A recent article outlines several factors that families in California may want to take into account when considering leaving money in a trust for future generations. The suggestions in the article vary in their approaches while generally working toward the common goal of helping individuals with fortunes protect their heirs from throwing away the wealth they inherit.
A milestone trust, also known as an incentive trust, includes language establishing that an heir is only entitled to trust payments after he or she meets a specific set of terms that could consist of college graduation, retention of a job or other conditions. Stepping stone trusts are similar in effect, but instead of denying payments until conditions are met, the size of the payment may periodically be increased in response to the heir successfully meeting the established goals. Another related provision is the matching trust, which is designed to match the income the heir makes with trust payments.
Discretionary clauses enable the trustee to choose to withhold payments to a beneficiary according to the trustee’s judgment, and escape clauses function in a similar fashion. Emergency clauses are intended to permit the trustee to distribute funds under exceptional circumstances such as expensive medical treatments. A spendthrift clause, common in many trusts, is intended as a protection against letting a beneficiary’s creditors take funds from the trust account in many scenarios.
These provisions often have drawbacks that individuals should consider before their implementation. Trust planning often involves making major decisions that can significantly impact the fortunes of family members. An estate planning attorney could aid a family facing difficult financial choices in acting in accordance with the best interests of current and future generations.
Source: Investing Daily, “Using Protection Trusts to Help Heirs“, Bob Carlson, April 04, 2014