There are many ways to draft a trust, which gives you control over how assets are distributed. Instead of directly giving someone an inheritance, you take the money that you were going to leave them and put it into a trust fund. You then instruct the trustee on when to provide payouts or when to authorize access to the fund.
One thing that people sometimes do is focus on a beneficiary’s age. For instance, you could say that they receive 25% of the estate plan when they turn 25, another 25% when they turn 35 and the remaining 50% when they reach 40. Why would something like this be beneficial?
A very young beneficiary
First and foremost, if you have very young beneficiaries, such as minor children, you likely have to delay the inheritance until they turn 18. They can’t inherit assets directly from you until that point. Putting the funds into a trust that specifies it pays out at 18 is an easy way to do this.
But even with a relatively young heir, you may be worried about how they’re going to use their inheritance. Is someone who is 18 years old actually going to make wise decisions—or are they just going to quickly waste the money?
From this perspective, delaying the payouts can be helpful. Someone who is 25 may instead use the money to pay for a wedding. They could use their funds at 35 to buy a home, and they may use the money at age 40 to start a business. By delaying the payouts, you give them the money at times when they can use it in ways that help propel their life forward and give them the lifestyle that you’ve envisioned for them, and you prevent them from simply wasting it in their teens or early 20s.
Exactly how you use a trust is up to you, but they can be useful tools, so make sure you know what legal steps to take to set them up.
