A Revocable Living Trust may contain sub-trusts which come into being upon the happening of an event. For example the Trust may state, “Upon my death, if my spouse survives me, my estate will be divided into a Marital Trust and a Bypass Trust.” The Trust may go on to state, “If my spouse has predeceased me, my Trust property shall be divided into equal trust shares to my beneficiaries.” The Marital Trust, the Bypass Trust and the trusts for the beneficiaries are all sub-trusts that may be contained in the Grantor’s Revocable Living Trust.
Creating beneficiary sub-trusts can be chosen in the estate planning portal. When a beneficiary sub-trust is selected, the primary beneficiaries of the trust have their inheritance share held in a "sub-trust" instead of receiving it outright when the Grantors of the trust pass away. This can be a good option for your clients who are concerned about the beneficiaries, particularly when their beneficiaries are their married children, commingling their inheritance with their spouse or partner. This may also provide an additional layer of protection from creditors.
The beneficiary's share can be distributed to the sub-trust according to the terms of the trust and can be held in trust and overseen by the Successor Trustee until the beneficiary reaches a certain age. The grantor will specify this age when creating their Revocable Trust documents.
Choosing “Yes” to the sub-trust option allows the Grantor(s) to choose to either 1) give the beneficiary the option to create a sub-trust to hold their inheritance or take their distribution in full, or 2) establish a sub-trust that the Successor Trustee oversees until the beneficiary reaches a certain age and becomes the trustee of the sub-trust.
Option 1 gives the beneficiary the choice to either receive their inheritance outright upon the passing of the Grantor(s) or to hold their inheritance in a sub-trust so that they can control when distributions are made to them over time.
Option 2 sets a specific age at which the beneficiary can become the Trustee of their own sub-trust. Prior to the beneficiary reaching that age, the Successor Trustee will be the Trustee of the sub-trust and the assets will be kept separate from the marital assets of the beneficiary. The Successor Trustee will oversee the distributions for that beneficiary. Once the beneficiary reaches the age specified, he/she can then take over their own sub-trust's management. If circumstances have changed or the beneficiary simply wishes to receive the rest of their share outright, they can do so once they are the trustee of their own sub-trust. Or they can choose to continue to have their assets held in the sub-trust and distribute out their inheritance whenever and however much they want. Once they are the trustee of their own sub-trust, they have total control over the assets in the sub-trust.
Sub-trusts are only set up for the primary beneficiaries named in the document. However, age-based distributions can still be set up for the alternate or contingent beneficiaries, should they end up inheriting due to the death of a primary beneficiary.
Step by Step Instructions
Once beneficiaries are listed for joint and separate assets, you will see the following question:
Choose AT THE DEATH OF THE (SURVIVING) GRANTOR or AT A SPECIFIC AGE
Next you can set up Age-Based Distributions for the ALTERNATE BENEFICIARIES