Estate Planning to Protect Adults with a Discretionary Lifetime Trust

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Most everyone understands that estate planning is needed to protect minor children. Should something happen to you, you would not want a court to decide who should be the guardian of your child or when your child should inherit the money you left to them. This is common sense. But we live in an age where divorce rates exceed 50% and a record number of lawsuits are filed each year. Therefore, it’s not just minor children or a beneficiary with a substance abuse problem that needs the protection afforded by estate planning. A discretionary lifetime trust is the solution.

It sounds good to protect an adult from lawsuits and divorce but how exactly can we do it?

A discretionary lifetime trust is an irrevocable trust. Meaning once it’s created it can’t simply be torn up as could a revocable living trust. This provides powerful protection from creditors as will be discussed below. You can create a discretionary trust while alive by using your annual gift exclusion to place assets into the trust. It can also be created at your death by leaving some of your assets to fund the trust upon your death.

What is meant by discretionary?

The discretion in a discretionary lifetime trust relates to the fact that the trustee can only access assets and give them to your beneficiaries under certain circumstances? What circumstances? This decision is entirely up to you. You will decide upon what facts and circumstances, or life events, a trustee can provide the beneficiary with money. Maybe you want the money to only be used for emergency health care expenses not otherwise covered by insurance. Or maybe you want to pay for all of the college expenses for your grandchildren. Maybe you’ll allow each beneficiary a certain amount of money for their first wedding or home purchase. The flexibility is endless and entirely up to you. With proper investment, and some reasonable standards as to when beneficiaries can obtain money, the money in the trust could grow and last for decades.

How does a discretionary lifetime trust provide protection against lawsuits and divorce?

A discretionary lifetime trust is effectively separating the beneficiary’s assets that are outside the trust from those inside the walls of the trust.  Think of the assets in this type of trust as if they are in a safe and only the trustee has the combination. The beneficiary does not have the combination so they can’t access the money on their own, they need the trustee to give the ok first. This means that that assets do not belong to the beneficiary to do with as they want but they are protected in trust. Since the trustee is the only one that can open the safe and provide the beneficiary with money under the circumstances you have decided, it protects the assets from creditors, lawsuits and divorce.

What happens when the beneficiary dies?

You have control, if you choose, over what happens to any money left in the trust when the beneficiary dies. Maybe you want the money to go to charity. Or maybe you want it to go to your grandchildren. Maybe you want each grandchild to receive their own discretionary lifetime trust. This is a powerful protective provision and a way to ensure that the money you spent a lifetime accumulating remains in your family.

If you believe that a discretionary lifetime trust may be an appropriate vehicle for you to accomplish your estate planning goals call us at (646) 736-7539. We will setup an appointment to meet and discuss your particular facts and circumstances, hope and dreams, in detail.