If You Don't Want To Leave A Windfall

I was working with a couple recently that had done well during their lifetime, and they wanted to benefit several people and family members when they were gone. But they specifically stated that they did not want to leave people a "windfall."

They were leaving a significant sum to a number of different people but they told me that they wanted to leave these people, "5% each year so  they get it over 20 years."

Now I've seen many trusts written in a way so that it says that the beneficiaries get 5% per year. But this is not often the intent of the person establishing the trust.

In short, of the beneficiary gets 5% of the trust principal each year, then the principal will never fully be paid out. Instead, trusts often should be drafted in a way so that the beneficiary receives a fraction of the trust distribution each year. For example, in the first year, the beneficiary receives 1/20th of the trust principal. In the second year, the beneficiary receives 1/19th of the balance of the trust principal. In the third year, the beneficiary receives 1/18th of what's left, and so on and so on. This formula provides for generally equal distributions of all trust principal over a period of 20 years.

There is an unlimited number of ways that you can leave an inheritance to an heir without them getting a "windfall" that they would blow. This is just one method. You just need to make sure that the trust language is consistent with your intentions. 

If you live in Louisiana and want to simply start a conversation about protecting your estate, call our toll-free number at 866-491-3884.