One way to set up your estate plan is by using a trust. You can give instructions to the trustee about how they should distribute those assets to your intended beneficiary. This can give you more control.
For instance, perhaps you want to make sure that the money is used for the beneficiary’s future college education. You could tell the trustee that they can make payments for educational costs, but the money should not be used for frivolous purchases.
But could this actually become too restrictive? Say that the beneficiary decides not to go to school because they want to start a business or join the military. If the trust can only be used for educational costs, are they now prevented from using their inheritance?
A discretionary trust
One way to get around this is to use a discretionary trust. Instead of choosing a specific focus, such as education, you just pick a trustee who can use their discretion and decide how the funds can be utilized.
In the example above, the trustee may decide that it is a perfectly acceptable use to put the inheritance toward starting the business. Just because the beneficiary decided not to go to college does not mean they should not receive their inheritance, so the trustee can still authorize payments. They just ensure that the money is used for something they believe you would have considered beneficial, rather than something you may have deemed frivolous.
Trusts can be a very useful part of estate planning, especially if you carefully consider their long-term ramifications. Be sure you know what legal steps to take to set one up.
