You must create a will or will and revocable living trust so that you can set out your intentions for the distribution of assets at the time of your death. Without the will or revocable living trust, you are limited in the ways you can protect the assets that you leave to your children.
Use Trusts For Adult Children Under Your Will or Revocable Living Trust
Many people are under the mistaken belief that trust planning is just for young children or children who are not able to handle assets properly. To the contrary, we use trust planning for competent and capable adult beneficiaries all of the time. This trust planning is used to protect assets left to the beneficiaries from divorce, lawsuits and other creditors. These trusts are written in a way that makes the inheritance available for use by the beneficiary while increasing the protection from the claims made by a divorcing spouse, litigant or other creditor.
These trusts are very user friendly and can be written directly in your will or revocable living trust. They do not have to come into effect until after the person creating the will or trust actually dies.
Use a Family Trustee and Independent Trustee
To give the adult beneficiary additional control we typically appoint them as Family Trustee of their own trust. They can invest and use the assets at their discretion so long as the assets remain in the trust name. The Family Trustee can buy, sell, lend and use almost any assets that an individual owner can. The difference is that the assets bought, lent, sold and used in the trust are further protected from the individual's divorcing spouse or creditors.
To give the adult beneficiary increased divorce and creditor protection we typically appoint an independent and unrelated Co-Trustee. This co-trustee is usually given the power to authorize or deny distributions from the trust to or for the benefit of the beneficiary. This serves to distance the beneficiary from the actual ownership of the assets so that their divorcing spouse or other creditors can't easily claim the funds. Initially, this might seem like an impairment of the rights of the beneficiaries.
Power to Replace Independent Co-Trustee
In order to insure that your beneficiary is not saddled working with a difficult or non-responsive Independent Co-Trustee (further described above) we often provide the Family Trustee/beneficiary with the right to remove their Co-trustee. They will typically be required to appoint a successor Independent Co-Trustee. This allows the beneficiary greater flexibility while maintaining the divorce and asset protection benefits.
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