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3 reasons parents use trusts to pass assets to their children

On Behalf of | Jul 1, 2024 | Estate Planning

Parents typically want to give their children every opportunity in life. They provide guidance and support on a day-to-day basis. They also plan for their child’s future comfort and financial stability.

Part of that planning process includes creating an estate plan. Parents need to have certain forms of protection in place in case something happens to them. Obviously, the selection of a guardian is of the utmost importance when someone’s children are still young. Leaving resources for their financial needs is also an important consideration for estate planning parents.

Some parents simply name their children as their main beneficiaries in a will, but others decide to create trusts instead. When may parents decide to use a trust for the inheritance of their children?

When their children are minors

Technically, children and young adults cannot directly control an inheritance. Any resources they receive directly are subject to the management of their parents or guardians. Parents can use trust to control how a surviving parent or guardian uses the child’s inheritance. The trust can preserve resources for when they become an adult.

When their children have special needs

Whether a child is an adult or a minor, their medical circumstances could influence their ability to manage an inheritance. Receiving a large inheritance might put someone who is already vulnerable at risk of financial abuse. Additionally, an inheritance can make a family member with special needs ineligible for state aid. They could lose benefits that allow them to live at a specific facility or enjoy a degree of independence. Parents often create special needs trusts as a way to enhance the quality of a child’s life without putting them at risk.

When their adult child faces difficulties

There are many different struggles that might warrant the use of a trust to leave resources for an adult child who does not have special needs. Maybe they have long struggled with addiction. Whether they have abused opioid medications or compulsively gambled, an inheritance could be dangerous for someone who is not always fully in control of their decisions.

Perhaps they are in an abusive or unhealthy marriage. Parents may worry that their son or daughter-in-law could demand some of the inheritance in a divorce after they die. A trust could limit when and why people use inherited resources while shielding them from risk during a divorce. Finally, a trust could protect an adult child’s inheritance during times of financial difficulty. Their inherited assets won’t be at risk of creditor claims if those resources don’t belong to them directly.

Funding a trust can be a way to create a legacy that has a positive impact on child beneficiaries. The use of a trust lets someone better control what happens with their property and sidestep potentially negative scenarios.