Trusts have long been used by the wealthy and the elite to provide resources for their children without giving them control over family assets. A trust, for example, could pay someone’s tuition or rent but not allow for cash withdrawals that someone could spend on alcohol, drugs or gambling.
Trusts are an excellent way to stop family members from misusing an inheritance, but they aren’t just for the privileged children of the super-wealthy. In reality, trusts can benefit the children in just about any family if their parents have enough assets to leave them an inheritance when they die.
The three reasons below are all examples of why the parents in a typical, middle-class family might want to add a trust to their estate plan.
A trust protects assets from misappropriation by a guardian
If you die and leave your children without a parent, you will probably already have a guardian picked out in your estate plan. That person can step up and assume all of your parental responsibilities. They also have to provide for your children until they become adults.
You may want to leave certain resources for the guardian while placing the inheritance for your children in a trust. That way, the guardian can only access those resources in specific situations, like a medical emergency. By limiting guardian access to the inheritance, you can ensure that your children receive what you set aside for them when they turn 18.
A trust protects your child’s inheritance if they get divorced
If your children are already older, that doesn’t mean you should forego the inclusion of a trust in your estate plan. A direct inheritance is easy for someone to commingle or mix with their marital assets.
The money your children inherit from you might motivate their spouses to file for divorce. Although inheritances are usually separate property, commingling might mean that your in-laws can diminish the inheritance your children receive by divorcing and claiming a share of those assets.
A trust lets you limit when and how your children use their inheritance
One major problem with a standard inheritance is that once it passes to the heir, they can do whatever they want with it.
People often waste inheritances, spending thousands of dollars in a few months or on frivolous items that have no lasting value or significance. Using a trust to structure the inheritance for your children can limit what they use those assets for, like paying for college, starting a business or buying a house.
Adding a trust to your estate plan will protect your legacy and your children, regardless of their age and how much you have to leave to them.