People who are thinking about estate planning are often very simplistic in their approach to the process. For many adults, a will is the only document they consider drafting. Quite a few people write off trusts as unnecessary or expensive. They view these very useful tools as an opportunity only for the incredibly wealthy.
However, many middle-class and working-class families add trusts to their estate plans to protect loved ones. There are many scenarios in which people would benefit from adding a trust to their will and other estate planning paperwork. These are some of the most common reasons that families decide a trust is worth creating and funding.
A loved one with personal challenges
There are numerous personal issues that could make giving a child or grandchild a direct inheritance quite a serious mistake. Some families create special needs trusts because a loved one will never have the ability to manage their own resources and live a fully independent life. Others create special trusts when they have a loved one who manages resources poorly or has a history of substance abuse. Even a problem marriage where a beneficiary’s spouse might try to claim the inheritance during a divorce could be a reason to put resources into a trust to protect the beneficiary.
A high-conflict family situation
There are many scenarios in which families have higher-than-average levels of interpersonal conflict. Sometimes, siblings grow up hating each other for no discernible reason, and parents have to worry about whether that bad relationship will result in their estate getting dragged through probate court. Litigation, including will contests, may drastically diminish how much someone has to leave for their loved ones when they die. A trust is a useful tool for those who worry that their beneficiaries will fight one another or try to undermine their documents in probate court.
Concerns about debts or medical costs
Some people approach retirement and realize that they will have debt issues until they die. These individuals may use a trust to protect their assets from creditor claims when they live on a fixed income and to ensure they have something to pass on to their loved ones after they die. Other aging adults may worry about whether or not they can afford nursing home care. A trust can help those who want to enhance their chances of quickly qualifying for Medicaid if they need to move into a nursing home or require other kinds of medical care that Medicare usually does not cover. A trust created years before one’s application for Medicaid can speed up the qualification process and reduce the likelihood of estate recovery efforts when someone dies.
Seeking legal guidance to better understand why people add trusts to their estate plans can help testators explore whether a trust would benefit them.