You may feel very fortunate to have the opportunity to provide an inheritance for your children or other loved ones. The resources in your name when you die could help your children pay off their mortgages or enjoy a higher standard of living. However, an inheritance can also be a source of financial and psychological hardship for some people.
Some testators planning their legacies need to think about the negative consequences of an inheritance. In some situations, those hoping to pass resources on to family members, including their children, will need to create a trust.
What are some of the most common reasons that people add trusts have greater control over the legacy they leave behind?
To prevent the misuse of inherited assets
If you have a child who spends every penny they earn and maxes out their credit cards, it won’t be hard to imagine how they might misuse a sizable inheritance. The same is likely true if you know one of your family members has a history of problematic gambling or substance abuse.
A trust can limit how people use their inherited assets and can prevent someone from squandering their inheritance on their personal vices.
To control the long-term use of their property
Maybe you remarried later in life. You would like for your children to inherit your primary residence and your financial resources, but you would first like to provide support to your spouse.
A trust would make it simple to grant a spouse or other family member the right to live at a property without giving them the option of selling the real estate or using it as collateral for a loan and therefore endangering its long-term ownership.
Trusts give you the opportunity to give people access to certain assets without giving them control over that property. You then get to determine who ultimately inherits those assets.
To limit the risk of financial abuse
Maybe you have a loved one with special needs who might face caregiver abuse motivated by the inheritance, or perhaps one of your children has a spouse that mistreats them. A trust can prevent third parties from assessing inherited resources, which can in turn diminish the potential of financial abuse or fraud affecting the people who benefit from your estate.
Testators can also derive peace of mind from knowing that creditors can’t make claims against trust assets while they are alive or against their estate after they die. Adding a trust to your estate plan could be a good move for you and the people you love.