Making plans to give your heirs a financial inheritance can be an overwhelming process for any individual. While most people want to make sure their heirs are well taken care of, there are always concerns with giving a family member, child or grandchild a sizeable amount of money. This is especially true for anyone who has reservations about their heirs’ ability to manage money or for those with past debt issues. Along with the other concerns like tax implications, legal considerations and IRS stipulations that need to be kept in mind when protecting your heirs and giving them a significant amount of money.
How Can a Trust Help?
Trusts are a legal way to help protect heirs when they receive a sizable amount of money so that they can make smart financial decisions for themselves now and far into their future.
Your Trust Options
Depending on your retirement plan and other existing accounts, different types of trusts may help your heirs receive money in a more managed way– even if you are no longer there to help control it. Here are a few examples of trusts that are options to you;
- IRA Trust: Designed to prevent an heir from receiving money outright from their benefactor’s IRA, should the account owner die. Without a trust in place, an heir can treat an inherited IRA as a type of account they can draw from as they want to, as long as they take a required minimum amount of distributions under the rule of the IRS. IRA Trusts also give your heir asset protection that they don’t have in all states.
- Revocable Trusts: Allows you to retain control of all the assets in the trusts and you are free to revoke or change the terms of the trust at any time, which can be helpful if your heir’s behavior or actions change at any given moment.
- Asset Protection Trusts
- Beneficiary Trusts
With your options in mind, the best course of action is always to seek professional legal counsel when creating a trust that works explicitly for your situations and your heirs. Estate planning can be stressful and at times emotional process, but when it comes to trusts, an experienced attorney can help make sure you have a system in place that keeps the best interest of your heirs in mind, even if they don’t realize it at the time.
Trusts allow you to control how and when the money is spent
The individual setting up the trust can make sure that any trust money will be used positively to help the beneficiary make smart spending choices. Benefactors who are young, or who may have a proclivity for poor spending can be protected in trusts with specific rules and stipulations that can help ensure the money is given to these individuals in a controlled way, instead of allowing the heir to withdraw and use the money as they want, on a whim.
Estate planning can be complicated. Taking the time to make a trust for your heirs is a smart way to ensure they are getting financial support in a controlled and responsible manner.
Written by Kimberly Hegwood, Attorney at Law, Founder of the Hegwood Law Group in Houston, Texas. Attorney Hegwood and her firm are Featured on ElderCareMatters.com – America’s National Directory of Elder Care / Senior Care Resources to help families plan for and deal with the issues of Aging.