Estate planning requires that you address the current conditions in your family while also considering how things could potentially change in the future. One of the ways that you could create a more flexible estate plan that offers the maximum potential protection to your children and loved ones could involve the creation of a trust as part of your estate plan.
Particularly for parents who want to leave the majority of assets for their children, trusts are an ideal way to transfer resources from one generation to the next. There are multiple reasons why trusts as part of an estate plan help parents who wish to provide for their children.
Trusts keep your assets away from former spouses and guardians
If your children are still young when you die, it’s possible that someone will get their hands on the inheritance you want to leave your children. That’s because minors won’t have the legal right to control their inheritance yet. Their guardian will be the one who manages their finances until they turn 18.
If you are a divorced parent or if you never married your children’s other parent, it could mean that your former romantic partner is the one who has control over your legacy. Even if you name someone you trust as guardian in the event that you and the other parent die, people can behave in uncharacteristic manners when there is a large amount of money involved.
Simply put, your children will have more protection from financial abuse when no one can touch those assets until your children are 18. Additionally, a trust could protect older, married children from losing part of their inheritance to their spouse if they get divorced in the future.
A trust can limit the way your children spend their inheritance
If you have a child who has a history of drug use or compulsive spending, a large inheritance could push them into very unhealthy behaviors.
When you create a trust, you will have the option of putting certain rules and restrictions on the use of the assets. The trustee can directly pay different expenses to avoid cash disbursements or might simply require billing statements to verify how someone spends the funds.
A trust limits creditor and tax liability
All sorts of things can go wrong with the inheritance you intend to leave behind after you die. Creditors you didn’t know you had may come forward and demand a share of the estate. Large estates may also be subject to taxes that diminish what beneficiaries receive. Placing valuable assets in a trust will reduce tax liabilities and limit the ability of creditors to go after those assets for repayment.