Testators establishing estate plans often enjoy contemplating how an inheritance may benefit their loved ones. They might picture their grandchildren paying off their student loans or using their inheritance as a down payment for a home, for example.
Many people establishing estate plans make every effort to maximize how much property they pass to their beneficiaries. What they may not consider is how a large inheritance can sometimes do more harm than good. In a variety of different circumstances, it might be a better option to create and fund a trust rather than to leave property directly to beneficiaries with a will.
When does a trust make more sense than leaving a direct inheritance for beneficiaries?
When beneficiaries have medical challenges
Perhaps one of the intended beneficiaries of the estate is an adult child with special needs. They might lose access to critical state benefits because of their inheritance.
Maybe a beneficiary has chronic medical issues or has recently started treatment for cancer. Their inheritance could eliminate certain medical coverage. It could even trigger creditor claims and lawsuits if they cannot pay for all of their care costs with their current resources.
Even substance abuse disorders can lead to people misusing an inheritance. Trusts can protect assets from creditors. They create a degree of separation so that they don’t lose access to benefits. They can even prevent people from misusing their inheritance to buy alcohol or drugs.
When beneficiaries can’t control resources
Some people cannot directly inherit due to their age. Minor children rely on their parents or guardians to manage their resources. Other people might have mental health disorders or other medical challenges that affect their capacity to manage their own affairs. They might be subject to guardianship or conservatorship, which means that someone else may control their inherited property.
Pets and other animals, such as a beloved horse, cannot technically own property either. Trusts can provide financial support for beneficiaries while a trustee technically manages those resources and distributes them as appropriate.
There are many other scenarios in which direct inheritance can prove problematic. Testators may need to consider whether some of their beneficiaries have spouses who might misappropriate inherited funds. They need to consider whether their loved ones might fight over their inheritances and if any of them are vulnerable to financial abuse.
There are many circumstances in which leaving resources for people through a trust may be a better option than naming them as beneficiaries in a will. Reviewing personal priorities and resources with a skilled legal team can help people draft wills and trusts that allow them to leave a meaningful legacy that has a positive impact on others.