The 3-Ws for Why You Need a Trust

Estate planning is about who gets what and when. While most people accomplish this task with a valid will, a trust is used to control the transfer of your assets to your heirs. A trust is “a legal contract, drafted by an attorney, with a named trustee who ensures your assets are managed according to your wishes both during your lifetime and after your death.” A trust, unlike a will, can be used during your lifetime if you become incapacitated and can no longer manage your assets. Besides this benefit, there are three key reasons why you should use a revocable trust in your estate plan: a trust allows you to prevent your assets from going to the wrong heirs, prevent your heirs from making wrong investments, and protect your heirs from wasteful spending.

First, a trust can prevent assets from going to the wrong heirs. For many, if not all, of us, we want to ensure that our assets after our passing go to those in our bloodline, most obviously our children and grandchildren. A trust can be composed to prevent one’s assets from going to one’s in-laws or to your child’s stepchildren or your child’s significant other. If you die and your child inherits money from you, it is likely that upon your child’s death, those assets could be inherited by your in-laws and their children. A trust can guarantee that your grandchildren inherit your estate after the death of your children instead of your children’s spouses, significant others, their unrelated children, or other family members. Trusts can also determine how one’s assets are allocated among the heirs if your children are part of a blended family (as in your child remarries and the second spouse has children from prior relationships). Your trust can be constructed in a way to allow your assets to go only to your children and grandchildren in such cases.

Second, a trust can prevent your heirs from being able to make wrong investments. If your child makes bad investments, the inherited assets can be lost in worthless investments or bad loans. A trust can be drafted with conditions on how the assets can be invested or direct your trustee to use professional money managers to make investments. Trusts are especially helpful when one of your heirs may suffer from an addiction. If one of your heirs has an addiction with drugs or alcohol, a trust can control your assets so that they will not be distributed to the heir or limit their distribution until they receive treatment. Not putting such assets in a trust may allow such heirs to use the assets to fuel their addiction.

Third, a trust can prevent your heirs from engaging in wasteful spending of your assets once they receive them. Wasteful spending best shows itself through lottery winners. Seventy percent of lottery winners file bankruptcy. This logic can extend to why your heirs need a trust. A person who receives a large amount of money in a short period has a tendency to spend it all about as fast as they receive it. Like with wrong investments, a trust can distribute assets only when certain conditions are met. For example, a trust can be drafted in a way that distributes assets in limited amounts at certain times so that your heirs inherit outright control of their inheritance over a period of ten years or longer. Hopefully, as they make mistakes, they will learn from them.

Overall, a trust is an essential tool for those who are concerned with how their assets will be distributed once they are no longer here. A trust can be drafted with terms and conditions that dictate when one’s assets are distributed. Trusts are essential for preventing your assets from being distributed to wrong heirs, used for wrong investments, or wasted.

Everyone should meet with their attorney to update their will and other estate planning documents every two to three years. If you or a loved one is concerned about how their assets will be distributed upon their death, please contact legal counsel to review your current estate plan. If you or a loved one want to set up a trust in your estate plan, please contact Bill Hesch at (513) 509-7829 for a second opinion regarding your need for a trust and updating your other estate planning documents.

Legal Disclaimer: Bill Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.