they become the property of the beneficiary.

    Step 4

    Create your trust as irrevocable and perpetual. A perpetual trust may also be referred to as a dynasty trust and allows an individual with extensive assets to insure that those assets continue through generations until depleted. Depending upon the trust’s financial status, continuing income or interest earned from investments may support your family for generations before the principal is used. Subsequent trusts may be established with the passing of each generation, and depending on state law and the terms of the trust documents, assets may be unreachable by creditors of the individual beneficiaries.

    Tips & Warnings

    • Discuss the tax implications of various types of trusts with an accountant.
    • Laws regarding trusts are subject to change. Know your state's current statutes.
    • Ensure that assets that are intended to be part of the trust are properly conveyed to the trust and that the trustees hold title to real estate if required by your state's laws.

    About the Author

    Marie Murdock has been employed in the legal and title insurance industries for over 25 years. Murdock was first published in print in 1979 and has been writing online articles since mid-2010. Her articles have appeared on LegalZoom and various other websites.

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