It is a huge relief to draft an estate plan that avoids probate and distributes your assets to loved ones and other beneficiaries. But when heirs receive inheritance as an outright distribution, it exposes their future well-being and your legacy to many dangers.
That’s why it’s advisable for high net worth individuals and even those with modest estates to consider options protecting those distributions long after death. One of the best ways to protect your family’s financial security can be establishing a beneficiary-controlled trust.
Protecting assets while maintaining control
Beneficiary-controlled trusts allow your heirs to be both the trustee and beneficiary and enable them to manage the assets almost the same as if they received outright ownership. Leaving those assets unprotected exposes them to many risks, such as:
- Creditor actions
- Estate taxes upon their death
Under a beneficiary-controlled trust, their assets are held in the name of the trust and protected from those risks. However, your beneficiary can still make all investment decisions, such as buying a home.
Protections for both the assets and asset holders
In general, trusts limit access to funds or designate specific ways trustees can use them. However, beneficiary-controlled trusts empower your heir by:
- Giving them control over the assets
- Limiting access by debtors
- Preventing asset division during divorce
- Remaining untouched even during bankruptcy
If more significant risks arise down the road, the beneficiary can appoint a co-trustee to help them manage the funds or even resign and appoint a trusted family member, friend or professional to take over trustee duties.
This estate planning approach may not suit everyone, so it’s advisable to receive experienced legal advice. In many cases, a beneficiary-controlled trust may be the best option for protecting a family’s long-term financial security.