You can use a trust for many purposes in an estate plan. For instance, a special needs trust can protect assets for a beneficiary without disqualifying them from government benefits. An incentive trust can give beneficiaries specific goals that they need to meet.
But one simple way to use a trust is simply to delay when the beneficiary receives their payout. Why would this be helpful?
Preventing frivolous spending
This is often done when someone is worried that their beneficiary is going to frivolously spend the money at a young age.
For instance, maybe you have a beneficiary who is in college. They’re only 18 or 19 years old. If you leave them a life-changing amount of money, you’re worried that they will simply spend it having fun with their friends, and the bulk of the inheritance will be gone by the time they graduate from college.
To prevent this, you may consider putting the money into a trust and stipulate that they only get 10% of the money when you initially pass away. Even if they waste it, the majority of their inheritance remains.
Next, they can access a portion of the trust at age 25 or 30. Maybe they don’t get the final payout until age 35. At these ages, they’re much more likely to use the money for things like buying a family home, having a wedding, paying for the birth of children, starting a business or something else that you would prefer your money went toward.
This is just one way to use a trust, but be sure you know about all the legal options you have to set one up.