Family Pot Trust
An estate plan must be designed properly to protect your beneficiaries. When designing your estate plan, you should anticipate that things may go wrong or something unexpected may happen. A Family Pot Trust is one tool available to protect your loved ones from many of those things that can go wrong.
A Family Pot Trust, also known as a discretionary, sprinkling, or common pot trust, is a mechanism that allows estate planning clients to provide for their beneficiaries without requiring a rigid structure of distributions and payments. Instead, a Family Pot Trust gives discretionary power to the trustee to decide if and when a distribution should be made. This can be extremely important when, for example, one of the beneficiaries develops a substance abuse problem or has special needs. The discretionary power allows the trustee flexibility in providing for that person.
If your trust is not flexible and requires outright distributions, gifts, or structured payments, there are potential hazards that you should be aware of. For example, if a beneficiary is provided his or her inheritance outright or in structured payments:
- A creditor can obtain a judgment and seize or garnish the inheritance to satisfy the claim.
- The beneficiary could spend the entire amount in one lavish spending spree.
- A divorce court may consider the inheritance and could potentially award some of the inheritance to the ex-spouse.
- A bankruptcy court may require the beneficiary pay creditors and costs from the inheritance.
The overall purpose in the Family Pot Trust is to take care of your family in the best way possible. Besides situations involving beneficiaries with creditor concerns or special needs, a Family Pot Trust may be appropriate for families with minor children and moderate estate size. If both parents are tragically lost, leaving minor children, then the trustee is given discretion to spend the money as if he or she was a surrogate parent. The trustee will be able to spend the money as the parents would if they were alive. This flexibility may best provide for the minor children’s health, education, support, and/or maintenance as there will likely be different needs for each child as they mature.
The Family Pot Trust may be the solution that makes sure the money you leave to your loved ones goes to these who need it the most. While a Family Pot Trust offers many benefits, it may not be the right option for your family. Every estate planning situation is different and requires an independent analysis of the specific facts and circumstances involved. [Disclaimer]
Consult an estate planning attorney to discuss your specific situation and needs. Our estate planning team at Naimish & Lewis can advise you on estate planning matters such as whether the Family Pot Trust is right for your revocable trust. To schedule an initial consultation with an attorney at our firm, please contact us.