When it comes to estate planning, much attention is often paid to who receives assets. However, an equally important consideration is how those assets are distributed. Michigan testators often have concerns and desires for how their assets will be used after their death, and hope that their hard-earned wealth is able to better the lives of their loved ones after they pass away. The distribution strategy or strategies they choose can impact how this plays out. Here are three options to consider:
- Direct transfer of all assets: Distributing assets to all beneficiaries in a lump sum with no restrictions is the simplest way to transfer assets in estate administration. This can be the easiest way to distribute assets, but it can have drawbacks. For example, giving a large lump sum payment to a young beneficiary is often discouraged as they may not have the experience to responsibly deal with the funds.
- Percentage of assets distributed at different stages: With this method, the testator uses a trust to manage the distribution of funds over time. For example, a beneficiary may receive a certain percentage at 18, another portion at 30 and the remainder at 35. The distribution can also be tied to life events; for example, a beneficiary may be given a portion when they graduate high school and the remainder upon graduating post-secondary.
- Discretionary lifetime trust: For people concerned with protecting their assets from risks like lawsuits, divorce, or bad financial decisions, a discretionary lifetime trust can be a good option. In this case, a trustee uses their discretion to ensure funds are used for matters deemed important to the family. This can include furthering educational goals, making a downpayment, starting a business, or anything else a testator would have considered a worthy use of funds.
The asset distribution strategy or strategies a person chooses will depend on a number of things, including the value of their assets, the age and habits of those receiving the funds, and whether they have a specific desire for how the assets are used. Regardless, it is important for those creating estate plans to know that they do have options when it comes to distribution and that lump sum payments are not the only way forward. An estate planning lawyer can help further discuss options and support the legal steps involved.