Protecting Your Family

Families often neglect a key piece in their planning—beneficiary protection.

Many assume that only those beneficiaries who have special needs require special protection. This assumption causes many families to forgo estate planning because they don’t perceive that their family needs planning since their beneficiaries (usually the children) do not have special needs. Only later do they—or usually their beneficiaries—learn that unfortunately, bad things sometimes happen to good people. This is why even smart, prudent adult beneficiaries still need beneficiary protection.

The “Aha” Moment

When we meet with prospective clients, whether they are looking to plan for the first time or simply looking to update their plan designed by another attorney, the biggest “aha” moment occurs when we discuss beneficiary protection. It is very rare indeed when clients do not want to include some level of this protection in their new or updated estate plan. Unfortunately, most estate plans have language that eliminates beneficiary protection either upon the clients’ deaths or once the beneficiary reaches a certain age. As an example, the often used trust language that mandates the trust distribute assets at particular ages (e.g., 1/3 at 25, ½ at 30, and the rest at 35) loses its beneficiary protection once the trust assets are distributed out to the beneficiary.

Beneficiary protection—not to be confused with special needs planning which is intended to protect beneficiaries who are incapacitated or rely on assistance from the state—can be divided into five types:

Fortunately, protecting your beneficiary’s inheritance is straight forward—leave it to them in trust rather than outright. While many estate plans initially leave a beneficiary’s inheritance to them in trust, they unfortunately distribute the money out of trust and to the beneficiary by a certain age. Once the trust distributes the money outright to the beneficiary, all beneficiary protection disappears.

In Arizona and several other states, you can leave your inheritance to your beneficiary in trust and still give the beneficiary the control to manage it and take distributions (if you wish to give a beneficiary that authority). Thus, you can give your beneficiary as much access to their inheritance as you desire while still providing full beneficiary protection.