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Estate Planning Questions Part 5: How?

by Steve Hartnett

Estate Planning is often misunderstood. People tend to think it’s only for the very rich, the really old, or both. But the truth is Estate Planning is appropriate for all of us. One of the most frequent points of misunderstanding is that we focus on “who” we want to receive our assets, rather than “how” they should receive them.


For some beneficiaries, an outright distribution might be appropriate. However, ask yourself if one of your beneficiaries might be like the beneficiaries below.


Sam is a Special Needs beneficiary. He is receiving needs-tested public benefits, like SSI and Medicaid. An outright distribution to Sam could jeopardize his eligibility for those benefits.



Rick is responsible and is likely to have a taxable estate. If you leave assets outright to Rick, it will compound his estate tax problems. If you simply leave the assets in the right type of trust and allocate your exemption to it, Rick could use the assets for his own health, education, maintenance, and support, and yet they wouldn’t be in his taxable estate at his later death.


Betty is an anesthesiologist. She is very responsible and duly concerned about asset protection. If you left assets to her through a will, they would be unprotected. However, you could leave the assets in a trust for her benefit which provides asset protection. Betty could be the investment trustee.


Matt is immature and not good with money. If you leave asset to him outright, they are likely to be squandered and possibly in harmful ways. But you could leave the assets in trust for Matt and have a third-party trustee decide what assets should be used for Matt’s benefit. If you think Matt will never have the maturity to manage his own money, a trustee could manage the money for Matt for his whole life. But, if you think Matt will mature and make better decisions as he gets older, you could allow Matt to take over as trustee at an age you set, such as 35.


Your son Ben has many creditors and is not good with money. If you leave the assets to him outright, they are likely to be attached to satisfy his debts. But you could leave the assets in trust for Ben and have a responsible third-party trustee decide which assets should be used for Ben's benefit. This is a way for you to provide support for Ben without his creditors being able to attach the assets.



As you can see, there are many situations in which an outright distribution to a beneficiary could do them a disservice. When you are doing Estate Planning, consider not only to whom you want to leave your assets but also how the assets should be left.

Future articles in this series will address other questions about Estate Planning. Go to the blog for other articles in this series.


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