Preserving Accumulated Wealth for Our Survivors 

Preserving wealth across generations demands strategic planning. Estate planning isn't just about avoiding probate; it's about safeguarding beneficiaries from financial risks and shaping their future responsibly.

Adam Smith noted 234 years ago in The Wealth of Nations that “riches seldom remain long in the same families.

In my opinion, the goal of estate planning is to preserveaccumulated wealthfor the security of our survivors. Certainly now, with the economic uncertainties ahead, our survivors will need all the help we can give them.

Most revocable trusts are promoted solely to avoid probate. These “will substitutes” direct the successor trustee to distribute the reaming trust estate to thenamed beneficiariesin a lump sum, free of trust. That approach offers protection from the expense and delay of probate, but it does not protect beneficiaries from their inabilities, disabilities, creditors, and predators. 

The key to protecting your beneficiaries is not giving them unfettered inheritance control. Instead, 

1. Keep their inheritance in trust for their long-term benefit.
2. Give an independent trustee discretion to determine how much and when to make distributions.
3. An independent trustee will provide or obtain professional portfolio management and avoid some of the problems caused by your beneficiaries’ inabilities or disabilities.
4. Giving the trustee discretion to make distributions, or not to make them, will offer protection against your beneficiaries’ creditors, including future ex-spouses, and predators. 

A discretionary distribution trust also offers you the opportunity to shape the behavior of younger beneficiaries by offering incentives for the achievement of certain goals such as:

1. Graduating from college.
2. Using distribution to help with the purchase of a car or furniture for an apartment and buying a house
3. Distribution money can be used for the down payment.
4. Getting married, getting a distribution for the wedding.
5. Getting up housekeeping; and so on.

How Discretionary Distribution Trusts Can be Used in favor of a Survivor?

You can state that the principal distribution will only begin when the beneficiary reaches retirement age. Of course, you should include a provision for distributions in the case of a bona fide hardship or emergency. 

You can use a discretionary distribution trust:

1. To pay tuition for grandchildren and more remote descendants
2. To pay a beneficiary’s health insurance premiums, deductibles, and out-of-pocket medical expenses
3. To provide income replacement to the beneficiary for participation in employer-sponsored medical and retirement plans

You earned the wealth you accumulated; you made sacrifices to save it; and exercised restraint in investing it. In this uncertain economy, theasset protectionprovisions of your estate plan may be your most important legacy. 

Useful Resources:

1. Just Moved to Florida? Don't Forget Your Out-of-State Estate Plan.
2. Take Control of Your Future: Master Your Estate Plan with This 2024 Checklist

Frequently Asked Questions: 

Disclosure:

This publication is designed to provide accurate and authoritative information concerning the subject matters covered.  It is published with the understanding that in this publication the author is not engaged in rendering legal, accounting, or other professional service.  If legal advice or other expert assistance is required, the services of a competent professional person should be sought.  (From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a committee of Publishers and Associations).

To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person to avoid U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer's particular circumstances.