Our last estate planning article addressed planning for incapacity in advance. In that article, we discussed balancing control and protection through your power of attorney and healthcare documents to reflect your individual circumstances: the right amount of protection from various people and organizations, and the right amount of control. It’s through these documents, you’re able to account for times when you’re incapacitated or unable to make decisions for yourself.

In this follow-up article, we’ll explore that the basics of estate planning beyond incapacity by taking a look at the core document of an estate plan and discuss special needs planning in particular.

The centerpiece of an estate plan is the revocable living trust. The trust itself is a living, breathing document that allows the easy transfer of assets to beneficiaries without going through the process of probate. Once you created it, you’re in complete control – you can make changes, additions and revoke the document as you see fit.

Some benefits of the trust are the following:
• Selection of beneficiaries to receive your assets upon your death
• Enactment your wishes and goals by controlling how and when your assets are distributed (e.g. for college, for medical expenses, at specific times or ages, upon certain achievements, etc.)
• Protection of your beneficiaries from creditors and predators
• Potential for long-term wealth preservation and accumulation
• Avoidance of probate, keeping your information private and confidential
• Potential for minimizing tax implications for beneficiaries at your death

Through a living trust, you’re able to control your assets while you’re willing and able to do so, just as if you hadn’t created the trust in the first place. The benefit of the trust is you’ve now created a legal framework to maintain control of trust assets even after you’re unable or unwilling through specific instructions given ahead of time. You’re also able to protect your family and assets by implementing specific provisions like creation of sub-trusts for the benefit of your loved ones. While each set of family circumstances is different, a living trust is the main vehicle through which your estate plan controls and protects beyond incapacity.

To address the complexities of life that require more detailed estate planning, we can create sub-trusts. With trust-based planning, you’re able to design a revocable living trust that would act as your main trust with a sub-trust for beneficiaries to be created and become irrevocable upon your death. The details of the administration of this trust can vary widely. However, controlling the flow of assets to ensure you are able to protect and provide for your children after you’re gone is fairly common and simple.

For instance, you can design the trust so that funds are held in trust by the trustee until the minor child reaches the age of 18 or 25, or whatever age you believe is appropriate. This allows you to restrict the flow of assets until a certain date to protect against various risks associated with passing assets along to a beneficiary.

You could also set up a sub-trust that calls for specific distribution of funds at various intervals. For example, the sub-trust for your minor child could be designed in a way that would distribute 1/5 of the funds at age 25, 1/4 of the funds at age 30, 1/3 at age 35, 1/2 at age 40, and the balance at age 45. This could be scaled either way, younger or older, and can be adjusted to fewer or more distribution periods. Essentially, you can control exactly how the funds are distributed to your child and when.

In order to simultaneously ensure the beneficiary will be protected from risks and always have access to funds for the basics, you could add another layer of planning and relinquish some control through specific legal provisions. Speak to a qualified estate planning attorney if you’d like to explore this dynamic in your planning.

If a beneficiary requires special care, you can specifically design a sub-trust to again be created and become irrevocable upon your death for the benefit of that special needs beneficiary. The trick is to design it so the beneficiary can also receive supplemental benefits as it is common for beneficiaries with special needs to be eligible for governmental assistance. If not properly planned, assets inherited through the administration of an estate can disqualify a beneficiary from receiving those government benefits.

Sadly enough, some people resort to disinheriting a special needs beneficiaries and hoping another beneficiary will handle the burden of caring for them. Instead of implementing this strategy, it’s best to design a special needs sub-trust (SNT) with appropriate and precise planning. Essentially, the SNT is designed to allow for discretionary distributions of funds to special needs beneficiaries in situations that governmental benefits would not already be provided. This structure, along with some other legal provisions in the SNT should allow the beneficiary to inherit and also continue to be eligible for governmental assistance.

Ultimately, estate planning is about your personal, individual circumstances. The end result should be a living, breathing set of documents that provides a plan during your incapacity and after you’ve passed away. A properly designed trust-based estate plan should strike a balance between control and protection that makes sense for you and your family. If you’d like to explore striking that balance, we’d be happy to discuss.

Matthew Schlau is a co-founding principal of Schlau|Rogers and an estate and business planning lawyer practicing in Orange, San Diego, Los Angeles and Riverside counties. He is a husband, father, blogger, crossfitter, and really good at helping people achieve their goals.

At Schlau|Rogers, we do more than just estate and business planning, probate and trust administration. Our objective is to provide individually-tailored plans that allow you the opportunity to reach your goals, all while minimizing headaches and risk, and maximizing peace of mind.
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