Many testators putting together a comprehensive estate plan create trusts to achieve specific goals. They may be at risk of estate taxes because of the value of their personal holdings or worry about their eligibility for Medicaid later in life. Those with specific financial needs often create a trust to achieve certain outcomes.
There are also many scenarios in which those that stand to inherit from an estate would benefit from the creation of a trust. The two below are among the most common reasons for testators to create a trust for the protection of their beneficiaries.
An unhappy or unhealthy marriage
Perhaps the testator has gone through a messy divorce themselves and understands how a large windfall, like an inheritance, could lead to a messy divorce battle. They might create a trust in that situation to protect their children from the strain that an inheritance could generate. On the other hand, perhaps a testator is aware of a beneficiary’s unhappy marriage. They may worry that the spouse of their selected beneficiary will misuse any inherited resources.
The creation of a trust benefits individuals by keeping their inheritance separate from their personal property and therefore out of the pool of marital assets. A trust can also serve as a way of safeguarding inherited wealth against misuse by the spouses of beneficiaries by having the trustee directly disperse resources instead of giving beneficiaries access to them.
A history of personal instability
There are numerous personal factors that make it clear an individual would struggle with that inheritance. Maybe they have special needs and would be at risk of financial abuse conducted by others who would want to misappropriate their inheritance. Perhaps they have a history of compulsive shopping and bad financial management. Issues with substance abuse or a history of criminal behavior would also be reason to create a trust. The trustee can use resources to enhance someone’s life without giving them direct control over those assets. Therefore, the testator won’t have to worry about someone buying drugs with their inheritance or losing it all in a lawsuit after they assault someone.
There are a host of different personal situations that might justify the creation of a trust and also numerous different ways to structure a trust to optimize the benefits derived from it. Recognizing why trusts are useful for average families may help testators put together more effective estate plans.