Using a trust can be one way to address your estate plan and distribute your assets to the next generation. There are many benefits, depending on the type of trust you use.
One example is a special needs trust. If you have an heir with special needs, it can be helpful to pass money to them through a trust rather than giving it to them directly. This way, you can ensure that they still receive any benefits that they may qualify for at the time.
Benefit eligibility
The problem is that benefit eligibility for most programs is based around a means test. The government will authorize benefits based on the beneficiary’s condition, but only if they can show that they do not have any other significant or countable assets or income. If they cannot work, they may already have been using these benefits for years.
If you leave such a beneficiary a direct inheritance, this can make it so that they no longer pass the means test. The government will reassess their eligibility and revoke the benefits until they spend down their inheritance. This complicates the process and means that they basically need to spend their inheritance as quickly as possible so that they can reapply.
On the other hand, putting the inheritance into a trust means that they still pass the means test. Perhaps they receive benefits that help with food or housing, for example. The trustee can then use the funds from the trust to help with other expenses, like transportation or a cellphone bill, that may not be covered by government benefits.
Setting up your plan
It is important to carefully think about each beneficiary’s situation when making your estate plan, and you need to know exactly what legal options you have.