Trusts are one of the most valuable tools you have when creating an estate plan. They give you more control and the ability to dictate exactly how the assets you own move down to your heirs. A will allows you to say who gets what, but that’s about all it does. A trust can say how, when and why they get that money.
To better understand how that works, here are three examples:
- A Special Needs Trust: If you have an heir with special needs, they may get government benefits. These are tied to the amount of assets they control. This may have always been virtually nothing in the past, allowing them to use the benefits. If you leave them money in a will, though, they have to use that money first and they lose the benefits. Putting the money into a special needs trust helps them maintain those benefits while still allowing you to leave them your assets.
- A Spendthrift Trust: This type of trust is more about debt than anything else. If your heir spends too much, they may wind up in bankruptcy or they may have creditors calling for payments. Leaving them money directly means they could have to use it to pay off these debts. You can protect your money by putting it into a trust so that your heir doesn’t own it. Then the creditors can’t claim it.
- An Educational Trust: One of the most common examples, an educational trust focuses on paying tuition for a college, university, private school or trade school. In essence, it allows you to decide that your heir has to use the money for education. This is useful if you feel that school is the best use of the money but you are worried that a young heir will have other plans for it — such as going on vacation or spending it on their friends. You still give them the money, but they have to use it to pay for school before anything else.
There are many more types of trusts, but these three do help to illustrate the control that they give you over the assets. As you make an estate plan, carefully consider how this can help you and what options you have.