Consider how your assets can benefit, or perhaps complicate, the lives of your children or other loved ones when you pass away. You know your children better than almost anyone else, and your estate plan should take into consideration their circumstances, tendencies, and personalities. They may be trustworthy, but may not be financially responsible. They may be financially responsible, but in debt, or may work in a high-risk profession. A divorce may be on the horizon. Whatever the case, it is important that the assets that you have carefully stewarded during your life are safeguarded for your loved ones when your wealth is transferred to them. A trust can accomplish these goals.
Many people worry that their children may squander an inheritance. People with young children may not be sure of a child’s future financial skills. A trust can help by leaving the management of your children’s inheritance in the hands of another known as a trustee. A trust can be tailored to give your children as much access to assets as you would like. Some trusts allow for children to receive an increasing fraction of their inheritance as they age. The assumption is that with age comes financial responsibility. Some people may prefer that a trustee manage a child’s inheritance for life. A trusted family member or a professional could serve as trustee.
A trustee has a fiduciary duty to preserve and protect the trust assets for the benefit of the beneficiaries (your children). The trustee is required to invest prudently and make the trust property productive. The trustee may be instructed to make distributions to your children for certain defined needs such as education, medical expenses, or a down payment for a home. Trusts can also be fully discretionary, meaning the trustee decides when it is best to make a distribution. This can maximize the chances that your assets are responsibly used.
An equally compelling reason to leave assets in trust is to protect your children’s inheritance from creditors. Even a responsible person can be vulnerable to unexpected lawsuits, debts resulting from emergencies, or divorcing spouses. Your children’s inheritance can be protected by leaving it in trust with an independent trustee with discretion to make distributions.
Trusts can accomplish many goals depending on their design. As part of your conversations with your estate planning attorney, or when you update your existing estate plan as years pass, it is important to consider different strategies to ensure that inheritances can remain protected for your loved ones during their lives.