Long romanticized as the outlaw’s liquor of choice, tequila has a well-deserved reputation. After a few shots with salt and lime, the music sounds better, the girls look prettier, and even the most strait-laced accountant is dancing with abandon.
But what happens when too much tequila is enjoyed? That leads directly to a head-pounding hangover and vague memories of the truth in the old country song that warns “tequila makes your clothes fall off.”
Trusts can be a lot like tequila.
Under the right circumstances, a trust is a fantastic tool. It will protect your money and property from all kinds of trouble, including lawsuits, creditors, unnecessary taxes, divorce, naïveté, and exploitative interlopers. A well-designed trust is a sturdy shield to safeguard assets and family.
Still, like tequila, one can overdo trusts and create unintended problems. Here are a few real-life examples:
- A trust may transfer too much control. In order to save on taxes and protect assets, one may be tempted to put almost everything into an irrevocable trust. The downside? If there isn’t enough money left outside the trust, a trust’s creator may encounter a frustrating problem – the need to beg for a loan.
- Occasionally, I get a worried call from a prospective client who gave away too much too soon by way of a trust. Suddenly, they realize their mistake and want to get some of their wealth back. Unfortunately, with certain types of trusts, that is often impossible.
- Some people regret leaving too much in trust to their children or grandchildren. Handing over huge sums of money can be dangerous to the very people you want to protect. Some family members aren’t ready for the responsibility of wealth or may be too immature – at any age – to manage it well. Money can kill motivation, encourage laziness, create ne’er-do-wells, and take away the pride that comes from working hard. And there’s the possibility of damaging future generations. If children never have to work, how will they teach their children the value of work?
The key is balance. Most reasonable people enjoy a sip or two of tequila in a sitting. Similarly, irrevocable trusts should be consumed in moderation. A smart plan will ensure financial comfort and sufficient control of assets, while still offering reasonable protection for your children and grandchildren. Too much tequila can damage your health, wallet, reputation and future. As odd as it may seem, the same goes for trusts. Drink responsibly, plan carefully, and avoid the pounding headaches that come with excess.