If you are concerned about a beneficiary’s spending habits or decision-making abilities, you may decide that you do not want to leave them a direct inheritance. Instead, you are going to put the money into a trust, which can then govern how that inheritance will be used.
One way to do this is simply to create a discretionary trust. You identify a trustee that you believe will make wise choices, and you allow them to decide how the money in that fund can be used after you pass away. The beneficiary does not own the money and cannot access it directly, but can only get payouts that are authorized by the trustee.
You decide who is in charge
The main benefit is that you get to pick who makes all of these decisions moving forward. Maybe you are worried that a young beneficiary would frivolously spend their inheritance, for instance, when you would rather that they use it to start a business, buy a home or pay for college tuition. By choosing the appropriate trustee, you ensure that wise decisions will be made with your money.
It offers flexibility
Of course, you can set up a trust for these specific purposes, such as an educational trust that is only for college costs. But a discretionary trust is a bit more flexible. The money is not set aside only for one certain purpose, and the trustee can simply consider all the relevant facts when deciding what type of decisions to make.
For instance, maybe a beneficiary does not want to go to college because they want to start a business or join the military, or because of issues outside of their control, like an injury or a disease that requires extensive medical treatment.
As you can see, there are many options to create a trust as part of your estate plan. Just be sure you know what legal steps to take to incorporate that trust into your plan this year.
