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Trusts can be incredibly helpful instruments, allowing you to pass your assets on to your loved ones tax-efficiently and in a way which preserves your wishes. However, despite good intentions, too often trust beneficiaries still struggle to manage inherited wealth effectively. Employing some simple strategies can help families of all sizes and income levels make the most of their loved one’s estate.
One strategy is to personalize your trust so that the beneficiaries receive distributions over time – rather than all at once. You may also wait to distribute money to a beneficiary until they reach a certain, presumably more mature, age. This approach may be particularly useful if young beneficiaries are involved, helping them avoid the temptation to spend through the money all at once. Additionally, spreading distributions over time may ultimately mean a lower tax bill for your beneficiaries.
Another method for avoiding mismanagement is to place restrictions on how beneficiaries can use money distributed through the trust. For example, you could set aside funds and require that they be used only for educational purposes. This type of guidance can help ensure beneficiaries use the money in line with your intent.
In addition to setting distribution requirements, finding the right trustee can also aid your beneficiaries in managing their distributions well. Inherent in the word trustee is trust. Both you and your beneficiaries should trust this person or entity to make sound investment decisions and work collaboratively with the beneficiaries to help meet their financial goals. Your beneficiaries should feel free to ask questions of the trustee when they need advice or clarification. Using certain types of trustees may also provide additional management benefits. For example, Maryland’s estates and trusts law allows certain trustees, such as a trust company or certified investment advisor, access to more modern investment practices, whereas other trustees are bound by what is referred to as the “prudent investor rule.”
Bind the document itself, communication between you, your beneficiaries, and the trustee is essential to set the stage for an effective trust distribution. Your beneficiaries and trustee should clearly understand your intent in creating the trust. If your beneficiaries understand the purpose of the trust completely, for example to grow the wealth from the trust rather than to spend it, they may be more inclined to work cooperatively with the trustee to ensure the money is spent wisely and in accordance with your wishes. Including a vision or value statement in your trust document may help. Additionally, your beneficiaries should have a good grasp of how the trust works, including the role of the trustee, the terms of the trust, and how to read a trust accounting statement. They should feel empowered to take an active interest in the management of their inheritance. Equipping them with knowledge is an excellent defense against mismanagement.
Trusts can be complicated, and should not be taken lightly regardless of your income level. Your best advocate in ensuring you have a clear, well-drafted trust document is working with an experienced Maryland estate attorney. The award-winning attorneys at Altman and Associates are dedicated to finding the right strategy for your family to ensure your wealth is protected against mismanagement. Our detail-oriented approach is designed to give you peace of mind knowing your wishes will be preserved. Learn more about your options. Our offices are conveniently located in the Rockville, Bethesda area and in Columbia, Maryland. Call us toll-free at 301-468-3220 or contact us online to schedule a consultation. We are happy to provide you with legal advice conveyed with Integrity, Honesty, Experience, and Professionalism.