Why Bother Creating a Protected Lifetime Trust?

A protective trust is a wonderful gift of love that you make to your descendants. It gives them more freedom than they would have if the assets went to them outright, because they have control without risk of loss to creditors and predators.

Imagine that a descendant of yours marries and receives an inheritance during his or her twenties. What effect would complete control of that inheritance have on the initiative and ambition of your loved one? Would the loved one be as willing to complete formal education, or formal job training, or engage in the hard work needed to start a business or embark on a career? Would whoever married that descendant of yours lose some ambition, or otherwise take advantage of your descendant’s inheritance, using it up and then letting your descendant live later years of relative poverty? Would the spouse of your descendant possibly divorce your loved one, and end up with part of the inheritance you intended to go only to your family member? The answer to these questions is yes in each case, as shown by the experience of most families.

Examples of such experiences will be posted on our Facebook page this week.

The Dignity of Control

Experience teaches that a young person who receives a substantial inheritance often does what a young person does with a substantial recovery in a lawsuit, or with lottery winnings. They spend it quickly. Even the average cash lottery winner is back in the same financial condition as before after only a couple of years.

These protective trusts can allow descendants (except as you otherwise specify) to act as trustees of their own shares at a set age you specify, and to remove and appoint other co-trustees or separate trustees. The use of these protective trusts gives maximum dignity of control to your descendants. In other words, these trusts protect the inheritance for your descendants, not from your descendants.

The right to act as trustee includes the right to decide how to invest the inheritance.The right to act as trustee includes the right to decide how to use, distribute, and spend the income and even the principal of the trust for their “health, education, and maintenance,” standards that are quite flexible. As a practical matter there is little that the descendants could not do with the inheritance except lose it to someone who might sue or divorce them or who might take advantage of them during early years when they are not serving as their own trustee.

The child and later descendants of each child would have the right to say who gets any remainder of their individual trust shares at death. They can specify whether the remainder will pass outright or in trust. They can specify who receives it, except as limited by you.

If you choose to make sure the inheritance for each of your children will forever remain in your family, the protective trusts could specify that any remainder must pass down only to your descendants. This type of protective trust is sometimes called a dynasty trust.The inheritance that might pass to your later generation descendants (grandchildren and even their descendants) could go into a similar trust for these descendants.Wealthy families have used these trusts for years. Your family is worth the effort. After all, less than a large inheritance is even more valuable to loved ones who are not wealthy.