27 Mar Trusts Are Like Toothpaste Tubes
Trusts Are Like Toothpaste Tubes
You read the title correctly. Trusts are in fact a lot like toothpaste tubes. Let me tell you how. First, you have full control over how much toothpaste is squeezed out. You can squeeze out a little or a lot. It’s customary only to use a little toothpaste. You just don’t need that much to do the job. Conversely, have you ever been able to reinsert toothpaste that has been squeezed out back in the tube? The answer is probably a resounding “no”. Once it comes out, it stays out for good. Knowing that makes you a little more careful from the outset.
This analogy is perfect for trusts. You designate beneficiaries and control every aspect about distributions of property, including type and amount of property, and timing, frequency and manner of distributions. It’s often referred to as “control from the grave.” While it’s not necessary for everyone, it makes good sense for a lot of people. Like the toothpaste tube, distributions to beneficiaries cannot be rescinded. Once it’s out it’s out. It is for that reason that you want to make small carefully planned distributions to beneficiaries. Like the toothpaste tube, some beneficiaries may not need the money or property, so it may not be necessary to make large distributions to them.
Retaining property in a properly structured trust has other significant benefits too. The trustee will have discretion to make distributions to beneficiaries. The trustee’s discretionary powers prevents beneficiaries from compelling distributions to themselves. After all, some beneficiaries are financially irresponsible, and money can be preserved and protected better if managed in trust than if given to them outright. As a result, they cannot access trust funds any more than their creditors can. Importantly, this makes great sense from an asset protection perspective, especially because a beneficiaries’ creditors may end up waiting a long time for the trustee to make a distribution to collect on a judgment. Like charging lien protection afforded to some carefully structured business entities (in Florida), this provides leverage to negotiate and settle claims with creditors.
In our litigious society, you need every advantage possible to level the playing field. Properly structured trusts can help tremendously. Watch our video to learn more.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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Originally posted 2013-03-23 10:00:50.