As is the case in most wills, the majority of people who set up revocable and irrevocable trusts leave their assets outright to their beneficiaries, such as children, when they die. So, what's wrong with that? Well, there may be a better way...
By creating a Legacy Preservation Trust naming your child both as trustee and beneficiary when you die. The Trust is a set of rules for managing assets for the benefit of the beneficiaries. The rules may be broad or narrow.
Reasons to Create a Legacy Preservation Trust
There are a number of good reasons to create trusts for your children today. Just as you've learned about the benefits of a trust, undoubtedly your children will wish to avail themselves of the same opportunity one day. Leaving assets to your children in their own Legacy Preservation Trusts provides them with additional benefits. These benefits are:
- The assets will be protected from their spouse in the event of divorce.
- The assets will be protected from their creditors in the event of financial hardship.
- Upon your child's death, the unused assets go to the beneficiaries you choose instead of the in-laws or others.
Legacy Preservation Trusts can provide that, during your children's lifetimes, your children have access to the income and the principal in their trusts for their health, education, maintenance, and support - so that you're not giving them a "gift with strings attached or "ruling from the grave."
Keep it in the Family
Another advantage of the Legacy Preservation Trust is that it is much easier for your children to keep assets separate from their spouses' when these assets are left to them in a trust. On your death, all of your assets are retitled directly from your trust to your children's Legacy Preservation Trusts. There is a world of difference when your children can say to their spouse, "my parents left assets for my benefit" compared to receiving the inheritance "in hand" and having to take active steps every year to keep those assets separate from their spouses.
As your children pass away, the unused portion goes to beneficiaries you or your children named. You may also choose to have younger beneficiaries be restricted to receiving benefits for health and education only.