Those who benefit from intergenerational wealth or achieve career success may have ownership over valuable resources. They need to plan carefully to pass those resources on to their chosen beneficiaries. Many people can achieve their legacy goals with a will, but others may need to consider establishing a trust.
Trusts provide more control over the use of inherited property and also create a degree of separation between the beneficiary and the assets left for them. Those worried about how an inheritance could impact their loved ones may decide that funding a trust is better than providing a direct inheritance. In particular, people in any of the situations below might benefit more from a trust than a direct inheritance.
Struggling with substance abuse disorders
Individuals with substance abuse disorders do not always act in their own best interests. They sabotage their careers and close relationships. They commit crimes while attempting to access their substance of choice. They can even endanger their own health by using particularly dangerous substances or consuming large amounts of drugs or alcohol. Trusts can be a way to prevent beneficiaries from using resources to fund their addictions. They can also help prevent a scenario in which an individual loses their inheritance because of court-imposed fines or a civil court judgment related to their misconduct.
Facing financial hardship
People who are successful often help their children and grandchildren achieve success as well. However, not everyone benefits from having successful family members. They may live beyond their means, take on too much student loan debt or have a medical emergency that leaves them with hundreds of thousands of dollars in financial obligations. An inheritance could be vulnerable to litigation and collection activities. It could also cut people off from state aid. Individuals who recognize that their loved ones struggle with financial management or unsustainable levels of debt can protect the inheritance intended for those people by using it to fund a trust.
Marrying the wrong person
It is difficult to watch a family member struggle through a problematic marriage. While families may encourage people to move on from unhealthy relationships, they can’t force a loved one to divorce. Still, the possibility of a future divorce can make people feel rather anxious about leaving an inheritance for someone in an unsustainable marriage. A trust is a way of providing assets for a loved one who may divorce in the future and could be at risk of losing part of their inheritance during that process.
Trusts can also be beneficial in scenarios where a beneficiary has special needs or an individual creating the trust wants to leave resources for minor children or pets. These are just a few of the reasons that adding a trust to a comprehensive estate plan can be a smart decision that may benefit the trust creator and the people they love.