One of the main benefits of a living trust is it’s ability to pass your assets to loved ones without unnecessary expense, delay, or court entanglement. The mechanism that accomplishes this is referred to as the trust’s distribution scheme. The distribution scheme specifies who gets what and when. So, as you might expect, it’s prudent to ensure that your distribution scheme is well thought-out and crafted.
Consider the following example: John has two children and wants to leave his assets in equal shares to them when he dies. This is a common desire and seems simple enough. But even a simple distribution like this may have unintended consequences.
For instance, if John’s children are still minors when he dies, they’ll each likely receive their full share of the trust’s assets immediately upon turning 18. As you can imagine, it may not be the best idea to give an 18-year-old a lump-sum pile of cash. Or worse yet, what if some of John’s children are embroiled in creditor issues, divorce proceedings, addictions, or criminal activity when the trust distribution occurs? In that case, John’s hard-earned money could very well be taken by creditors and ex-spouses or used to fuel a destructive addiction.
Although no trust is bullet-proof from circumstances such as these, there are still ways to reasonably ensure that your money will be protected and used for its intended purposes. Perhaps it makes sense for John to create a step-distribution scheme (for example, his children receive half when they attain age 25 and the rest when they attain age 30). And perhaps John would be wise to include language in his trust that precludes the distribution of assets to children mired in creditor claims, divorce, or criminal activity. This can best be accomplished with proper and thorough planning in consultation with a competent attorney.