Individuals establishing estate plans often decide to create and fund trusts as part of that process. Some people create trusts to protect a loved one with special needs. Others want to ensure they can qualify for Medicaid benefits or protect their assets from collection activity during retirement.
There are many important issues to address when creating a trust. The trustor likely needs to identify appropriate assets for trust funding. They may also need to establish clear standards for the distribution of those assets.
One of the more common scenarios where clarity in allocation of assets is important in a trust is when a trustor plans to rely on those resources during their retirement before passing it on to heirs.
Trustors can control what happens to their assets
The individual funding the trust gets to decide how the trust controls and distributes that property. In some cases, they may provide instructions to invest resources and only distribute returns earned by those investments. Other times, they may provide provisions for structured distributions of trust resources.
It is common practice to include rules that limit trust distributions to prevent the loss of state benefits. If the beneficiaries include retired adults or individuals with special needs, ensuring that distributions don’t make a beneficiary ineligible for benefits is often a key consideration.
Frequently, those creating trusts want to ensure that they have resources when they live on a fixed income. They may also want to ensure that their loved ones use their inheritances appropriately. Trust instructions can include clear restrictions on the distribution of assets after the trustor dies and is no longer the primary beneficiary or trustee.
In scenarios involving people who have a history of improper money management or substance abuse issues, people may limit trust distributions by having a trustee make direct payments to outside parties for approved expenses. By providing instructions to only use trust resources to cover certain types of costs, trustors can prevent scenarios in which their legacy ends up squandered.
Those establishing a trust may need to talk at length with a skilled legal team about their family circumstances and legacy aspirations to ensure that they properly manage the allocation of trust resources. Integrating the right terms into trust documents can help people ensure their comfort as they age and establish a meaningful legacy after they pass.