When you pass away, you will leave an inheritance to the beneficiaries named in your estate plan. This could include your spouse or your children, but you can pick any beneficiaries that you would like. Many people will have an extensive estate plan that includes many extended family members.
But if you just write in the will how much money is supposed to go to each person, then they can use this money in any way that they want. Once your estate goes through probate, the beneficiary becomes the owner of those financial assets. They could use the assets in any way that they choose.
But you may be concerned about their decisions, so how can you take control?
Creating a trust with a specific purpose
The answer is often to use a trust, which is a financial account that can hold the assets on behalf of the beneficiary. But the beneficiary doesn’t have access themselves. They have to go through a trustee, and this person knows what goals you have for that trust.
For instance, maybe you’re a small business owner. You know that one of your beneficiaries wants to start a business eventually, but you’re worried that leaving them a large inheritance will just cause them to waste it all before they’re ready. You could put the money in a trust that says it is only to be used for business purposes, keeping them from spending on vacations or exotic cars.
This is just one example of how a trust can be used, but it helps to show why it’s so important to understand all of the legal options at your disposal when drafting an estate plan.