Protecting your wealth for future generations requires careful planning. While trusts are often associated with tax benefits, their true power lies in their ability to safeguard your assets while giving you control over how your success will benefit your children and grandchildren.
Beyond the Basics: How Trusts Really Work
When parents first sit down to discuss their estate plan, they often have specific ideas about when their children should receive their inheritance. Some want to distribute assets immediately, others prefer waiting until their children reach certain ages, and some create elaborate incentive plans tied to career choices or earnings.
But here’s the truth: life rarely follows our carefully laid plans.
Why Flexibility Matters Most
This is where discretionary trusts shine. Think of them as a financial safety net that can adapt to your children’s changing needs. These trusts give trustees the flexibility to distribute funds for:
- Health care needs that may arise unexpectedly
- Educational opportunities at any stage of life
- Basic living expenses during tough times
- Other important life circumstances that you can’t predict today
Three Ways a Trust Protects Your Children’s Future
- Protection from Inexperience – Imagine your college sophomore suddenly having access to hundreds of thousands of dollars. A discretionary trust ensures they have guidance in managing this wealth, while still allowing them to pursue important life goals like buying their first car or starting a business when they’re ready.
- Protection from Legal Issues – Life can be unpredictable. If your child faces a lawsuit or legal trouble, assets in a discretionary trust remain secure and protected from creditors.
- Protection from Divorce – Nobody plans for their child’s marriage to end in divorce, but it happens. A discretionary trust keeps your family’s assets separate from marital property, ensuring your legacy stays within your family.
Choosing the Right Trustee: Your Most Important Decision
The success of your trust depends heavily on choosing the right trustee. Look for someone who:
- has a close relationship with your children;
- demonstrates financial wisdom;
- is likely to be around for the long term; and
- understands your family’s values and goals.
Smart Trust Management Strategies
Consider these practical approaches:
- add your children as co-trustees when they reach a certain age to help them learn about wealth management;
- give your children the power to change trustees after a certain age (typically 40) if the relationship isn’t working; and
- decide whether trustees should be compensated for their service.
Final Thoughts
While tax benefits are valuable, the real power of a trust lies in its ability to protect and nurture your family’s future. It’s not about controlling from beyond—it’s about providing your children with both resources and protection as they navigate life’s challenges.
QUESTIONS? If you have questions or concerns regarding trusts, or any other estate planning concern, please contact HDRB&B’s Trusts & Estates Department Chair, Naim Bulbulia, or the HDRB&B attorney with whom you normally work.