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How can you condition an inheritance with a trust?

On Behalf of | Oct 7, 2022 | Estate Planning |

Sometimes all you need are beneficiary designations or a last will and testament to pass your property to your children after your death. However, some people aren’t sure whether their adult children will be responsible with an inheritance. This is a primary reason why some people choose to create a trust.

After creating a trust, you can either fund it immediately or use it as a named payable-on-death or transfer-on-death beneficiary on any financial accounts or real estate that you wish to fund it with. Kiplinger explains that you may set conditions for your beneficiaries to receive interim distributions or complete distributions from the trust. Here are a few examples of how you can control when and how your children inherit from you.

Appropriate age of beneficiaries

If you have minor children, you may stipulate that they cannot receive trust assets until they reach 25 years old. You could also stagger the payouts so they receive portions of their trust shares at different ages. For instance, you may have your child receive approximately equal distributions at 25, then 30, then 35, and so on until the trust is empty.

Directing purpose of assets

A trust creator can also require that a trust release money or property only for specific purposes. Generally, trust distributions are limited to the categories of health, education, maintenance, and support to give the trustee flexibility in making distributions for beneficiaries while still ensuring that trust assets are used for the purposes the trust creator would want covered for their beneficiaries.

Limiting access for other reasons

You probably feel comfortable about passing an inheritance if you can be sure your children are in a good place in their lives. However, if children have financial trouble, ongoing medical or mental health concerns, or concerns with substance abuse, the trust creator may place additional restrictions or requirements on distributions from the trust to ensure that the beneficiaries are being cared for while shielding assets from potential creditors, maintaining certain medical benefits of the beneficiary, or reducing the risk that the assets are used for unwanted purposes.