If you or your spouse dies, when it comes to providing for surviving children, sometimes a will is not enough to protect their inheritances. This is where a trust comes in. Trusts are not just for the wealthy. A trust is a legal entity that can own property and assets. Through the instructions you write into the trust, it can buy, sell, negotiate, manage, and disburse its assets for the benefit of your children. It gives you a lot of control after you pass away.
Here are five reasons for creating a trust.
Reason #1. Control over the use and distribution of funds for your children’s benefit.
With a trust, you select who is going to manage the money; there is no court approval required. Your trustee disburses funds according to your directions in your written plan. So, if you want to provide funds for summer camps, lessons, and extracurricular sports and activities throughout your children’s adolescence, you can do so. Perhaps you want to fund your child’s new car (but not a motorcycle) at age 17 (but not 16). You can also set aside funding for college, trade school, or another post-secondary educational program.
Reason #2: Managing the timing and pathways of asset distributions.
For example, if you die and your surviving spouse remarries, a traditional simple will leave all assets to the survivor’s new partner if the survivor also dies. The new partner then controls all the assets (yours included), which he/she can leave to whomever he/she chooses. If he/she does not choose your children, they get nothing. A trust can direct the pathway of your assets’ disbursement around new partners and their heirs so that your children receive them.
Reason #3: Some protection from creditors and gold-digging spouses.
Assets in a trust are not owned by your children. So, creditors cannot take your hard-earned money or properties from the trust to satisfy claims against your children. Nor can a divorce scenario. Your assets stay in your family.
Reason #4: Protection from spendthrifts.
For funds devised through a will, children in most states get full control of that money when they turn 18. This means they can do what they please with it. Often that means a party, a trip, and a fast car. Sometimes there is drug or alcohol dependency. You may need to protect your children from their own inexperience or irresponsible behavior. Hard-earned money should not be squandered in one afternoon or a year. Through the guidelines in your trust, you can limit disbursements by your children’s ages, dollar amounts, time periods, percentages, or life events.
Reason #5: Incapacity.
A will goes into effect at a person’s death. A trust is effective immediately. Parents, especially single parents, should plan for possible mental or physical incapacity where they cannot care for their minor or adult children who are dependent on them. With the right provisions, a living trust will offer a trustee direction for the care of your children and allow a trustee access to funds for their care until you recover.
Is a Trust Right for You?
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