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SENIOR LIFE ODYSSEY: Consider leaving your heirs’ inheritance ‘in trust’
EDITOR'S NOTE: This story was on a page that was inadvertently not printed on Friday, Dec. 15. It will be in the Tuesday, Dec. 19 print edition.
Years ago, there was a television game show called, “Who do you trust?” As an elder law attorney, I regularly get asked, “Who needs a trust?”
If you’d like to protect your assets from lawsuits and long-term care costs, a trust may be right for you. If you’d like to avoid probate when you’re gone, a trust may be right for you. Some folks are more interested in protecting their heirs than themselves, and a “testamentary trust” may be right for them.
A testamentary trust is one that doesn’t exist until after you die. It’s meant to protect your loved ones after you’re gone. It’s created with special language in your will, or in your trust if you have one. Here are some situations where a testamentary trust can be helpful.
When an Heir Has Special Needs
If you have a child or grandchild with special needs, a “testamentary special needs trust” (an SNT) can give that person an inheritance which won’t jeopardize their government benefits. It also allows you to choose the trustee of that trust — the person (or persons) responsible for managing and distributing funds for your heir.
To create a special needs trust, your will or trust would include language that defines the beneficiary, the trustee, the portion of your estate that will go into the SNT and information about how the funds can be used. The main purpose of an SNT is to supplement benefits provided by the state and federal government, while protecting those benefits from being discontinued because of the inheritance. An SNT can help pay for “extras” like travel and entertainment to enrich your loved one’s life.
With an SNT in place, upon your death some or all of your assets will be deposited into that trust. You’ll have the assurance that money, and someone to manage it, is available for the heir who needs it.
When an Heir ‘Isn’t Good with Money’
We’ve all heard of people who inherit a lot of money but “blow it” in just a couple of years. If you’re concerned about how an inheritance will be managed, consider putting money or other assets into a testamentary trust. Here’s how it works.
In your will or trust, assets are left to one or more heir “in trust” rather than “outright.” If the assets are distributed “in trust,” there can be rules included about when withdrawals can be made and for what reasons. You could spread out distributions, for example – allowing a third of the assets to be withdraw when you die, then half of what remains five years later, then everything that’s left five years after that.
With this type of trust, you can also put someone other than your heir in charge of making distributions. If you’re worried one heir will spend all his inheritance on fancy cars and boats, for example, you can put a bank trust officer in charge of making distributions. You can also say how the money can be used – for health, welfare and education but not for luxury items.
When an Heir Has Addiction Problems
If you have an heir who is addicted to alcohol, drugs or gambling, putting his or her inheritance into a testamentary trust can be a solution. As described above, you can say who has authority, after you die, to distribute funds, when and under what circumstances. The heir cannot spend or withdraw funds on their own. The trustee can be instructed to pay your heir’s legitimate bills but not hand out any cash.
When Multiple Heirs Are to Share Assets
Suppose you have a cabin on the lake where your family has made good memories over the years. You’d like for all of your adult children and grandchildren to be able to use the cabin after you’re gone. A testamentary trust can help you do that.
When you die, ownership of the cabin would be transferred to that trust. All the appropriate family members can be named as beneficiaries. That gives them the right to visit and enjoy the cabin, but also the responsibility to pay property taxes and maintain things. If you like, you can include instructions on how decisions get made and how much time each family gets to spend at the cabin. You can also put cash into the “cabin trust” so that there are funds available to help pay bills. Keep in mind, however, that real estate cannot be held in such a trust indefinitely.
This same concept can be used if multiple heirs are to share a single pot of money with no real estate involved or to share ownership in farm ground. If you’d like to learn more about this, or any other type of trust, talk to an attorney who focuses on wills, trusts, estate planning or elder law.
This overview is provided as a public service, not as legal advice to any individual. Be sure to speak to a qualified attorney who can answer your questions, analyze your goals, and give personalized advice.
Michael and Adam Goss are Greencastle attorneys who focus on elder law.