5 Ways a Trust Can Help Younger Beneficiaries
People have a variety of goals when engaging in estate planning. They may want to cement a lasting legacy, protect themselves and their heirs, or ensure loved ones can keep assets out of probate. Trusts are a common and powerful tool used in estate planning.
Many uses for trusts exist. You might use these legal tools to transfer income, avoid probate, protect assets from taxes or creditors, or ensure that beneficiaries have what they need in the future even if they aren’t great at managing wealth on their own.
As you can see, trust administration and creation can be a critical consideration when planning ahead for wealth. This consideration is especially true if you have minor beneficiaries—the five ways trusts can help protect those individuals below are just a few of the reasons you might want to consider this estate planning option.
1. A Trust Can Support the Distribution of Assets in a Manner Aligned With Your Wishes
Many times, people have a desire to leave assets to younger loved ones with caveats. Perhaps you intend to support a child, grandchild, niece, nephew, or other minor relative in this life by helping to pay for college, a wedding, or the down payment on a new home. If that younger relative is only a child at this time, you do not have any guarantee that you will be around to provide that support when they reach such milestones.
Creating a trust can help you set aside assets intended to provide this support whether or not you are still alive. You can create provisions that require assets to be distributed to help cover education expenses, for instance, and have peace of mind that your desire to contribute to someone’s college education is safeguarded.
2. Trusts Can Protect Assets From Other Relatives
In some situations, individuals don’t have specific use requirements for the assets they want to pass on. However, they may be worried that another relative might manage the assets unwisely, leaving little for the minor beneficiary later in life.
Consider an example where a woman wants to leave assets for the eventual use of her grandson. He is only 10, however, when she passes away. If the assets are not protected by a legal vehicle like a trust a financial guardianship would have to be created, leaving the asset to the mercy of his parents’ management. Even if his parents are well-meaning, they may not be good with money or finances, and they may make poor decisions that leave little for the grandson once he is an adult.
However, if the money is left in a trust, a responsible trustee can be named to manage the assets until the grandson is old enough to do so himself. Creating a trust can also ensure that the assets held in trust are shielded against creditors, remarriages, divorces, and other events that might otherwise put funds and assets at risk.
3. Trusts Can Protect Assets From the Beneficiaries Themselves
Of course, sometimes the person you want to protect the assets from is also the person you want to benefit from the assets. Minor children and even college-age adults may not have the experience necessary to manage wealth wisely and well. You also cannot tell when a child is young if they will grow up into an adult that is great with money and asset management.
A trust can separate the management of the assets and the ability to benefit from the assets so that your loved one doesn’t have to worry about the former. Since you can choose the trustee, you can select someone in your family or a professional that you are confident will handle the assets well and support the beneficiary appropriately.
4. Trusts Provide Some Control Over the Timeline for How Assets Are Distributed
Trusts let you create a logical timeline for the distribution of assets. Through basic probate processes, the ownership of assets is transferred as soon as the estate is settled and closed. This transfer can happen as soon as a few months after someone passes away.
With a trust, you can ensure assets are distributed over the course of years. This distribution can lengthen the impact of your wealth on the lives of your heirs. For example, you might set up a trust that allows the distribution of up to $25,000 per year to beneficiaries. If the trust has $250,000 in it, your legacy positively impacts heirs for at least 10 years.
5. Trusts Let You Create a Plan for Assets Should the Beneficiary Pass Away
Estate planning is all about thinking long-term, and that means considering what happens when your beneficiaries pass away. You should consider what your options are if they pass away before you do as well as what happens to generational wealth when your child or grandchild dies.
Trusts allow you to create processes that keep wealth within your family. For example, you might set up a trust that ensures your children, grandchildren, and even great-grandchildren can benefit from assets and that those assets are not at risk if any of those people marry and then get divorced.
Get Help From Experienced Trust Lawyers
Many types of trusts exist. To choose the right options, you must understand your financial situation, your goals, and who you want to protect now and in the future. Crow Estate Planning & Probate works with clients to understand their needs and goals and create trusts and estate plans to meet those objectives. Call us at 931-213-7940 to book an appointment to find out more.