Should you decide to leave your beneficiaries’ inheritances in trust for them, you will need to decide who will be your Trustee for those beneficiaries’ trusts. If your main concern is giving as much flexibility and freedom to the beneficiary as possible, you may want the beneficiary to be the Trustee of his or her own trust. While this choice offers the greatest flexibility and freedom, it offers the least amount of protection from the creditors of the beneficiary.
A second alternative is to name a Co-Trustee to act with the beneficiary. Because the beneficiary is not able to make decisions regarding distributions on his or her own, this may afford greater asset protection for their Trust assets. It also provides the option of the beneficiary resigning as Co-Trustee in the event it appears that trouble from a divorcing spouse or creditors may be on the horizon.
A final alternative would be to have a third party act as Trustee. The third party could be a friend or relative, a trusted advisor – such as your C.P.A. or attorney, or a corporate Trustee. This alternative offers the greatest asset protection. It is also generally the best choice where the beneficiary is a spendthrift or has an addiction, or where the beneficiary has special needs.