Do you want your heirs to spend their inheritance on cars, bad habits, failed romances, and debts, or on building a sustainable good life? Trusts are shrouded in mystery and often derided in pop culture. Why? Most people don’t draw money from one, and so most people don’t think they would be wealthy enough to possibly establish one. While you might have though trusts were only for the super rich, the truth is quite the opposite. Trusts can operate for a wide range of people who have assets to make sure their children (or other beneficiaries) receive money as planned and in a way that enriches them without leading toward negative outcomes.

A trust is simply a place where money or assets of a trustor (you) is held by a second party (trustees, which could be family members and/or banks) for designated beneficiaries. Often this beneficiary is a child or grandchild, but it could be any entity, such as a nonprofit. The trust offers certainty that the intended assets will reach the beneficiary whether or not the trustor is alive and offers control over the conditions under which funds can be released. So, essentially, trusts have estate planning functions and asset management functions. Let’s discuss one of their most compassionate functions, which is what they can do for your heirs.

Note: Revocable or “living trusts” are most often used for heirs because they can be changed and adapted as the trustor sees fit during his/her lifetime. For instance, if one child develops bad spending habits and you have chosen to have a shared trust for three children, you can change the conditions of that trust or split the trust into three. An irrevocable trust cannot be changed without permission of the beneficiaries.

Learning to budget, but with the benefit of a safety net
College and young adulthood bring milestones in risk and responsibility. An inheritance windfall can introduce stress and temptation into an already tumultuous time. Many parents or grandparents want to make sure their heirs will have, in the words of Warren Buffet, “enough money so that they would feel they could do anything, but not so much that they could do nothing.” In college, that might mean a fixed monthly allowance after documented expenses. Many use a trust to specifically cover a down payment on a first house. The provisions can change and be tailored to the promises and pitfalls that you see down the road for your heir. These kinds of conditional fund releases are called “spendthrift provisions.” A revocable trust may kick in while you are still alive to see its fruits, but you’ll also have the peace of mind that your wishes are fixed upon your death (the revocable then becomes irrevocable).

Keep other hands out of the pot
A trust allows you to safeguard assets from your heirs’ creditors, ex-spouses (and your own, for that matter), and probate courts. A will’s assets must pass through probate, which is expensive and also becomes become public record. If you only have a will, inheritance will become community property in many instances, particularly in the case of spousal bank accounts. There may be cases where you want to designate money to children from previous marriages so that they don’t get squeezed out in legal battles.

Avoid family tension
A trust is a discrete way to give each beneficiary what you want them to have. Unlike a will, a trust is not public record, nor is it reviewable by the probate court. Establishing a living trust can prevent the morbid jockeying that can happen when estate assets are up for grabs. Further, we all know a set of siblings in which at least one harbors bitterness about the way they were treated on the inheritance ledger. Trusts are discreet, thereby helping families avoid unnecessary drama.

Plant the seed for prosperous future generations
John D. Rockefeller’s descendants are still collecting money from family trusts nearly 100 years after his death. But you don’t have to be a billionaire to want to spread your wealth over many generations. A dynasty trust is an irrevocable trust designed to pass on to future generations. If the assets perform well and their withdrawal is made contingent on certain events (i.e., the Smith family college fund), your nest egg could cover generations of family achievements, which in turn might encourage the next generations to make similar arrangements. Dynasty trusts can make your legacy more than material luxury.

Trusts are thoughtful tools to control the way wealth moves to beneficiaries. Many of us work hard hoping our families will prosper and reap the security of our wealth without the pitfalls it can entail. Contact us to learn which of the many types of trusts meets your estate planning needs.