At Purple Law Firm in Chattanooga, Tennessee, our attorneys often encounter clients who have a child who is not in a good position to inherit money or property without “blowing” it. Sometimes the child is involved in drugs, criminal activity, or just not responsible with financial matters. Other times the client is concerned about an issue with their child’s spouse, or what would happen to the inheritance in the event of a divorce.
What instrument (legal document) offers the best solution to such a problem? Is it a Last Will and Testament or a Trust?
First, lets look at a standard Last Will and Testament: You bequeath or devise (give) a certain amount of money or property, perhaps your entire estate to your child upon your death. It is now your child’s money/property to do with as he/she sees fit. Now, sometimes wills are written with a “testamentary trust” clause – which means that upon your death your Executor, the administrator of you will, is instructed by you to set up a Trust for your child. All that child’s inheritance is then placed in Trust to be controlled by a Trustee. This option, a testamentary trust, typically requires probate.
What would a Living Revocable Trust do to resolve this issue?
A Living Revocable Trust is an agreement, a contract, between the Settlors or Grantors (persons placing property into the Trust) and the Trustee of the Trust. In the situation described above, the Trust Agreement would require that your child’s portion or share of the estate (inheritance) would remain in the Trust for a specified period of time or for the child’s lifetime, depending on the specific issues. His / her money and property would be managed for his / her benefit by the Trustee.
A Revocable Living Trust Does Not Require Probate
The advantage to a Trust as opposed to will in this scenario is that a Trust does not require probate or court supervision of any kind. Probate is often very costly and time consuming, and your estate may be charged court costs, attorney fees, and possibly administrator fees. When you pass, the Trust continues for the benefit of your child for the period of time you specify. You also enjoy the other advantages of a Living Trust during your lifetime. Such as, the ability to name a person to manage your financial affairs in the event that you are no longer able to. Another advantage is that Trusts offer a certain level of protection of your assets against judgment creditors. (Speak with an attorney about this issue)
Before you decide what plan is right for you consult with an attorney who is experienced in estate planning (both wills and trusts).