Part 4 of Mansour Gavin's Estate Planning Basics series which breaks down the process of helping clients set up Trusts.
As discussed previously, while most Wills direct an immediate distribution of assets, trusts often have provisions that stretch out well into the future. Distributions may not occur until certain ages have been reached, specific goals have been met, or sometimes, generations have passed. A client who wants to enable descendants to get a higher education may have a trust specifically tailored to that, and not run the risk that an immediate distribution to a young person goes to waste.
When trusts continue for the next generation (and maybe subsequent generations), it is kept either as one big fund to benefit all the beneficiaries, called a “pot trust,” or one fund for each beneficiary, “separate shares.” And, as you might expect, there are advantages and disadvantages to both.
With a pot trust, all of the funds remain in the trust typically until the youngest beneficiary has hit the final milestone, such as reaching the age of 30. The argument for the pot trust is that it approximates how the wealth would have been maintained had the client still been alive. (The client would have had the funds, and been doling them out to beneficiaries as their needs arose.) This assures the youngest beneficiary has access to the same pool of assets as the oldest one. But this also means the oldest beneficiary has to wait to receive his or her share.
With separate shares, each beneficiary gets his or her share upon hitting the milestone. The downside is now for the youngest beneficiary is that s/he does not have access to the same size pool of assets as the older beneficiary.
There is no correct answer to this situation. Some clients will opt for the pot trust if all the beneficiaries are close in age so there is less of a waiting period. Conversely, where there are beneficiaries farther apart in age or the trust is providing benefits across more branches of the family, separate shares may be the better option. This dilemma means there has to be thoughtful consideration by the client before the best means of accomplishing the plan can be implemented.
In our next topic, we will discuss what steps can be taken to protect a beneficiary from him/herself if s/he is not a financially responsible person, or susceptible to the influence of others.
You can view the first series of Wills and Probate Administration here and reach out to Dan with any questions. Our attorneys are always ready, willing, and able to meet and discuss any questions, help you articulate your plan and goals, determine the best plan to accomplish them, and then implement it. You will find that, by taking those small steps, the problem that used to lead to procrastination and uncertainty has been addressed and resolved. Learn more about Mansour Gavin’s Estate Planning & Probate group or contact us today.