There are many ways to transfer your property to your beneficiaries when you die. A will is the simplest and arguably most popular means of planning for the descent of personal property. Many people may execute deeds or make transfer on death arrangements for financial accounts so that specific beneficiaries will directly receive their most valuable property after they die.
Some people will choose trusts as the means of passing their resources to the next generation. There are many benefits of creating a trust, ranging from reduced estate tax liability to enhance control over the use of inherited assets. Often, it is concern about beneficiaries that will prompt a testator to create a trust.
What kinds of personal matters might lead to someone adding a trust to their estate plan?
1. Medical issues
Perhaps your youngest child is autistic or has cerebral palsy. Their medical conditions may create additional expenses for them and limit their ability to earn income in many cases. Parents, grandparents and other family members of someone with special needs may create and fund a trust to help provide them with support.
2. Addiction, including alcoholism
Substance abuse disorders can significantly change an individual’s behavior and damage their relationships with others. People who can’t control their drinking or drug use may have a hard time keeping a job and may even resort to crime to purchase their substance of choice.
You wouldn’t want to leave resources for a family member, only to have them purchase alcohol or drugs with that money. It is possible to create a trust specifically for the protection of someone with a substance abuse issue.
3. A volatile marriage
Technically, the inheritance that someone receives should be separate property if they ever divorce. Unfortunately, many people make the mistake of commingling their inherited property with marital resources.
For example, they might deposit their inheritance in a joint checking account or investment account. At that point, their spouse may have a partial claim to those assets if the couple were to divorce. By using a trust to pass an inheritance to your child, you drastically reduce the possibility of their spouse diminishing their inheritance in a divorce.
Those with unusual and challenging family circumstances may have to employ more creative and robust estate planning strategies to fully protect their families. Adding a trust to your estate plan could benefit you and the people you love.