An inheritance can be positive for a beneficiary or heir. What they receive after a loved one dies can help them pay off financial obligations like student loans or make important moves that they previously struggled to complete, such as buying a home or finishing a college education.
A large inheritance can irrevocably alter the course of someone’s life. In some cases, those changes may not necessarily be for the better. Many people squander what they inherit. Even financially responsible people can misuse or lose a significant inheritance.
People in more complicated situations may be at particularly elevated risk of misusing an inheritance. In some cases, they could even harm themselves with what they receive from an estate. A trust can allow a testator to provide resources for vulnerable people without worrying about misuse of those resources and other negative outcomes.
How trusts can help
When an individual names someone as a beneficiary of their estate, that beneficiary receives assets from the estate. They have complete control over those assets once ownership transfers to them. People can liquidate assets to misuse on a substance abuse disorder or can burn through capital on truly frivolous purchases.
A trust helps prevent those heartbreaking situations. The trustee can decide when to distribute resources based on the instructions provided by the trustor. They can include restrictions based on the issues their beneficiaries face, such as issues with drugs and alcohol.
It is even possible to create a trust where beneficiaries never directly receive resources. Instead, the trustee can make direct payments to outside parties for approved costs like college tuition or medical bills.
Trusts also help those who may not be irresponsible but are in difficult circumstances. Those who might be at risk of divorce or aggressive collection activity could lose what they inherit due to court cases. Anyone at risk of a lawsuit, possibly because of a complicated career, could also potentially lose their resources in a litigation scenario.
Trusts help protect against claims by outside parties including spouses during divorce. The assets do not belong to the beneficiary but rather to the trust. Therefore, outside parties cannot ask to control those assets through litigation or seek to claim a portion of them during a divorce. Trusts can help people in a variety of challenging circumstances by giving them the benefit of an inheritance without the risks that come from gaining direct control over high-value resources.
Those who have children with substance abuse disorders, a history of problem gambling or other concerning circumstances, like an unhealthy marriage, may benefit from adding a trust to their estate plans. People who understand what a trust can do for their families may understand why it might be a valuable tool in an assortment of different circumstances.