When it comes to estate planning, most people focus on how much to leave to their heirs – but how that money is distributed can make an even bigger difference in the long run to the stability of a beneficiary’s future.
Many testators find the use of staggered disbursements (also known as “staggered distributions” or even “staged disbursements” and similar terms) through a trust to be most effective. This method allows you, the testator, to provide financial support to your beneficiaries over time, long after you are gone, ensuring that your loved ones have much-needed resources at multiple stages of their lives rather than simply leaving them a large inheritance that they will collect all at once.
What are staggered disbursements?
Staggered disbursements simply mean that someone’s inheritance is distributed in portions, at a schedule set via the trust documents, instead of in one lump sum. This schedule can be as flexible as you want and can be tailored to fit your specific ideals and hopes for your loved ones, as well as your beneficiaries’ needs.
For example, a common concern for parents is that they might die before their minor children are grown. With a well-crafted trust, the assets you leave behind can be parceled out according to a schedule like this:
- A portion of your wealth can be used to provide for your child’s needs until they reach the age of majority
- Another portion can be used to pay for their higher education, trade school or other worthwhile endeavor when they reach 18 years of age
- 25% of the remaining inheritance will be given to your child when they reach age 25
- Another 25% will be disbursed when your child turns 30
- The remainder of their inheritance will be released to them when they turn 35
This is just one example. You could set any ages or use any milestones that reflect your values. The important part is that distributions are broken into manageable steps – giving your child the chance to “grow into” their wealth, rather than risking the chance they will spend it all too soon and not have the money for important needs later in their life.
Why is this generally considered a wise approach?
There are several compelling reasons why estate planners often recommend staggered disbursements. This strategy:
- Large lump sums of money, freely accessible, can be overwhelming – especially for young people. Managing money (especially large sums of it) takes practice. Breaking an inheritance into smaller portions reduces the likelihood that your child will suffer long-term from poor financial decisions they make while young.
- As people grow older, they often have different goals, ideals and needs. A 25-year-old may want to travel the world or start a business, while a 30-year-old may want to settle down and start a family, and a 35-year-old may be starting to think about how to provide for their own child’s future. Each scheduled distribution can be aimed at those life stages, so that the money can be used most effectively.
- Almost everybody makes bad choices with their money now and then – but some mistakes can be disastrous. Assets held in a trust can be better protected from creditors, divorces or other financial trouble.
Ultimately, isbursements can help heirs reach major life goals like paying for their higher education, starting a business or purchasing their first home. That way, your estate provides for them for a lifetime, not just for a few short years once they are legally an adult.
Can you still provide for the unexpected this way?
Absolutely. You can leave your chosen trustee with the ability to oversee the process with some flexibility and make exemptions when the situation warrants it – according to your directives. That way, for example, if your child suddenly needs money due to a disability or another crisis, they are not forced to wait until the next scheduled disbursement.
Whether your estate is modest or substantial, this approach can ensure that your beneficiaries receive not just money, but a well-considered plan for how to use it. Legal guidance can help you learn more and explore additional options.