On assignment for CNBC, Jennifer Woods recently penned an article to help readers think through the terms when creating trusts in order to ensure money “lands in the right hands and isn’t squandered.” For expert guidance on the topic, Woods turned to John O. McManus, founding principal of McManus & Associates and a top AV-rated estate planning lawyer.
Mission-critical advice from McManus on the importance of perpetuating a trust was spread far and wide via Woods’ article, “Heir tight: The dos and don’ts of creating rock-solid trusts.” From the story:
“We like the idea of a trust remaining in effect for the child’s lifetime,” said John McManus, founding principal of McManus & Associates, a trusts and estates law firm. This is particularly beneficial when large sums are involved.
As relayed by Woods:
Here’s why: Say you set up a trust that finishes making distributions when your daughter reaches a certain age, by which point she’s married with kids. If she dies, her husband is entitled to the money because it’s now part of her estate. What happens if he remarries and then dies? The new spouse can take one-third of the assets—and can choose to redirect them to her own kids, depriving the true heirs.
Another option, according to McManus, is for the parents to direct that the inheritance pass in trust for the benefit of the daughter. “The trust would provide for her on an as-needed basis during her lifetime and would require that any remaining assets pass to her children only upon her death,” he said.
To avoid the problem of chaining the child to a trustee with a trust that remains in effect over his or her lifetime, John favors making the child the trustee. The trust could include provisions limiting the beneficiary’s access to the trust while allowing distributions to be made for expenses related to health, education, maintenance and support.
But who really needs a trust? They’re “not just for the ultrarich,” Woods points out. Per the report:
- If your heirs stand to inherit even a few hundred thousand dollars, a trust is worth considering.
- People with young children could benefit from a testamentary trust, established in a will and effective upon one’s death. It dictates how assets will be distributed at later dates. The drawbacks? These trusts go through probate, delaying disbursements, and the records are public.
- Revocable trusts, or living trusts, are often a better option. You allocate, access and manage assets, and amend terms while you’re alive. When you die, the trust can convert to an irrevocable trust with unchangeable terms. Other pluses: They’re easy to set up, are flexible and protect privacy
For more do’s and don’ts on setting up a trust fund, read Woods’ article in full here. Our team is here to help you skillfully navigate this important process. Give us a call at 908-898-0100 for more information on how to get started.
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