Controlling Distributions

One of the most common goals in estate planning, particularly for young families, is controlling when and how young beneficiaries receive an inheritance.

At age 18, a beneficiary can legally inherit their portion of an estate unless held in some type of trust or other entity.

Young families often have life insurance. Term insurance is cheap enough that it is not uncommon for parents to have $500,000 to $1,000,000 of combined coverage. Imagine $500,000 or even just $100,000 in the hands of an eighteen year old.

Both a testamentary trust and living trust can be used to hold distributions for young beneficairies.

What would you do with $100,000 at age eighteen?

Or $200,000 at age twenty-five?

A trust can be used to hold an inheritance for a young beneficiary until a beneficiary reaches a certain age, accomplishes a certain level of education, passes drug tests, etc.

If a beneficiary or the beneficiary's legal guardian needs money prior to that age, the successor trustee may grant an early partial or full distribution for health, education, maintenance or support needs.

That language is intentionally gray to allow for unforeseen circumstances. Hence, the people the grantor appoints as successor trustees should have a good understanding of the grantors values and wishes when approached for an early distribution.

Talk with your successor trustees or create list of examples to help guide your successor trustee.

• Would you approve of $100 annually for a trip to Disney World under "mental health"?

• Would you approve of an early distribution for a vehicle to get and from a new job? If yes, would it be a new car or used car?

• Would you approve of an early distribution for the down payment on a house if the beneficiary has good credit, a lender and home inspector lined up and shows maturity?

You can also instruct that distributions be structured over time. If you research the web, you may find a variety of statistics showing how fast beneficiaries will spend an inheritance - regardless of age.

Example: Age 30: Beneficiary receives ½
Age 35: Beneficiary receives the remaining amount

If a beneficiary spends the first amount quickly or irresponsibly, one can hope the beneficiary is wiser the second time he or she receives money.

Remember, the more distribution points you have and more beneficiaries listed in the estate plan, the more work your successor trustee will need to perform. If you are looking to control distributions, consult with an attorney to determine how best to satisfy the needs of you, your beneficiaries and your successor trustees.

Both a living trust and testamentary trust can be used to accomplish this goal. Consult an attorney to determine which is best for your estate planning needs.