How Can A Living Trust Protect Your Family When You Are Gone?
When you pass away, your children or inheritors will usually have complete control of the assets.
They can get divorced in the future, and have to split half your assets with the soon ex-wife or ex-husband.
They can spend it on extravagant shopping sprees.
They can buy unnecessary sports cars and forget to buy insurance. Oops!
They can have significant creditors just waiting for the big pay day.
Well, when you pass away with a proper living trust, the trust usually divides into as many sub trusts as you have children or people inheriting. So, if you have four children, you will usually have four different sub trusts.
So how does this help the above problematic inheritance issues?
Think of a sub-trust as a tube of toothpaste. The assets you give to your children are the toothpaste. Once you squeeze out toothpaste out of the tube, you cannot put it back in. Ever tried putting toothpaste back into the tube? Impossible!
We want the assets in the tube and to protect our children from the above issues.
That’s when the next very important decision comes into play. Who is in charge of the tube (sub-trust)? Each tube can have another person in charge.
Whoever you put in charge of the assets has to be good with investments, spending, and money. They have to be someone with a good head on their shoulders.
This is especially important if your beneficiaries are spendthrifts. These are children who like to spend a lot of money on unnecessary things and are not financially responsible. (oh, you mean almost everyone nowadays?) Therefore, the assets should be left in a trust, with the right person in charge.
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Let’s say your child is perfect! Except, the spouse he or she chose is outright horrible!
Well, with the right sub-trust you can avoid divorce issues in the future. Your inheritance will therefore remain in the hands of that child! Voila!
Or, let’s assume your child is irresponsible or has a drug addiction. Maybe he is involved in a couple of lawsuits. Maybe he had bad grades in school which ultimately led to addictions fairly early in his life. This sub-trust will be structured differently and have a responsible person in charge. This person will be instructed to be a gatekeeper for lavish or unnecessary spending. With the right structure, you can prevent all the creditors from reaching this pool of assets.
These living trusts are highly specialized and include a number of customizations catered to your family dynamics.
Another fascinating concept is to use incentive trusts to incentivize your beneficiaries into doing that the things you want.
What if we said that if your child gets good grades in school, he gets a $150,000 distribution? Or if he shows his tax returns and the tax returns says he made $100,000; he will receive 50 cents for every dollar he makes. A $50,000 a year bonus! This is one of the most powerful tools. Would that incentivize your child to get off of his feet and go get a good job? How about telling John that he would get some form of cash, if he goes to a drug addiction program.
Don’t let the assets go to waste. Properly plan your estate. Reap the benefits for your family.
Would you like to know how a living trust could help you and your family? Schedule a strategy session today!