When a person engages in estate planning, they are doing so to ensure they are protecting their assets and the lives of loved ones in the event of their passing. But what happens if you would like to leave something to friend or family member but are unsure they will be able to manage their inherence adequately?
One way to avoid this is through a protective trust. But what is it and how can it safeguard both your assets and the person you leave them to?
Safeguarding against more than just contingency
When an individual sets up a protective trust, the money or assets that will be bequeathed in the will to a loved one will be held by another person, the trustee. It is their role to manage the assets in the most appropriate way to ensure they are not squandered, wasted or misgoverned by the vulnerable beneficiary.
For instance, a trustee may utilise the inheritance funds to buy a house for the beneficiary or pay for specialist care or living arrangements. It could even be used as a fund to ensure they receive quality tertiary education.
The beneficiaries of a protective trust are those who do not have the ability to handle their financial affairs. Some of the reasons could include someone:
- who has a disability;
- suffers from a mental illness;
- has an addiction; or
- is too young to manage large sums of money.
How does a protective trust work?
Typically, a protective trust works by affording power to a trustee to use the income and capital from the trust to ensure that the vulnerable beneficiary is adequately looked after. The will might also outline very specific conditions for the use of the assets.
Each financial year, a predetermined amount of income is offered to the beneficiary to be put towards the approved purposes. On the other hand, the trust could be established so that any remaining assets from the estate are distributed to other beneficiaries, such as the vulnerable beneficiary's children.
If you are thinking about establishing a protective trust to form part of your estate, it is essential to talk to a lawyer experienced in trust development. In instances like this, it is imperative you talk to a representative at Craddock Murray Neumann Lawyers today.