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If you think you only need to create discretionary lifetime trusts for young beneficiaries, problem beneficiaries, or financially inexperienced beneficiaries, then think again. In today’s age of lawsuits and high divorce rates, discretionary lifetime trusts should be considered for all of your beneficiaries, minors and adults alike.
What is a Discretionary Lifetime Trust?
A discretionary lifetime trust is a type of irrevocable trust that you can create while you are alive – in which case you will gift your assets into the trust for the benefit of your beneficiaries – or after you die – in which case your assets will be transferred into the trust for the benefit of your beneficiaries after death. Most of our firm’s clients choose the latter.
The trust is discretionary because you dictate the limited circumstances when the trustee can reach in and take trust assets out for the use and benefit of the beneficiaries. For example, you can permit the trustee to use trust funds to pay for education expenses, health care costs, a wedding, making a down payment on a home, or starting a new business. If the trust is funded with sufficient assets that are invested prudently and you choose the right trustee to carry out your wishes, the trust funds could last for the beneficiary’s entire lifetime.
How Does a Discretionary Lifetime Trust Protect an Inheritance?
With a discretionary lifetime trust each of your beneficiaries may be protected against lawsuits and divorcing spouses because their inheritance will be segregated inside of their trust and away from their own personal assets. By creating this type of “box” around the inherited property, it shows the world that the inheritance is not the beneficiary’s property to do with as they please. Instead, only the trustee can reach inside the box and, based on your specific instructions, pull funds out for the benefit of the beneficiary. Creditors, predators, and divorcing spouses are generally blocked from reaching inside the box and taking property out.
When the beneficiary dies, what is left inside their box will pass to the heirs you choose. You could decide, for example, to have the assets pass to your grandchildren inside their own separate boxes and on down the line, thereby creating a cascading series of discretionary lifetime trusts that will protect the inherited property and keep it in your family for decades to come.
What Should You Do?
We are available to discuss how you can incorporate discretionary lifetime trusts into your estate plan. The key is to get this plan in place before you die or become incapacitated. If you don’t take care of this while you are living, whatever inheritance you leave to your children may be taken by a divorcing spouse or may be lost through bankruptcy or lawsuits. Contact our office today to discuss these planning options to protect your children’s inheritance in Minnesota.
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Zach Wiegand is a Burnsville estate planning attorney and the owner of Gold Leaf Estate Planning, LLC. Gold Leaf Estate Planning is an estate planning law firm that also handles probate and trust administration in Minnesota. We serve the Twin Cities metropolitan area with a focus on estate planning for clients in Burnsville, Eagan, Savage, Prior Lake, Lakeville, Apple Valley, Eden Prairie and the South Metro. The firm also handles probate in Dakota County, Washington County, Scott County, Hennepin County, and Ramsey County. Zach was named a Minnesota Super Lawyer – Rising Star for both 2017 & 2018 and he is a member of WealthCounsel – a national organization of estate planning attorneys dedicated to practice excellence. You can contact Zach via e-mail at zach@goldleafestateplanning.com or by calling (952) 658-6503. Gold Leaf Estate Planning is located in Burnsville at 3000 County Road 42 W., Suite 310, Burnsville, MN 55337.
