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Establishing Continuing Trusts for Your Beneficiaries

An advantage of the revocable living trust centered estate plan is the ability to control how distributions are made after your death. This is accomplished by drafting your revocable living trust so that following your death the property and assets of your revocable living trust continue to be held in trust for your beneficiaries. At first glace, many people balk at this idea and are inclined to give beneficiaries their inheritances outright. After all, most of us trust our loved ones; we want them to have the money and believe they will spend it appropriately and as we would have wished. Yet, even if you are confident that your beneficiaries will act wisely, there are reasons to consider establishing continuing trusts for them instead of making outright distributions.

One reason to create continuing trusts for your beneficiaries is creditor protection. Assume for a second that you and your spouse both have passed away and your revocable living trust has been distributed outright to your beneficiaries, who are your children. Now assume that one of your children is involved in a car accident in which they are at fault and they are sued by the other driver. The inheritance your child received outright from you could be subject to the lawsuit and used to pay a court judgment to the other driver. On the other hand, if you distributed the child’s inheritance to him or her through a continuing trust, the money would be protected (not only from lawsuits but also from credit card companies, medical bills and the like).

Another reason to favor continuing trusts over outright distributions is what estate planning attorneys often refer to colloquially as divorce protection. Whenever a child who is married gets an inheritance, they commonly place it in a joint account with their spouse. Under Oklahoma divorce law, inheritance is normally treated as separate property. However, in the event the inheritance is deposited in a joint account, the inheritance becomes part of the marital estate. In practical terms, this means if your child later separates from their spouse, the inheritance you gave them could potentially be divided in the divorce case. By establishing continuing trusts for your beneficiaries, their inheritance will not be at risk of winding up in the hands of an ex-spouse.

While there is nothing wrong with making outright distributions in your revocable living trust, sometimes establishing continuing trusts for your beneficiaries is the preferable course. As with most other aspects of your revocable living trust, this is something you should discuss in depth with your estate planning attorney.