One of the most beneficial aspects of trusts is that they allow the grantor to establish guidelines and parameters that will endure long after he or she has passed.
Unfortunately, not everyone may be aware of these options in estate planning. A recent example can be found in the estate of the late actor Philip Seymour Hoffman. According to Hoffman’s attorney, Hoffman was concerned about his children being perceived as trust fund kids. Instead, the late actor executed a will and reportedly left everything to his girlfriend, who is also the mother of his three children.
Yet an attorney that focuses on estate planning knows that a will must go through probate. A more economical and flexible arrangement might have been possible with trust instruments.
Trust instruments can offer great planning variety. For example, a spendthrift trust can ensure that a beneficiary can’t frivolously deplete the trust’s assets. The terms of this type of trust will spell out the specific restrictions on how and when property can be disbursed to the beneficiary, and an appointed trustee oversees control of the principal.
Notably, a spendthrift trust is usually insulated against the consequences that might otherwise attach from a beneficiary who amasses substantial debt. Since the beneficiary of a spendthrift trust has limited access to the trust principal, he or she usually can’t be deemed to have control over those assets. As a result, the beneficiary’s creditors usually can’t collect against the beneficiary’s spendthrift trust.
Another example of custom-tailored restrictions can be found in a special-needs trust. Also called a supplemental trust, this type of legal document usually includes terms that prevent the trustee from disbursing money directly to the beneficiary. Rather, trust assets typically must be spent on the beneficiary’s care needs.
Source: CNN, “Philip Seymour Hoffman didn’t want ‘trust fund kids,’ court docs show,” Alan Duke, July 22, 2014