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How a trust can benefit three types of beneficiaries

On Behalf of | May 17, 2024 | Estate Planning

The addition of a trust to an estate plan often occurs because a trustor recognizes that they have specific needs that cannot be met by drafting a will alone. Concerns about future collection activity, worries about qualifying for Medicaid and a desire to control their legacy could prompt someone to establish a trust.

Other times, it may ultimately be concerns about their intended beneficiaries that make a trust necessary. Certain types of beneficiaries may not be eligible for or able to properly manage a direct inheritance. Anyone with one of the three types of beneficiaries below might benefit from adding a trust to their estate plan.

A loved one with an addiction

Few things are more difficult than watching a child or grandchild struggle with substance abuse issues. Whether someone became an alcoholic in their twenties or developed an opioid addiction after breaking their leg, a large inheritance might put them at serious risk. Someone with a substance abuse issue could use a large inheritance to fund their self-destructive behavior. A trust designed for someone with substance abuse issues can enrich their life and provide them with support while limiting how they use inherited resources.

A family member in a toxic marriage

Someone who marries an abusive partner or who has a spouse with a substance abuse issue could be at risk if they inherit a large amount of money from an estate. Their spouse might manipulate or coerce them into sharing those funds. Additionally, if they divorce their spouse, their inheritance could potentially be at risk. While inherited assets are typically separate property when people divorce, many spouses commingle inherited resources with marital assets. The non-beneficiary spouse could then claim those resources as marital property in a divorce. Putting assets aside in a trust helps prevent spouses from accessing someone’s inheritance.

Family members with special needs

Someone with a disabling medical condition might not be able to manage an inheritance. They may not even be capable of living independently. Even if they can, a large inheritance could affect their ability to continue doing so. What people inherit could potentially make them ineligible for state benefits that make an independent lifestyle feasible. Those who have family members with special needs can provide them with a lifetime of support with the creation of a special needs trust. They can also protect that individual from the loss of benefits because those assets don’t directly belong to them.

Different types of trusts require different planning. Testators who consider their personal goals and the unique challenges of their beneficiaries may want to add a trust to their estate plans. Trusts can be powerful tools for those in challenging personal, financial or family circumstances.