If you have spent a lifetime accumulating assets, you undoubtedly have strong feelings about how you would like them distributed upon your death. Estate planning, including drafting a will, is an important first step to ensuring your legacy when you die. However, a will may not be sufficient to protect your assets and your family members.
Although people mistakenly assume that trusts are only necessary for individuals with large estates, any family can benefit from including a trust in an estate plan. Spendthrift trusts are particularly beneficial when family members or heirs have a history of poor financial management or addiction.
Trusts create guidelines for dispersing funds
With a standard will to designate the recipient of assets, your heirs will receive their full inheritance during the administration process. They can then do what they want with those assets, whether they choose to liquidate them or invest them for future profit.
That could mean that an addicted family member spends the money you leave behind on drugs or gambling. It could also lead to an irrresponsible shopping spree. With a trust, you can arrange for delayed or limited disbursement of assets. The trust’s restrictions can help ensure that your heirs will have a pool of funds to draw from for the rest of their lives.
You can also appoint a trustee to monitor the purposes for which trust funds get used. You may, for example, approve the use of trust funds for housing and medical expenses, but not for entertainment costs or credit card bills. You could create an annual or monthly maximum for how much an heir can withdraw. A trust gives you much more control over the administration of your estate. It can also help you make it simpler to allocate complex or unusual assets.
Trusts also help avoid tax liabilities
For those who will leave behind substantial estates, there is reason to worry about federal estate taxes. Your heirs could end up paying to the government a significant amount of the money you leave behind as a legacy.
Thankfully, it is a relatively straightforward process to minimize tax obligations through a trust. The slow dispersal of funds, combined with the indirect ownership of assets via a trust can offer significant tax benefits for modern estate planners.
Whether you worry about your heirs spending the money you leave behind frivolously or the potential for tax liabilities, a trust offers protection and peace of mind.