Many people have concerns about how their beneficiaries will use their inheritance. Sometimes a simple conversation with the beneficiary is all the reassurance you need. While other times you walk away from the conversation with even more concerns and that check in your gut about if they will use the money they inherit wisely.
If you’ve been around for any length of time you know we love Trusts! Trusts allow you to be very specific about how a beneficiary can receive their inheritance. This is where we get the term trust fund. Because a Trust holds the funds, in trust, to be disbursed to the beneficiary.
Let’s take a closer look at distribution of trust assets, trust funds, and the different types of restrictions you can put on them.
Allowances
Many people have concerns about whether or not their beneficiaries will use their trust funds wisely. So they want to know if they can provide an allowance rather than a lump sum. Yes! This is an option available. But it may not be the best option.
You set the rules
The great thing about creating a trust for your beneficiaries is that you get to set the rules. And you can be as vague or as detailed as you wish. Obviously, the more details, the easier it is for your trustee to make sure the rules are followed. But perhaps you have a beneficiary you’re not concerned about, you may wish for them to be able to access any amount at any time. You can create different rules for different people.
Let’s talk about some of the more popular restrictions on accessing trust funds.
Health, Education, Maintenance, and Support
This is a very popular limiter for trust fund access. Most trusts include language providing access for any of these things: health, education, maintenance, and support.
This means that if someone needs access to fund for medical purposes, the trustee can release the funds. Same for education needs. Likewise, if they need funds to maintain a lifestyle they enjoyed while the Trustmaker was alive, it allows for the release of funds for that. And Support can encompass many things— but for today we will consider it to include basic needs.
As you can see, this particular “limiter” may not be all that limiting. Which is why many people choose to get even more particular about what trust funds can be accessed for.
Consider Other Support
You can put a clause in the trust that requires the trustee to consider other support. For instance, if the beneficiary has a good job and can pay for everything without accessing trust funds, you may wish that they do so. You may limit their access to the trust funds to teach them responsible spending. Or you may write an incentive into their trust that allows them to access the money if they achieve certain milestones.
Requirements for Distribution of Trust Assets
You may choose to require certain beneficiaries to achieve certain things before they receive any portion of the funds set aside in trust for them.
For instance, if you have a beneficiary who makes poor spending decisions, you may require they take financial literacy courses and begin maintaining a budget in order to access the funds
If you have a beneficiary with alcohol abuse issues, you may require they participate in AA, get a sponsor, and achieve a specifically sobriety milestone before they can access funds.
As we said in the video above, most trust makers want to pay for all education, but if you have concerns about a beneficiary choosing lifelong schooling and not achieving good grade to avoid work, you may choose to put specific guidelines as to what grade level must be achieved and how much education you’re willing to pay for.
These are just a few options of the many that could be implemented to care for your loved ones well.
Choose the Right Trustee
Perhaps, the most important step in this whole process is naming the right trustee. As you can imagine, especially if one or more of your beneficiaries has addictive tendencies, your trustee will have to stand up to your beneficiaries and likely tell them no repeatedly.
Your trustee needs to be someone you trust to follow the rules you’ve outlined and someone who can handle a lot of pressure, badgering, and hassle.
While your trust will likely allow for anyone you name to be compensated for their work as trustee, there are professional trustees you can name instead of a friend or family member.
Professional Trustees
If you believe that your trustee will be regularly hassled or badgered by a beneficiary, especially if that beneficiary is a sibling or family member, it may serve you well to hire a professional trustee to administer your trust. Additionally, if you have really specific, detailed, or complicated rules for your beneficiaries to follow in order to access the funds, you should consider a professional trustee.
Hiring a professional trustee can be more expensive, but it can also limit family disputes while also creating more space for the integrity of the trust to be upheld. Sometimes it’s worth it to spend more money to limit drama of the distribution of trust assets
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