Some people create trusts because of their own economic circumstances. They want to protect their assets from litigation or the possibility of divorce. Others create trusts to achieve certain goals, such as reducing estate tax obligations or improving their Medicaid eligibility during retirement.
Some people establish trusts out of concern for their loved ones. If the people who may be beneficiaries of an estate require more help than a direct inheritance may provide, then a trust might be the best option available. Many types of vulnerable beneficiaries, including the three discussed below, might require the support provided by a trust.
Minor children
Children typically cannot inherit directly from an estate. Their surviving parent or guardian has control over their assets until they become legal adults. As such, those hoping to leave resources for children who are currently minors often create trusts and restrict the use of trust resources. Such tactics can help ensure that minor beneficiaries have access to inherited resources when they are finally adults who can control their own assets.
Adults with substance abuse disorders
It is very difficult to witness someone struggling with substance abuse. Addicts frequently break the law, harm the people closest to them and destroy their own resources. A direct inheritance could enable dangerous behavior. Establishing a trust allows for the support of a vulnerable individual without necessarily feeding into their worst habits.
People with special needs
Minor children and adults with disabling medical conditions may require support their entire lives. Even if they want independence, they may require certain types of benefits to achieve that goal. A large inheritance can lead to the loss of crucial benefits and leave individuals struggling to make ends meet. A trust can allow for structured support for people with special needs that does not risk the loss of crucial benefits.
Many other circumstances, such as unhappy marriages or struggling business endeavors, could make trust particularly beneficial. Funding a trust is a way to create a structured legacy that can benefit even those in difficult circumstances. Identifying the vulnerability of loved ones can be a powerful incentive to create a robust estate plan that includes a trust.