If you have money to leave to someone when you die, it is likely you worked hard to get it. The last thing you want is for the person who receives them to squander it.
While you won’t be around to watch over them, you can put some procedures in place to do that for you if you create a trust and place the money in it.
You set the rules when you create the trust
If you just pass something on via your will, then the receiver can do what they want with it once it is in their possession. By putting the assets into a trust, instead, you can have a trustee exercise some control over the distribution on your behalf. A trustee is someone you name to manage the trust and you can give them as little or as much freedom to act as you like. You can leave all the decisions about how and when to release the money to them, or you can spell it out with a set of instructions they must follow.
For example, you could say you want them to use their judgment to give your child the money when they are old enough to handle it wisely. Or you could say, pass on 25% when they turn 21, 30% when they turn 25, and the rest when they turn 30. Or, that the money can only be used to pay college costs, as a deposit on a house or for something else you specify.
What’s the problem with this?
It is hard to predict the future. You might think you know what the best use of the money you leave is, but that is just your opinion. Maybe the person due to receive it would disagree. Perhaps you too would rethink if you were still alive to receive new information in a few years’ time such as your child falling seriously ill and needing the money for medical treatment. Yet, you cannot change the rules once you are dead.
There are several ways to set up a trust, each with its own merits and pitfalls. Learning more about them can help you make the right choices when planning how to pass on your estate.