Controlling Distributions

A common question we receive is how to control how beneficiaries use money received as an inheritance. The answer is once a beneficiary receives the inheritance free and clear of the estate, he or she can do whatever he or she chooses to do with the money or asset.

For this reason, more families are using living trusts and testamentary trusts to control how and when beneficiaries receive their inheritances.

The primary between the two trusts above is a living trust is created before the deceased has passed and can help assets avoid probate, as opposed to a testamentary trust which is created after deceased has passed and does not help assets avoid probate.

But both trusts can be pictured as a box to hold assets after the deceased has passed, technically up to 500 years in Arizona, but in practicality for a much shorter time.

How Young Families Can Use A Trust

If you are parent of dependent children and have life insurance, without a trust it is quite likely the children will receive the money at age 18. Imagine what you would do with $100,000 or $500,000 of cash (which is what life insurance is) at that age or even at age 21 or 25.

A trust can be named as the beneficiary of life insurance, retirement accounts and any other asset that can name a beneficiary. The trust can hold the money until a designated age yet allow for early distributions when reasonable requests are made for:

• Health
• Education
• Maintenance
• Support

Distributions can be made directly to the beneficiary, the beneficiary's guardian, the beneficiary's school, etc.

Who Controls The Money?

A trustee will be appointed to manage the trust, keep an accurate accounting and respond to requests for early distributions. Some people name a corporate trustee to oversee this job while others list family members who may be more in-tune with the needs and dynamics of their family.

It is important for the trust's creators to provide examples of what constitutes a reasonable request for an early distribution. While medical expenses are fairly straightforward, what happens when a child requests an early partial distribution to help make a down payment on a new home?

Your successor trustee will do his or her best to follow the intentions of the trust's creators. If the beneficiaries feel the trustee is acting reckless or negligent, the beneficiaries can have a judge review the successor trustee's actions.