Many clients who initially come to visit me regarding their estate plan say “I need a Will” or “I need to update my existing Will.” They automatically assume that since they don’t have a taxable estate (since the estate exemption amount is over $5 million and indexed to rise with inflation), they don’t need a trust.
The trust couldn’t be farther from the assumption. These days, trusts provide even more versatility in estate planning. If you have a blended family (e.g. second marriage with children from a prior marriage), trusts are a great tool to ensure that even if you pass away first, the assets you leave behind may be there for the benefit of your surviving spouse during their lifetime while also ensuring that your children from your first marriage receive anything remaining at your surviving spouse’s death. A trust allows you to “lock in” your estate plan. If you leave everything to your surviving spouse under a Will, your surviving spouse can spend all of the money to the detriment of your children from your first marriage. Worse yet, your surviving spouse may choose to get remarried and execute a new estate plan that leaves all your hard-earned assets to someone you never knew.
Perhaps you want to ensure that the inheritance you leave to your beneficiaries is for their benefit and no one else. If you leave the assets to them outright, as is the norm under a basic Will, your beneficiaries inherit the assets in their own name. If a beneficiary is going through a divorce (now or at some point in the future), those assets are subject to the equitable dissolution requirements and may be seized by your beneficiary’s soon-to-be ex-spouse. By utilizing various trust-based methods, you can ensure your beneficiary receives the full benefit of all assets inherited from you. This is true not only for a soon-to-be ex-spouse, but also a judgment creditor for a beneficiary who runs into financial distress or is found liable for a car accident or some other mishap.
Beneficiaries with Special Needs
If you have a beneficiary with special needs who is receiving benefits based upon financial need, an inheritance could disqualify that beneficiary from those benefits until all of the inheritance is spent down on permissible items. Many families intentionally omit such beneficiaries from receiving an inheritance for exactly this reason. Some even allot an additional amount to a trusted child who will hopefully take care of the beneficiary with special needs by oral agreement (which may/not happen and still subjects that inheritance to that beneficiary’s creditors and potential creditors), but that’s not necessary. A special trust may be established to ensure your intended inheritance goes for the benefit of your beneficiary with special needs without disqualifying the beneficiary from those much-needed financial needs-based benefits.
The controls and stipulations you may draft into a trust regarding a beneficiary’s entitlement to inheritance are pretty much only limited by your imagination (and public policy). If you have certain concerns about a beneficiary receiving their inheritance outright and would like to schedule their inheritance payments out over a specified period in specified amounts, you may do so. If you would like to require a beneficiary to be gainfully employed or graduate a certain level of education before receiving an inheritance, you may put those “strings” on an inheritance as well.
In sum, the flexibility and creativity allowed by trust-based planning is far beyond what a basic Will allows. To learn more about trust-based planning, click here.