Distribution of Trust Funds – Deciding When

As you know by now, when properly drafted and funded, revocable trusts are an amazing tool to avoid probate. However, probate avoidance is not the only benefit a trust offers.

Once our clients understand the “ how ” behind funding their trust, their next greatest concern is typically, “ when ” do their beneficiaries receive their inheritance? Whether the assets of the estate are modest or massive it is natural to be concerned and even cautious when considering who your beneficiaries are (usually your children and/or grandchildren) and how their inheritance will be distributed.

It goes without saying that any beneficiary who receives a lump sum of money at the age of 18 may not invest those funds as wisely (or at all) as they might at the age of 30 or 35. Fortunately, having a revocable trust in place allows you to control the age(s) your beneficiaries will receive their share and what amount(s) or percentage(s) of your estate make up that share. When clients have minors as beneficiaries, our typical recommendation is to delay initial distribution until a later age (usually around 25). Depending on the circumstances, some clients wish to delay their beneficiaries’ distributions until even later ages (30 or 35), some opt to provide fixed percentages at specified ages (e.g. 15% at age 25, 35% at age 30, and the remaining 50% at age 35), and others even put restrictions on distributions, which gives your trustee power certain discretion if substance abuse is suspected. It’s also not uncommon for clients to include charitable organizations and provide for animals that may out live them, as beneficiaries of their revocable trust.

In addition to the option to delay based on age, trustors may also specify whether distributions should be made upon achievement of certain milestones. For example, the attainment of a bachelor’s degree or graduation from a post-graduate program, marriage, or ministry work.

Despite the various ways clients decide how the estate funds are distributed, the trust’s distribution provisions typically include language that allows the trustee to provide for the beneficiaries’ ongoing health, education and welfare no matter the age. Which means, if your minor child needs medical expenses paid for, the trustee has the power to use monies in their share to cover those expenses. The same could also be applied to a beneficiary who needs assistance with college expenses.

Trustors without minor beneficiaries also stand to benefit greatly from the amount of control a revocable trust offers. As previously mentioned, if a beneficiary has a history of drug or alcohol abuse, gambling or making reckless financial decisions, the distribution provisions of a revocable trust allow the trustor to structure distributions in a way that may protect the beneficiary from spending their inheritance on addictive habits or subjecting themselves to creditor’s claims. Alternatively, some trustors may decide to leave nothing to a specific beneficiary by including what’s called a specific “disinheritance” clause in their trust.

Do you have additional questions about the distributions to your beneficiaries? Schedule a free 30-minute estate planning consultation today and let us provide you with the tools you need to reach your estate planning goals.

This article is provided as a public service by the Law Offices of C. David Martinez, PLLC. While the information on this site is about legal issues, it is not legal advice or legal representation. Because of the rapidly changing nature of the law and our reliance upon outside sources, we make no warranty or guarantee of the accuracy or reliability of information contained herein.