The purpose of a Personal Asset Trust (“PAT”) is protection of the beneficiary’s inheritance. The idea here is that the PAT replaces an outright distribution to beneficiaries. In most trusts, at some point, the beneficiaries have the assets distributed directly to them. It’s in their names and the trust ends. And that sounds good because you might have thought, at their age, they are capable of managing their inheritance on their own. The only problem is that once the beneficiary owns assets in their own name, they are exposed. They are exposed to a number of different risks:
A lot of people may think that’s not a major issue, but if you look at the divorce rate in California, it’s over 50%. Divorce is a real issue and when someone receives an inheritance, it’s not protected from a divorcing spouse.
High-Risk Profession or Business:
Doctors, lawyers and owners of rental properties are at risk for lawsuits. The PAT builds legal walls around your beneficiary’s inheritance that protects their inheritance against judgments and creditors.
When a Beneficiary is Not Good At Handling Money:
These are people who should not be managing money for themselves. You can name a trustee to manage it for them over their lifetime.
A Beneficiary Who Has Drug or Alcohol Problems:
Again, you can name a trustee to manage it for them. You can even have provisions for drug testing and treatment.