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November 06, 2003 at 07:00 PM
The Beneficiary Controlled Trust Allows Many Options
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Suppose youve been advised that your wealthy great uncle recently has passed away. Being his favorite nephew, he has left you a sizeable inheritance. Would you rather receive this inheritance in the form of an outright gift or receive it in trust?
If given the choice, most clients quickly would choose an outright inheritance. At first blush, this makes sense. After all, if given a choice, we want full, unfettered access to money. Consequently, an outright inheritance seems the logical way to go. But let us throw in a twist. What if you not only enjoyed unfettered access, but also with a little planning could enjoy divorce, tax and creditor protection?
Specifically, the Beneficiary Controlled Trust allows clients all of these options that otherwise are unavailable with outright ownership. Think of it as having a great deal of control, with some pretty nice side benefits to boot.
From the grantors perspective, the Beneficiary Controlled Trust is much more attractive than an outright gift. No longer is there a fear the inheritance will be invaded by the “evil son-in-law,” the creditors of the childs new start-up business or some other creditor lurking in the future. From the beneficiarys perspective, he or she has virtually unlimited control of the trust without interference from any secondary beneficiaries.
How it works. Many of our clients want to leave their property to their loved ones outright, provided that at the time of the gift or bequest the desired recipient is capable of managing the property wisely. For these clients, Beneficiary Controlled Trusts generally are recommended rather than outright transfers.
This concept is fairly simple. It is a trust where the primary beneficiary either is the sole trustee or has the ability to fire any co-trustee and select a successor co-trustee. Typically, control of the trusteeship is coupled with a broad special power of appointment that can have the effect of eliminating any potential interference by remote beneficiaries. Because the primary beneficiary/trustee possesses the ability to eliminate all participation in the enjoyment of the trust assets by secondary and remote beneficiaries, the latter will not be inclined to interfere because their rights could be eliminated.
The Beneficiary Controlled Trust is designed to provide the primary beneficiary with all of the rights, benefits and control over the trust property that he would have had he owned it outright, in addition to tax, creditor and divorce protection benefits that are not obtainable with outright ownership.
