Many of our clients initially think of trusts as an unnecessary burden on their loved ones. They think that leaving property in trust for their children indicates a lack of trust. Nothing could be further from the truth. Leaving an outright inheritance to a child or other beneficiary can have disastrous consequences. Both the type of problems and the likelihood of those problems occurring will depend on specific circumstances. We design trusts with varying levels of protection and access, depending on those facts.
The primary reason that we use testamentary trusts is to protect inherited assets from lawsuits, judgment creditors, divorce, and predators. Another common reason is to ensure that the assets eventually go to your grandchildren rather than your children’s spouses.
Some beneficiaries also need protection from bad decisions. For inexperienced beneficiaries, having a co-trustee in place for a period of time can help them develop the knowledge and maturity to handle their assets properly. We often create trusts that allow the beneficiary to serve as co-trustee for several years before becoming sole trustee. For beneficiaries who have bad habits or problems with self-control, it is sometimes appropriate to give the decision-making authority to someone else.
Money left to a minor child will require a custodian or guardianship until the child is 18 years old. The process of securing a court-appointed guardian is often costly and time-consuming. The fees associated with the guardianship will likely be taken out of your estate, which will reduce the inheritance for your beneficiaries. Additionally, the court-appointed guardian may not be the person whom you would choose. Most importantly, the Court will not provide protection after your beneficiary's 18th birthday. At the age of 18, your beneficiary will receive full, unrestricted access to the funds. Teenagers generally do not have the maturity or financial acumen to handle significant sums of money. You can prevent all of these issues by creating trusts for your beneficiaries.
While there is no one right choice for how to leave assets to your beneficiaries, many of our clients’ concerns over protecting inheritances from creditors and predators lead them to leave their assets in a continuing trust. Regardless of your ultimate choice, this is an important decision that should be considered with input from your estate planning professional.