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4 reasons to use a trust instead of an inheritance

You can leave an inheritance to someone directly if you'd like. This may be as simple as having your estate executor cut them a check after you pass away.

However, you may want to consider the upsides to using a trust, instead. You can set the trust up before you pass away, and then money is paid out from the trust as dictated by the rules you establish in advance. This gives you more control.

Here are four reasons why a trust may be more useful:

  1. You know that your heir is not good at money management. You're worried that he or she is going to waste all of the money you leave behind in a year or two, and then it's gone. A trust can control spending or pay out a smaller amount every year.
  2. The industry that your heir works in carries a high risk of lawsuits. A trust can't be sued, but an inheritance could be taken.
  3. Your heir is in a marriage that you think is likely heading for divorce. You don't want the money to leave your family entirely if that ex claims part of it in the split. In some cases, inheritances are protected, but not always.
  4. Your heir already has significant assets. The taxes are going to be high on the direct transfer. A trust may be able to cut back on the tax bill.

This doesn't mean a trust is right in every situation, but remember that it can give you control over your money and the way your estate is handled. Be sure you consider all of your options carefully.

Source: The Balance, "Trust Fund Options for Paying Adult Beneficiaries an Inheritance," Julie Garber, accessed Oct. 26, 2017

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