Using Trusts to Manage Bequests

By Ronald A. Fatoullah, Esq. and Yan Lian Kuang-Maoga, Esq.

{3:21 minutes to read} The concept of controlling one's heirs from the grave may be difficult to fathom. However, there are many circumstances in which it is necessary to set some control over the inheritance to an heir in order to protect him or her. Trusts are often used to set the appropriate level of control and to provide peace of mind to the creator of the trust. Trusts are also used for estate tax planning purposes.

The ability to pass on one's hard earned money to one's spouse, children, grandchildren, friends, and/or to charitable organizations is very gratifying. However, there are many compelling reasons to protect an heir by keeping his/her inheritance in a trust. The following are a few circumstances in which one may consider the use of a trust for a beneficiary:

• A beneficiary is disabled.

• A beneficiary has poor money management skills.

• A beneficiary has creditors or is being sued.

• There are beneficiaries who are minors.

• A beneficiary is in the middle of a divorce or will be getting a divorce.

• A beneficiary is independently wealthy, and an inheritance would increase his/her gross estate, resulting in estate taxes.

• A beneficiary is incarcerated.

A trust is an extremely versatile way to provide for financial control and the protection of one's heirs after death. Trusts can be intervivos or testamentary. An intervivos trust, or lifetime trust, is created and is in effect during one's lifetime. A testamentary trust is a trust set forth in a Last Will and Testament that will go into effect upon the grantor's death. Either trust may be changed while the individual is alive unless the particular intervivos trust is irrevocable. However, once the individual passes away, both types of trusts become irrevocable.

In a trust, the inheritance of an heir will be managed by a trustee who is hand-picked by the grantor. If the trust is drafted properly, the trust funds are safe from direct access by the heir and his/her creditors. The level of protection imposed on the accessibility of the funds in the trust will depend on the circumstances and should be carefully designed to meet the needs of the heir while satisfying the concerns and wishes of the grantor (the creator of the trust). Some heirs might be able to handle small amounts of money, and therefore the trust may provide that they receive a monthly income from the trust. Others may not be able to handle any amount of money, and in such cases, it may be prudent for the trust to specify that the trustee pay directly for all basic expenses of the heir (i.e. issuing a rent check directly to the landlord). A trust may remain in effect for the lifetime of the heir or may terminate upon a certain condition or on a specified date. Again, a trust is versatile and can be designed based on the circumstances and on the grantor's wishes and beliefs.

In any case, if there is cause for concern about a particular heir, it is prudent to discuss the creation of a trust with an experienced elder law and trusts & estate attorney. Although some individuals may choose to disinherit a troubled heir, it is not always necessary to do so. The use of a trust can enable an individual to leave an inheritance to a beneficiary without worrying about unwanted consequences.

Ronald A. Fatoullah, Esq. is the principal of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. Yan Lian Kuang-Maoga, Esq. is an elder law attorney at the firm. The law firm can be reached at 718-261-1700, 516-466-4422, or toll-free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also the co-founder of JR Wealth Advisors, LLC. The wealth management firm can be reached at 516-466-3300 or 800-353-3775.