When people set up trusts for their heirs, they will sometimes pick a very specific goal that they want to accomplish. The reason that they’re making the trust is that they want to decide how that money can be spent. Otherwise, they could just leave the money directly to their heir, rather than putting it in the trust in the first place.
A good example of this is when someone creates an educational trust. They know that they don’t want their heir to have to worry about the cost of college tuition, so they set the trust up to cover those costs.
But this can create problems, because the trust may become irrelevant in the future. For example, what if your heir has no desire to go to college? What if they decide to join the military instead? What if they start their own business as soon as they get out of high school? There are many different things that they could choose that mean the money in their educational trust cannot be paid out for those college expenses, as was instructed.
Planning ahead can avoid this kind of problem
The good news is that you can plan ahead to address things like this. Some people use a discretionary trust, for example. This trust means that the trustee is given the power to decide how to use the money, which can be beneficial because you can simply tell this trustee what you would prefer the money to go toward.
If your heir goes to college, then the trustee approves payments for tuition costs, books, room and board. But if they don’t go to college, then the trustee can still use their discretion to decide how else that money could be used so that your heir still gets their inheritance.
When setting up documentation like this, it’s important to know all of the steps you’ll need to take.
