Setting Up Smart Trusts

To avoid careless spending, parents are no longer giving lump-sum payments to children as they turn 21. Here are some smart trusts that you can set up to manage a child’s inheritance:

• Irrevocable Trusts: You can put money up to the excludable gift amount of $5 million into an irrevocable inter vivos trust that will last for your child’s lifetime. You can put the trustee in charge of the interest and principal and your assets will also be protected in case of a divorce.
• Revocable Trusts: A testamentary lifetime trust can be set up in a will. A parent can specify when they want the money to be given to the kid and how they want it to be distributed. A revocable trust allows the parent to change the terms up until his/her death.
• GRATs: Grantor Retained Annuity Trusts can be used to save on taxes. The parent would fund the trust with assets for a specific term. For the specified term, the parent gets an annuity and then the assets will pass to the child/children free of gift-tax consequences.
• Intrafamily Loans: These can be used for parents to help children with funds while maintaining ultimate control.
• Education: Wealthy families should educate their children on how much money is coming their way. The parents should bring their children to planning meetings early so that they can grasp how the process works so that they can start acting like adults sooner.

See Tatiana Serafin, Holding Back the Inheritance, Barron’s, Dec. 3, 2011.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.