Ways to Distribute Your Assets

An estate planning attorney can help to ensure that your assets are distributed how you see fit.

An important point: there is no “right” way to distribute your assets.

After all, it’s your stuff.

So, as an estate planning lawyer, I’m not going to tell you what to do.

Rather, I will present options and help ensure that what you want to happen will happen.

Will vs. Trust

Without any estate planning, you will be relying on the Kentucky intestate laws to determine who gets your assets. This is rarely ideal.

In contrast, a Kentucky will enables you to change these default answers of who gets your stuff when you die.

However, with only a will, you cannot decide how and when those beneficiaries will get your stuff.

You will need a Kentucky trust to answer those questions, which can either be a living or a testamentary trust. The latter is a trust that is created through your will. In contrast, a living trust is created while you are still alive and will be the basis of a trust-based estate plan.

The takeaway is that a will alone (without a testamentary trust) means that beneficiaries will receive lump sums either as part of the probate process or upon obtaining legal adult status in the case of minors.

Neither result is likely to be optimal.

This goes beyond the fact that most newly minted adults are ill-equipped to manage a windfall, as even competent young adults will typically benefit from a prolonged distribution.

Further, the use of a trust can provide long-term asset protection to your beneficiaries. Specifically, they can not only be protected from their own [potentially] bad decisions but from bad debts, bad ‘friends,’ and bad marriages.

With that out of the way, let’s talk about the how and the when of distributing your assets.

One Beneficiary

To simplify, let’s start the analysis by assuming that there is only one beneficiary.

(The considerations here will still be relevant if you have multiple beneficiaries.)

After that, we will add what to think about if you have multiple beneficiaries.

Beneficiary’s Age

First, you will likely consider this beneficiary’s age. With no estate planning, a child will receive an inheritance outright at the age of 18. This is seldom ideal.

A popular (though, not ideal) staggered distribution scheme would be:

• ¹⁄₃ distribution at age 25
• ¹⁄3 of the balance at age 30
• Remainder at age 35.

Distributions before the scheduled distributions for limited purposes, such as for education, can be permitted.

Or, ideally, the life of a trust can be extended—perhaps across multiple generations—to provide maximum asset protection.

(This can be done in a way so that beneficiaries can still reliably benefit from the inheritance.)

Responsible Decision Making

Related to age, yet distinct is whether you believe the beneficiary will make prudent financial decisions.

Suppose you are raising the next Warren Buffet. In such a scenario, this consideration would suggest that you make distributions to the expected prodigy sooner rather than later.

Spendthrift Beneficiaries

At the opposite end of the spectrum, a beneficiary may be a spendthrift. While a spendthrift provision should be a part of almost every trust for asset protection purposes, a beneficiary who is a classic spendthrift entails careful planning.

Put another way, if you have concerns that someone will not exercise prudence with a future inheritance, then your planning should account for this fact.

Limited Purposes

Next, perhaps you would like to limit the use of an inheritance to defined purposes.

Remember, it’s your stuff. So, there is nothing wrong with you doing so.

Special Needs

Finally, some beneficiaries have special needs.

For these beneficiaries, it is essential to properly structure an inheritance so that its receipt does not preclude a beneficiary from receiving government assistance.

Multiple Beneficiaries

Now, suppose there are multiple beneficiaries.

The trade-off is whether to leave all beneficiaries the same amount (and, in the same way?) or leave beneficiaries different amounts, perhaps in different ways.

As an example, you may have one adult child who you have already helped through college. If so, you might set aside amounts to help younger children obtain an education before dividing up what is left.

The reasoning doesn’t matter, provided you have thought it through such that your legacy will be what you want it to be.

Conclusion

The key takeaway is that an estate planning lawyer should explain what is possible and help ensure that your wishes are satisfied without normative judgment.