Kiplinger’s recent article entitled “Why Do I Need a Trust?” says that if having assets distributed outright to a beneficiary could cause potential issues, there are several reasons to think about creating a trust.
If you prefer to place specific conditions on the funds, you should have a trust. Many trusts state that distributions can only take place at future ages, like a third of the inheritance at age 30, half at 35 and the remainder at 40.
Trusts can be important with second marriages, if one spouse wants to leave their assets to their children rather than their stepchildren.
If your job has a high risk of liability, having assets passed down in trust (once the trust becomes irrevocable) may protect assets from being attached in a lawsuit. This can be very specific with respect to state law and the type of lawsuit, so talk to an experienced estate planning attorney before making any decisions.
For large estates that are expected to grow, creating trusts during your lifetime and gifting assets can remove the growth from your estate and lower future estate taxes. Remember that revocable (or living) trusts become irrevocable on your passing, so anything in the revocable trust will be out of the beneficiary’s estate.
If you have a large number of beneficiaries in different proportions and want to specify who gets what, you may need to use a trust. If you want to leave one beneficiary a specific amount, it can also get complicated. Custodians will sometimes review and accept complex beneficiary requests. However, they usually have to be reviewed and modified by their legal department.
Trusts are important when minor children are involved. That is because you’re going to need a legal guardian for the child, who may also be in charge of the funds. Since minors can’t own assets outright, you must make sure the funds are protected. The trust should specify your intentions for the funds and the conditions, so the child (or the guardian) can’t be frivolous with the funds.
If your intention is to provide for grandchildren on your passing, or you don’t rely on the parents to keep the inheritance funds for their children, a trust for the grandchildren (or future grandchildren) is an option, because if you leave assets outright to their parents there’s no guarantee the funds will trickle down.
Talk to an experienced estate planning attorney about your individual circumstances and your intentions, so they can direct you on how to protect your assets and your wishes.
Reference: Kiplinger (August 12, 2022) “Why Do I Need a Trust?”
Suggested Key Terms: Estate Planning Lawyer, Inheritance, Asset Protection, Revocable Living Trust, Irrevocable Trust, Probate Attorney