The resources that a person leaves for their loved ones to inherit become their financial legacy. The final distribution of an estate can permanently influence how others remember an individual.
Many people want to leave both meaningful personal property and assets with financial value for their beneficiaries. However, in some cases, a direct inheritance can cause more harm than good. In the three situations below, testators may want to consider creating trusts instead of relying solely on a will to guide the distribution of their property.
1. A beneficiary with special needs
People who have special needs are often reliant on state benefits. They may become ineligible for medical coverage, housing benefits and other programs on which they rely if they receive a large lump-sum inheritance. A structured distribution of assets through a trust can help people preserve access to critical benefits.
2. Concerns about addiction
People may develop chemical dependence related to alcohol, prescription drugs or even prohibited substances. Addiction can affect social relationships and decision-making. Those who receive a large windfall, especially on the heels of losing a loved one, might abuse an inheritance unless it is kept under the control of a trustee.
3. An unstable marriage
Typically, what people inherit is separate property that they do not need to share with the spouse if they divorce. However, many people commingle their inheritances with marital property, leaving resources intended for them vulnerable to claims by a spouse if they divorce. When testators worry that beneficiaries may eventually divorce, they may want to structure an inheritance carefully to prevent legal battles and the loss of assets.
There are many other circumstances in which creating a trust could be a viable estate planning strategy. Working with a lawyer can make it easier to leave a meaningful legacy that results in a truly positive impact accordingly.