People creating an estate plan must establish a testamentary instrument. They can use a will to name their beneficiaries and decree who should inherit which assets from their estate. Other times, they may want to use a trust. Some people even create both.
Trusts can be useful in a variety of situations. People worried about estate taxes might want to create trusts. Those who might need Medicaid to cover their long-term care costs could also benefit from establishing a trust.
Sometimes, concern about beneficiaries is what motivates a testator to fund a trust instead of simply drafting a will. What examples of beneficiary circumstances make a trust a better solution than a will?
1. Unstable marriages
Marriage is theoretically a lifelong commitment, but not all marriages last until death. A significant portion of them end years before either spouse dies because of divorce. While inherited property is separate property in many cases, spouses may commingle what they inherit with marital property and put it at risk if they divorce.
Someone creating an estate plan who has reason to worry that a beneficiary may eventually divorce may want to create a trust instead of leaving them a direct inheritance. That choice can preserve their inheritance from claims by a spouse if they do end up divorcing.
2. Issues with addiction
Many people struggle with substance abuse. They may drink more than they should or may become dependent on pain medication after a car crash. A large inheritance could end up wasted to support their addiction.
Others might struggle with an addiction to gambling at casinos or sports betting. When addictive behavior could put an inheritance at risk, creating a degree of separation between the beneficiary and the assets can be a wise decision.
3. Health challenges
Sometimes, people have family members who have lifelong medical conditions. They may have a child with disabilities, for example. A direct inheritance might make those people ineligible for state benefits.
Choosing to provide them with a direct inheritance could also leave them vulnerable to collection efforts in the future. Creditors could try to force the liquidation of inherited resources as a means of collecting on legitimate financial obligations.
Anyone concerned that beneficiaries might abuse an inheritance or lose it to other people may reach the conclusion that a trust is a better testamentary instrument than a will. Funding a trust can help people protect the ones they love and create a meaningful legacy.