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3 beneficiaries who may need the support of a trust

On Behalf of | Jun 20, 2024 | Estate Planning |

People putting together estate plans often create trusts for their own protection. They worry about collection activity later in life when they live on a fixed income. They may want to avoid estate taxes or protect against the possibility of a lawsuit or divorce diminishing their holdings.

Other times, people create trusts specifically out of concern for dependent or vulnerable family members. A trust can give someone a source of financial support without giving them control over trust resources. Certain beneficiaries may find that arrangement particularly helpful.

Beneficiaries with special needs

A special needs trust is one of the most powerful estate planning tools available. It offers an opportunity to enrich a disabled loved one’s daily life without leaving them ineligible for certain benefits such as Supplemental Security Income (SSI) and Medicaid (Medi-Cal in California). The trust can also provide a degree of separation that could protect a vulnerable individual from the risk of financial abuse. Both children and adults with special needs could benefit from the creation of a trust intended to supplement their governmental benefits without jeopardizing their eligibility.

Beneficiaries who have already married

In theory, an inheritance is separate property. If a parent leaves their estate to a married adult child, the spouse of their child does not typically have a claim to those assets. However, those in unhealthy or toxic relationships might very easily fall victim to financial manipulation and pressure. The beneficiary spouse might commingle an inheritance with marital property, leaving them at risk of losing their inheritance if they divorce. Those worried about an adult child divorcing later or enduring an unhealthy marriage might want to create a trust to keep an in-law from accessing an inheritance.

Beneficiaries with substance abuse issues

An otherwise healthy and responsible individual might make very unsafe decisions due to addiction. Substance abuse disorders affect people’s behavior and relationships, and a windfall could worsen their behavior. A large inheritance might lead to someone going on a bender that consumes inherited resources and puts their help at risk. A trust helps prevent someone’s misuse of an inheritance. The trustee can control the distribution of assets so that a beneficiary cannot use them to buy alcohol or drugs. Trusts could also protect someone who has an addiction to gambling because they cannot use their inheritance at the casino.

People facing challenging family circumstances may find that trusts are important additions to their estate plans. Creating and funding a trust can help protect beneficiaries and also the legacy that a testator wants to leave for others after they pass.