Could a Beneficiary Controlled Trust be Right for You?

The way a trust works is relatively simple. You put property in the trust. The person who establishes the trust is called the settlor. Those who receive the property in the trust are beneficiaries. And the trust is the person who administers the trust, according to the instructions and directions given to them by the settlor.

That means that if you create a trust, you can leave as many detailed and specific instructions that you want. Except you won’t be in control of the trust, or administering or controlling it—the trustee will (even though you also will have the right to designate whomever you want as that trustee).

The Beneficiary Controlled Trust

But there is one kind of trust that can give you, as the creator of the trust, a bit more control than a traditional trust would: it’s called a beneficiary controlled trust.

In a beneficiary controlled trust, someone who stands to gain from the trust—a beneficiary—also acts as the trust’s trustee.

No Neutrality

That, of course, can create some potential difficulties, because now the trustee is not inherently neutral—the trustee, also being a beneficiary, stands to gain something from the trust. You lose the advantage of having a neutral party (the trustee), handling trust assets.

Having a beneficiary controlled trust can be especially problematic when the trust instructions allow for interpretation, or are vague, or allow the trustee to exercise discretion. It can also create problems when there are multiple beneficiaries—one is an actual trustee, with control over the trust, and the others are also beneficiaries but have absolutely no control at all over the distribution of the trust assets. This can lead to disputes and infighting.

The Positives

But there are some advantages to a beneficiary controlled trust. They do allow you to avail yourself of a major benefit of a trust—the avoidance of probate court. This maintains the privacy protections that a trust provides, and allows quicker and easier access to trust assets, than what would be the case if that property had to pass through probate court.

You also do get some degree of creditor protection, although not as much as you would with a traditional trustee-controlled trust. This largely depends on the beneficiaries’ access to the property in the trust; the more access and control they have over the trust’s assets and distribution, the less protected those assets may be from the beneficiaries’ creditors.

The beneficiary controlling the trust can also, at his or her discretion, appoint an actual trustee (usually a trusted friend or family member), for a higher level of creditor protection, if the beneficiary controlling the trust also happens to have a lot of creditors.

That creditor protection from a beneficiary controlled trust also provides some protections from divorce, and losing the trust assets in a dissolution of marriage.

What kind of trust works for you? Ask us. Call the West Palm Beach estate planning lawyers at The Law Offices of Larry E. Bray today for help with your will or trust.

Source:

kiplinger.com/retirement/estate-planning/603425/what-a-beneficiary-controlled-trust-can-do-to-protect-your-legacy