Let an Estate Planner “Overthink” Your Trust Plan

As the holiday season approaches, we are reminded of a funny story of when Elizabeth A. Anderson, Esq., was gifted a shirt last year that said, “Hold on, Let Me Overthink This.” While it is true that Elizabeth tends to “overthink” things, it is part of our nature as counselors of the law to think of every possible scenario and outcome. This is particularly true when it comes to planning for future generations.

While you may feel that your beneficiaries are “stable,” bad things happen to good people all the time. Sadly, car accidents happen; divorces happen; and businesses can fail. As part of your comprehensive foundational trust planning, we encourage you to let your attorney “overthink” things and take the opportunity to provide a protected inheritance for your beneficiaries.

The Power of a Separate Share Trust

As a protective measure for your beneficiaries, you should consider providing the framework for a separate share trust (SST) for each beneficiary in a revocable living trust. Your attorney can draft your plan so that, upon your death, each beneficiary receives a certain percentage of your estate. This does not have to be equal shares, but if you have children named as beneficiaries, most parents favor equal distributions among their children. When you pass away and your trust estate is administered (no need for probate), assets will be divided as you dictate in the Trust Agreement.

How it Works

To help visualize this concept, let’s take Jack, for example. Jack might divide his assets among his three children, Ben, Roger, and Sarah, in equal shares: one-third of his assets will be retitled into an SST for each. Each SST can be drafted with the same or different directions to the trustee of the SSTs.

Child #1

Ben is the owner of a company which excavates basements for luxury homes. He is doing very well and his business is growing. But it is the year 2008. What happened in 2008? The bottom fell out of the housing market.

Ben files for bankruptcy. His personal and business assets are subject to claims of bankruptcy creditors. However, the assets in his SST left to him by Jack remain protected because this is a gift from his father (or parents), left to him by a third party with rules about distribution of income and principal. Ben should not serve as the trustee of his SST during any time when he is being pursued by creditors, but when the waters are calm again, he can step in and serve as trustee of his SST or, better yet, as co-trustee with another individual or even a professional fiduciary.

Child #2

Roger is a good son. Everyone loves to hang out with Roger because he is so fun and generous with his money. He has started several businesses with great fanfare, and all have ultimately failed.

Roger has most recently asked his dad for $15,000 to bail him out of bankruptcy. Roger cannot serve as a trustee or even a co-trustee of his SST. Dad is going to make sure in his Trust Agreement that Roger gets a third of Dad’s estate, but Roger can only receive income with the approval of a third-party trustee for his needs. This protects Roger, the spendthrift, from himself and from outsiders who have taken advantage of his generous, but childish nature.

Child #3

Sarah is the youngest child and the apple of Jack’s/Dad’s eye. She is kind and reliable. She is married to Bob. Bob is not so kind and reliable, and Dad is concerned that Sarah and Bob might divorce. Jack does not want Bob to get 50% of Jack’s estate if Sarah and Bob divorce after Jack passes away. How can he give money to Sarah and keep it away from Bob?

Jack provides in his Trust Agreement that Sarah’s 1/3 gift/inheritance must go into an SST. Sarah must always have a CPA, attorney, or professional fiduciary serve as her co-trustee, and that co-trustee must approve all distributions. This protects Sarah from Bob’s insistent demands to give him money from Sarah’s inheritance, and also maintains the character of the assets of Sarah’s SST as her separate property; it is never part of the marital estate as long as Sarah leaves the assets in her SST.

By providing for SSTs for his descendants, Jack can control some matters from the grave while still giving his children access to their inheritance in a protected manner.

Let Us Overthink for You

Your family may need fewer protective measures than Jack’s family, but with the implementation of the SST language in your foundational trust planning, you are able to protect the inheritance from all of life’s “what-ifs.” Let your attorney do all the “overthinking” and plan for the flexibility of life when planning for generations to come.