Leaving Assets in Beneficiary Controlled Trust Offers Important Protections for Beneficiaries Too
By Martin Hersh, Esq.
Generally speaking, estate planning should entail much, much more than just making out a Last Will and Testament or establishing an Irrevocable or Revocable Trust.
Often, while Irrevocable and Revocable Trusts are great estate planning tools, they are touted too much as the “one size fits all” solutions in protecting hard earned assets and savings from the costs of long term care.
There are a number of other important factors and estate planning tools that should be considered when formulating an estate plan.
For example, Last Wills and Testaments and Irrevocable and Revocable Trusts alone often don’t provide beneficiaries with protection from predators, creditors, or from unnecessary taxation of the child’s estate.
Instead of just an outright distribution alone through a Will or an Irrevocable or Revocable Trust, the inclusion of a “Beneficiary Controlled Trust” (BCT) in an estate plan may be the perfect solution to manage the estate and to provide important protections to a beneficiary (if the child is not a spendthrift and can manage their own funds), even after the testator dies.
Why are BCTs not typically seen or advertised?
It’s because most attorney/draftsmen don’t know about them or are inclined to use formbook type Wills that speed the drafting process to the possible detriment of their clients.
A BCT is a great estate planning tool that gives a beneficiary control over their inheritance while at the same time offering protection from creditors, predators and estate taxation. Its use, both alone and in conjunction with other estate planning tools, should always be a consideration in estate planning.
Typically, a BCT trust gives a beneficiary the ability to direct, through their own estate plan, how the assets of the grantors estate are disposed of well after their death. This does not mean that the child is totally limited in how they disperse their inheritance.
Once a child is a trustee of their own BCT, they can then use the trust assets for their “health, education, maintenance or support” (or “HEMS”), which allows them to use the assets for their ordinary and routine expenses according to their established lifestyle.
In a BCT, parents can even give their child full use of and access to their inheritance by appointing a “distribution trustee” who has the power and discretion to invade that child’s BCT for that child for any purpose.
But most importantly, a BCT is an estate planning tool that provides critical protection against:
Predators: A BCT can protect an inheritance from divorcing sons or daughters-in-law. Children that are married, or who eventually get married, most often add their spouses as the co-owners of their assets (including an inheritance). If properly drafted BCT provisions are in place, an inheritance may not be part of an eventual equitable distribution award in a divorce.
Creditors: BCT can protect against the seizure of the assets being passed to a child who has credit issues or have an inability to handle their own assets in a responsible manner (in a later article I will address issues involving spendthrift children). In such cases, the spendthrift child should not be a trustee of their own trust but a third party, such as a bank or trust company, should control distributions for the child.
Protection from Estate Taxes in Child’s Estate: Why pay estate taxes if there is legitimate way around them? While Congress recently set a $5,000,000+ threshold so that a majority of Americans don’t have to worry about estate taxes, New York, and several other states have estate taxes of their own. New York has an estate tax threshold of only $1,000,000. If the inheritance “pushes” the child’s assets over the $1,000,000 threshold at the time of their death, New York imposes an estate tax on assets in excess of this figure. A BCT can prevent those thresholds from being attained.
So a BCT can be an important tool in your estate planning-it provides critical protections to the beneficiaries and control over the distribution of the estate even after death
With the new changes in Estate Law that Congress recently implement, now is the time to make an appointment with me to review your present estate plan to see whether a BCT fits your estate planning needs.
Schedule a free consultation today by calling my office at (845) 292-9345.