Many people think the only reason trusts exist is to shield the uber wealthy from estate taxes.
While this is one reason to set up a trust, it’s hardly the only one. In fact, there are many adverse experiences your children could have after your death that can be avoided by setting up a trust. Even if you don’t think you’re rich, setting up a trust today can protect your family for years to come.
Here are some of the benefits your children will receive.
Your children can maintain their privacy.
If you have a will with no trust, your estate will have to go through the probate process. During this process, the distribution of your assets will be decided in court, taking your will into account.
This is a public process. If you children wish to maintain their privacy, a trust can help them do that by avoiding the probate process altogether.
You children can access their money sooner.
Probate can sometimes take as long as months or even years. During this time, your children will not be able to access any assets you intended to pass down to them. With a trust, you can avoid the probate process and give your children access to their money much more quickly.
They can save court fees.
The probate process is not free. Your estate will end up paying court fees and other associated costs, cutting into the inheritance you meant to leave behind.
By creating a trust, you can avoid the costs of probate altogether.
Their money can be protected from creditors.
During the probate process, creditors will have an opportunity to pursue your estate for any debts. If they are successful, this could eat away at the money you meant to pass down to your children.
You can avoid this circumstance by establishing a trust in conjunction with your will.
Your family can access money in case you become incapacitated.
If you become incapacitated, it’s extremely likely that any income you were bringing in to support your family will disappear. With a revocable living trust, your trustee can administer money for your children while you are unable to make decisions for yourself.
Your children’s money may last longer.
Many people make unwise decisions with money when they receive it in one, large lump sum. You may be particularly concerned about this if your child is young without much experience in personal finance. Or, you may know the financial habits of your adult children well enough to worry despite their age.
In these circumstances, a trust can provide a good solution. With a trust, you can release a certain amount of money to your child each year, distributed through your trustee.
A trust protects their FAFSA eligibility.
If your child has higher education in their future, a trust can help protect their eligibility for financial aid. Any money they receive from the trust each year will be considered income, but the assets held within the trust won’t count against them.
When they fill out the Free Application for Federal Student Aid (FAFSA), this is important as they may still be able to qualify for grants or federal student loans that come with cancellation or forgiveness opportunities.
A trust can protect their inheritance from future step-parents or spouses.
After you pass away, your spouse may get remarried. Your spouse may be the one making financial decisions for the children depending on your wishes expressed in your estate documents. If that’s the case, you need to think about any future partners they may have, and how they may or may not make their financial decisions jointly. In this situation, the new step-parent may have some sway in day-to-day financial decisions for the children.
With a trust, you can set aside a certain portion of assets specifically for your children after they reach the age of majority. That way, the new partner will have no opportunity to take or make bad decisions with all of your children’s’ inheritance. They will have the opportunity to make their own decisions with the money they receive as adults.
A trust can also be written so that if your child marries in the future, their inheritance from you is protected from any potential divorce proceedings.