Often, wealthy investors who perceive their own children as successful and financially independent may desire to leave their assets to their grandchildren. Grandparents may take a long-term view of their family’s financial situation and believe that their grandchildren will benefit more from the inheritance in the future, especially when some grandchildren are younger, and they want to contribute to their future stability. When the recipients vary in age, financial status, and ability to handle a windfall responsibly, it is wise to consider using trusts.
Essentially, trusts are an entity into or through which the grantor or donor agrees to transfer assets to a beneficiary, or multiple beneficiaries, who then receive the assets as instructed in the governing trust document. Using trusts also allows the investor to control their heirs’ inheritance from beyond the grave. This can be beneficial if the grantor wants to ensure that the assets are used for specific purposes, such as education, homeownership, or other life milestones. A trust can also allow investors to direct their wealth for the benefit of their heirs, often without incurring unpleasant tax consequences or creating a hardship situation for the recipient.
A trustee manages the assets and serves as a legal steward of the property. The trustee is obligated to manage the property for the benefit of one or more beneficiaries and ensures the stipulated terms of the trust are diligently executed.
Trusts are often used to pass wealth or property to a minor child, assist a special-needs beneficiary, ensure an inheritance for children from a previous marriage, protect a child’s inheritance from divorce, control an heir’s access to assets, or avoid probate. Generally, when a minor child inherits money or property via a will, the courts will appoint a guardian or conservator to manage the assets. Aside from the legal hassles a property guardian may face, a bigger problem can occur once the child gains control of the account when he or she reaches the age of majority. Trusts provide management assistance for heirs, as very few 18-year-olds have the maturity to handle a significant amount of wealth. By stipulating that trust assets can only be used for the health, education, maintenance, and support of the beneficiary until a specified age, the beneficiary could benefit well into adulthood. Furthermore, assets held in a trust may have some level of protection from the creditors of the beneficiaries.
Placing assets into a trust before death will often allow families or individuals to distribute property without coming under the jurisdiction of a lengthy probate process. Wills can leave an estate subject to probate and can be challenged should heirs believe they were unfairly treated or disinherited, claiming that the distribution does not reflect the testator’s true intentions. If a dispute arises, a trust established prior to the death of the grantor can be more difficult to challenge than a will.
Trusts are powerful tools designed to help families handle a variety of issues like reducing estate taxes, avoiding probate court, or transferring assets. It’s important for investors to consult with legal and financial professionals when considering the use of trusts in estate planning. The specific goals, family dynamics, and legal implications can vary, and tailored advice can help ensure that the chosen approach aligns with the individual’s objectives.
If you have questions about how your estate plan supports your overall financial plan, the experts at Henssler Financial will be glad to help:
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- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the November 18, 2023 “Henssler Money Talks” episode.
This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
