A trust can prevent your descendants from following such an undesirable lifestyle. Image: Freedomz/shutterstock.com
By: FEDweek StaffSome people are reluctant to use trusts in their estate planning. You might think that leaving money in trust will make “trust fund babies” of your children or grandchildren. You may fear they’ll become spoiled brats who do nothing but spend income they haven’t earned.
On the other hand, if you make outright bequests your heirs might go through their inheritances quickly. They could squander their money or invest foolishly and wind up without needed funds.
A trust can prevent your descendants from following such an undesirable lifestyle. In effect, trusts let you pass along your financial acumen along with the finances.
Distributions can be set at modest amounts at certain times or left to the discretion of the trustee, who’ll manage the trust assets per your direction for the support of your beneficiaries.
One common method of distribution is to allot money at certain ages—for example 25, 30, and 35—or on events such as finishing a college education (it creates an incentive for your beneficiaries to do that) or on major life events such as marriage, birth of a child or the purchase of a home.
Think through all the possible impacts, though. Might receiving money just after college, for example, reduce their motivation to find meaningful work and instead use it to bum around Europe for a year or so? You’ll have to make that judgment based on your knowledge of your heirs.
Making Your Trust Work as Intended
- Choose the right trust. Use a revocable living trust for control and probate avoidance; consider irrevocable or special-needs trusts when asset protection or benefits eligibility is key.
- Name the right people. Select a prudent trustee (or co-trustee/corporate trustee), plus successors. Require periodic accountings and include a beneficiary-friendly removal/replacement clause.
- Define distributions clearly. Consider the HEMS standard for baseline support, then add incentives (degrees, certifications, work milestones) only where they truly help.
- Build in protection. Add spendthrift language to shield from creditors and divorces; include tailored provisions for beneficiaries who struggle with finances, substance use, or disability.
- Fund and align. Retitle assets to the trust and sync beneficiary designations (life insurance, TSP/401(k), IRAs). Be cautious with retirement accounts—trusts receiving them have special payout rules.
- Plan for taxes and change. Note trust income is often taxed at higher brackets; consider a trust protector and flexible state situs to adapt to future law or family changes.
Deferred Resignation Periods about to End for Many; Overall 12% Drop
Retirement Surge Likely as Deferred Resignation Periods End
Senate Rejects Bills to Defer Shutdown; Familiar Process Lies Just Ahead
Senate Bill Would Override Trump Orders against Unions
Report Describes Impact of Shutdown on Employees, Agencies
TSP Adds Detail to Upcoming Roth Conversion Feature
See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
How to Handle Taxes Owed on TSP Roth Conversions? Use a Ladder
The Best Ages for Federal Employees to Retire
Best States to Retire for Federal Retirees: 2025
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process
