When you’re making an estate plan, you can sometimes leave assets to people directly. If you have $100,000, you can just name one of your adult children as the beneficiary. The estate executor will transfer the money to them while distributing the rest of the assets from your estate.
But there’s another option, which is to put the money in a trust in advance. You then name your intended beneficiary as the person who can receive payouts from that trust, and you put a trustee in charge of administering those funds. What are some reasons you’d want to do this?
1. The beneficiary is too young
One reason to do this is when the beneficiary is still a minor. For instance, a new parent who makes an estate plan in their 30s, while their child is just five or six years old, may put the money in a trust that says the child can access it when they turn 18. They have to be a legal adult to officially inherit, but the trust can hold the money for them until they are.
2. You want control over how the money is used
Additionally, a trust gives you more control. Maybe you want the money to be used to cover college tuition costs for your beneficiary. You can specify that, until they graduate, they’re only allowed to use the money for college-related expenses. Upon graduation, they get access to the rest of the funds.
These are just two examples, but trusts are flexible and can be used in many different ways. If you’d like to set one up, be sure you know what legal steps to take.