Client Alert

Deciding How and When Inheritance Will be Distributed to Beneficiaries

In many estate plans, the total amount of inheritance will be collected by beneficiaries upon the trustor’s death. In high-asset estate plans, however, this is not always wise.

Here are three types of alternatives to consider regarding distribution methods for your estate plan.

Age

This is one of the most common types of alternate distribution methods used in estate planning. Instead of a beneficiary inheriting assets all at once, inheritance can be distributed over time as they age. For example:

At age 25, they receive 1/4th of the total estate
At age 35, they receive ½ of the estate
At age 55, they inherit the remainder of the estate
There are various reasons trustors choose these types of distributions, including to ensure that the inheritance will stretch throughout a beneficiary’s lifetime and their retirement. This can put your mind at ease that your beneficiary will not spend the money all at once.

Condition Or Event

Beneficiaries can also inherit money under certain conditions or only after a certain event. Conditions or events that may trigger a distribution can include receiving a degree from an accredited college or university, marriage, passing a drug screening or having a child.

Trustee’s Discretion

Life happens and, as much as we might try, we cannot plan for it all. A discretionary trust accounts for unexpected surprises and allows trustees to make the final call regarding when and how much distributions will be. This is referred to as the “HEMS” provision, which stands for:

Health
Education
Maintenance
Support
For example, if your beneficiary is diagnosed with cancer or is struggling to make house payments, your trustee can distribute a portion of the inheritance to ease the financial strain.

While you can certainly design your estate plan to customize your own wishes, it can be a good idea to consult with an estate planning attorney before adding any type of distribution language into your documents. There may be multiple ways the language could be interpreted and lead to it being contested in court. An example of this is neglecting to define what types of drugs they must test negative for such as prescription drugs. An attorney can draft the document to minimize the risk of confusion.

Posted in Client Alert, Heirs / Beneficiaries.