Eight Circumstances To Leave Assets In A Trust For Your Beneficiary

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Eight Circumstances To Leave Assets In A Trust For Your Beneficiary

Instead of your beneficiary inheriting outright, below are eight situations whereby you may want a trust for various protection:

  1. If your beneficiary is a minor or too immature to handle assets

If your beneficiary is a minor, then the beneficiary (as a matter of law) cannot make legal decisions on how to handle their funds. Even if the beneficiary is over the age of majority, there is often a lack of maturity on how to handle funds. As a result, a trust within a Will or a trust within a trust is used to protect the beneficiary. A trustee is often given discretion to make distributions for the health, education, maintenance and support of the beneficiary. Sometimes this is done in stages (i.e., 1/3 at age 25, 1/2 of remainder at 30 and balance at age 35).

  1. Concerns about your spouse remarrying and you want to protect your children

This concern is particularly prevalent when you have children from a prior relationship. It is not unusual to want to take care of your spouse, however if the spouse is left everything outright then he or she can do anything they want with the inherited funds (including not having your children from receiving any of your assets). As a result, you could leave assets in a trust for your spouse with your children as a beneficiary after the death of your spouse.

  1. If your beneficiary is disabled

If your beneficiary is receiving public benefits (which is “means-tested”) or if your beneficiary is disabled, incompetent or incapacitated (even if not on public benefits), a trust should be established so that public benefits such as Medicaid (which often covers drugs, long-term care, etc.) are not lost. Even if not on public benefits, there is often a desire to avoid guardianship over the assets or to simply help the beneficiary not best suited to handle funds.

  1. If your beneficiary is a spendthrift

If your beneficiary would spend the inheritance soon after it is received, a trust is established to protect the beneficiary from their spending habits.

  1. Concern that your child’s spouse may get some of the inheritance (by divorce or survivorship) and some other family (not your grandchildren) will receive the inherited assets

It is not unusual that if your child is married that your child would give everything to their spouse by your child’s will. Furthermore, it is not unusual for married couples to comingle funds and later get divorced. As a result, often trusts are established within Wills or within trusts to protect your children and descendants from your child’s estate planning or a potential divorce.

  1. If your beneficiary has an addiction

If your beneficiary has an addiction (drugs, alcohol, gambling, etc.), it is often best to have a trust within your Will or trust to protect them from their addiction.

  1. If there is a beneficial tax reason

Sometimes taxes can be saved by using various trusts. For example, normally an adult child who inherits an IRA must withdraw all of the IRA within ten (10) years following the parent’s death. If the IRA is large, some use charitable trusts to stretch distributions over the child’s life expectancy resulting in more funds for the child in addition to helping the charity or perhaps giving you a tax deduction. Furthermore, some with large estates establish life insurance trusts to pay estate taxes.

  1. To permit beneficiary in inheriting certain guns that require special licensing

Certain guns require a special license. For example, it would be a criminal act if you own a machine gun without a license. The license doesn’t automatically pass to the beneficiary of your estate. As a result, some have gun trusts.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.

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