How can people in Michigan plan for the unfortunate but real possibility that their heirs and beneficiaries will encounter debt problems or some other financially draining event such as divorce? This question too often goes unaddressed in estate planning, and the money that well-meaning estate planners intend for their loved ones sometimes ends up being divided in a divorce settlement or siphoned away to pay off debt.
To avoid this unforeseen situation, estate owners can establish a trust for their loved ones. This option is different than a will because the money distributed through a will can be demanded by creditors or split apart in a divorce. But if you create a trust and name your beneficiaries as trustees, then they can safely access the funds throughout their lifetime, regardless of a divorce or debt obligation.
After you've created a trust, it is important to discuss its terms with the beneficiaries. Sometimes family members don't understand why a lump sum wasn't distributed, especially if a family member is in a tough financial situation when the trust is administered.
It is also possible that one of the trust beneficiary's creditors will try to garnish funds from the beneficiary's bank account. Creditors, however, are not allowed to access a protected trust fund. If a creditor tries to touch this kind of account, then the beneficiary needs to know that legal recourse is available to stop the creditor's action. The estate planning attorney who wrote up the trust can point to legal language indicating that the trust is protected from garnishment.
Source: floridatoday.com, "Inheritance issues aren't so cut-and-dry," Stephen Lacey, April 15, 2013