Why people use trusts to pass resources to their children

There are multiple, relatively simple ways of transferring specific assets to someone’s children when they die. A will is arguably the best-known instrument for arranging for the transfer of property. People can also attach transfer-on-death designations to major financial accounts so that those assets become the property of specific beneficiaries instead of passing through probate court.

Another means of controlling the descent of valuable property involves transferring ownership of assets to a trust. Trusts are separate legal entities that can assume effective ownership of assets ranging from financial accounts to real property. They can also impose restrictions on the use of inherited resources, thereby giving a testator long-term control over what people do with any property that they’ve been passed.  People who want their resources to create a lasting impact for their children often choose to use trusts. These are a few of the motivations that inspire the creation of parent-to-child trusts.

Their children are still young

Those who are minors do not have the personal knowledge or legal authority to fully manage a sizable inheritance on their own behalf. Therefore, their guardian or other parent will be the party who technically has control over a lump-sum, direct inheritance. To protect an inheritance so that someone will receive resources when they turn 18, a parent can set assets aside in a trust for exactly that purpose. Trusts can protect assets against early distribution and ensure there is something for a young adult to inherit when they reach the age of majority.

Their children have a history of challenges

Perhaps someone has a child with special needs who will never live a fully independent life. Maybe their adult children have demonstrated an inability to properly manage household finances or a substance abuse issue. Trusts can help those with special needs remain eligible for certain state benefits and can provide a layer of separation between inherited resources and those that might abuse those assets for self-destructive purposes.

Their children are in a difficult situation

Perhaps someone’s child has attempted to live a responsible life but has overwhelming debt. Maybe they are in an unhealthy or abusive marriage. When parents recognize that creditors might suit to take control over inherited assets or that someone might end up divorcing and losing inherited wealth, they may use a trust to protect those resources for their intended beneficiaries rather than third parties.

The creation of a trust is one way for parents to preserve as much wealth as possible for their children. This is one example of why adding the right tools to an estate plan can make it easier for adults to achieve their specific legacy goals.

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