Estate planning can be overwhelming due to all the choices you have to make. A common decision you may focus on is choosing your beneficiaries, those who will receive your money and property upon your passing.
Just as important, however, is deciding how you will give an inheritance to a beneficiary. You may assume the best or only way is to just hand it over, but is that the right approach for your children? When you are not sure you can trust your adult children to be wise with an outright inheritance, then look into setting up a trust instead.
What is a trust?
A trust transfers control over your assets to a third party (trustee) to protect your assets. Assets in a trust leave your estate, preventing them from going through probate and being subject to certain taxes. You decide how you want the distribution of assets to happen.
How does a trust help?
Because you can set terms on the trust, you can keep your assets secure even beyond the grave. Examples of situations that could benefit from a trust include:
- Your child has a substance abuse problem
- You worry your child will spend everything from a direct inheritance
- Your child lacks the financial literacy to manage the assets
- You do not want your child's spouse to have a claim to the inheritance
You can arrange for distributions to occur on a regular schedule or upon reaching milestones. You can set how much the beneficiary receives per distribution, or you can have the trustee pay expenses directly to other parties to ensure proper use of funds. You can also give your trustee the discretion to stop sending payments when he or she feels it is not in the beneficiary's best interest.
Some adult children need assistance with and security in financial matters. Help them by establishing a trust instead of leaving them an outright inheritance.