Why Direct Distribution May Be a Disaster | Estate Plan Pros

Basic plans typically distribute a child’s inheritance when he or she reaches a particular age, say at age 25.  Sometimes the distribution is divided in half or thirds, and spread out over a period of years – for example one half at age 25 and the balance at age 30.  Before the child reaches that age, the trustee is in charge of using the funds for the child’s benefit, ensuring that school is paid for, and other necessities. Once the child reaches that magic age however, the money is “pushed out” of the trust, and paid directly to the child. 

Why can this be a bad thing? Parents want their children to learn how to manage their assets wisely before handing over control, and hope that by the time the child reaches the specified age, they will have learned enough life lessons to not waste their inheritance. But what if it were possible to protect your child’s inheritance from predators and creditors too? We can do this by letting the child keep their inheritance in the trust, rather than forcing the trustee to push the money or assets out of the trust.  Once the money is forced out, it is exposed to all of the child’s creditors and predators. 

A properly designed trust can hold the assets for the child and still leave the child in full control of when assets are distributed to him or her.  This not only protects the assets themselves, but the future growth of the asset. What beneficiaries often buy with their inheritance is a home or vacation property.  If they make that purchase in their own name, the asset is subject to all of the child’s creditors, and long term care costs.  Those risks are reduced when the child can have his or her own personal asset trust purchase the asset instead.  When you create your estate plan, consider the benefits of a personal asset trust for a lifetime of asset protection for your children.

Image courtesy of renjith krishnan at FreeDigitalPhotos.net

Tags:Asset Protection Estate Planning Trust Distribution

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Erik Hartstrom

Erik is the founder of Estate Plan Pros, a leading estate planning practice in Elk Grove.  Erik’s practice focuses on Estate Planning Law. In Estate Planning, Erik works with clients to make the process simple, so clients can focus on more important things. He is a local authority for specialized estate planning instruments, like Special Needs Trust, Irrevocable Trusts, or other focused documents. Erik has litigated, negotiated, and mediated the gamut of family law cases. With this unique perspective as a family law and estate attorney he can often spot issues otherwise overlooked. Prior to graduating he worked as a legislative analyst for a non-profit organization, and volunteered as a youth counselor. Erik currently participates in local politics and is an active member of his local church. Erik is very happily married and has two young sons. Together, his family loves to get outdoors and enjoy the varied activities the Sacramento region has to offer.


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