If you leave someone an inheritance in your will, you do not have any control over those assets. For instance, you could leave an 18-year-old heir $100,000 in the hopes that they will use it to pay for their college education. But if they want, they could just use the money to take a year off of work and travel the world, spending everything and never actually getting a college degree.
This is concerning to some parents, especially if they have questions about a beneficiary’s decision-making abilities. One potential solution is to keep the money out of the will entirely and instead put it into a trust.
How does a trust help?
A trust helps because you are allowed to leave instructions for the trustee. The money in the account can only be distributed to the beneficiary in accordance with those instructions. The beneficiary cannot make withdrawals but has to wait for approval from the trustee – a person that you choose when you set up the fund.
To continue using the educational example above, you may want to tell the trustee that the money has to go toward college costs. After your beneficiary graduates, then they can have any remaining money to spend as they see fit.
By doing this, you take the decision-making power away from the beneficiary. They still benefit from the money that you are leaving them as an inheritance, but they are not in charge of how they use that money. This gives you more control and can lead to a better outcome. The key is to consider what will be best for your family and what legal options you have while drafting an estate plan.