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3 benefits of using a trust to pass assets to children

On Behalf of | Mar 20, 2024 | Trusts

The idea of using a trust to structure the inheritance intended for children is not a new one. Particularly wealthy individuals have used this strategy to provide lifelong and posthumous financial support for children and grandchildren for generations.

The use of trusts for structured inheritances has become more common among those with middle-class resources in recent years. Families may decide that a trust is a more appropriate means of transferring wealth to the next generation than a simple will. The following benefits inspire many parents to use a trust when leaving resources for their children.

Shielding resources from guardians

Perhaps someone is no longer married to the other parent of their children. They may worry that if they die while their children are young, their inheritance could end up wasted by their other parent. Even those who remain married to their spouses may worry that their children’s inheritance could cause issues if both parents die. Putting resources into a trust minimizes the possibility that a parent or guardian might misuse those assets.

Reducing the level of interpersonal conflict

Large inheritances can cause permanent damage to the previously healthy relationships between siblings. Frequently, any gray areas in a will might lead to children fighting over resources or over the interpretation of a parent’s last wishes. Conflicts between someone’s beneficiaries might culminate in probate litigation. Beneficiaries could both diminish the value of the estate by fighting and probate court and could undermine someone’s Intentions by contesting their estate plan. Trusts provide more oversight regarding the use of resources and are also more difficult to challenge. They may therefore help reduce familial conflict.

Protecting against financial challenges

The use of a trust can offer several different types of financial protection for people in different circumstances. Moving resources such as financial accounts and the family home into a trust could protect those resources from creditor claims and Medicaid estate recovery efforts when parents die. Trusts can also keep assets out of probate court and potentially reduce the risk of estate taxes. If parents hope to provide ongoing support for someone with special needs who may rely on certain state benefit programs, trusts can reduce the likelihood that someone becomes ineligible for benefits that they require because of an inheritance.

Trusts may take more effort to establish, but they can offer a host of benefits for parents aspiring to leave a meaningful legacy for their children. Learning more about various estate planning tools may benefit those with complex family circumstances or valuable property that they want to pass on to their loved ones.