If you think you only need to create discretionary lifetime trusts for young, troubled, or financially inexperienced beneficiaries, then you may want to think again. In this day and age of frivolous lawsuits and high divorce rates, discretionary lifetime trusts should be considered to protect adult beneficiaries, as well as minors. A discretionary lifetime trust allows you to be relatively sure that your adult beneficiary will receive the benefits of the inheritance you provided for them.
What Is a Discretionary Lifetime Trust to Protect Adult Beneficiaries?
A discretionary lifetime trust is a type of irrevocable trust that you can fund either while you are alive – in which case you will gift your assets into the trust for the benefit of your beneficiaries – or after you die – in which case your assets will be transferred into the trust for the benefit of your beneficiaries after death. The trust is discretionary because you dictate the limited circumstances when the trustee can distribute assets for the use and benefit of the beneficiaries. For example, you can permit the trustee to use trust funds to pay for education expenses, health care costs, a wedding, buying a home, or starting a business.
Very importantly, you are not mandating in the trust that the trustee make distributions. When a trust requires distributions be made to the adult beneficiary, then creditors and divorcing spouses, through an appropriate legal procedure, can also require that distributions be made to the creditor or spouse. But, under Florida law, the courts cannot require that a trustee exercise the trustee's discretion to make a distribution from the trust (with one very limited exception).
The governing Florida Statute, Section 736.0504 specifically provides:
(2) Whether or not a trust contains a spendthrift provision, if a trustee may make discretionary distributions to or for the benefit of a beneficiary, a creditor of the beneficiary, including a creditor as described in s. 736.0503 (2), may not:
(a) Compel a distribution that is subject to the trustee’s discretion; or
(b) Attach or otherwise reach the interest, if any, which the beneficiary might have as a result of the trustee’s authority to make discretionary distributions to or for the benefit of the beneficiary.
Even when you may want the beneficiary to have access to a lump sum to manage as the beneficiary wants, you can protect adult beneficiaries. Instead of a mandatory distribution, you can provide a "right of withdrawal." A right of withdrawal provides the adult beneficiary the right to withdraw from the trust any amount that you choose. However, the right of withdrawal is only exercisable by the adult beneficiary you are seeking to protect. No one can legally force the adult beneficiary to exercise the right to withdraw.
If the discretionary trust is funded with sufficient assets that are invested prudently, and you choose the proper trustee to carry out your wishes, the trust funds could last for the beneficiary’s entire lifetime. You have the option of providing the trustee with lots of guidance, or minimal guidelines. You also can provide that the discretionary trust lasts a lifetime, or for a specified period of time.
How Does a Discretionary Lifetime Trust Protect Adult Beneficiaries?
With a discretionary lifetime trust, each of your beneficiaries will have a fighting chance against lawsuits and divorcing spouses because their inheritance will be segregated inside of their trust, away from their own personal assets, and out of their control. Creating this type of protective “box” around the inherited property shows the world that the inheritance is not the beneficiary’s property to do with as they please. Instead, only the trustee can reach inside the box and, based on your specific instructions, pull funds out for the benefit of the beneficiary. In Florida, creditors, predators, and divorcing spouses are blocked from reaching inside the trust and taking property out.
When the beneficiary dies, what is left inside their box will pass to the heirs you choose. You could decide, for example, to have the assets pass to your grandchildren inside their own separate boxes and on down the line, thereby creating a cascading series of discretionary lifetime trusts that will protect the inherited property and keep it in your family for decades to come. In fact, in Florida, we can structure such a trust to protect adult beneficiaries for 360 years into the future.
What Should You Do?
Does all of this sound too good to be true? It’s not. We have prepared hundreds of discretionary trusts to protect adult beneficiaries. Some of them are already in their second and even third generation of protecting beneficiaries. We can help you incorporate discretionary lifetime trusts into your estate plan to protect adult beneficiaries. Your family will certainly be glad you did. Give us a call today (1-866-510-9099) and let's get started helping you protect your beneficiaries from creditors, predators, and divorcing spouses!