Avoiding probate is a goal for most of our clients, and using a trust is a great way to accomplish this goal. But we often have clients ask us why they should use a trust instead of making their children co-owners of their assets. A trust offers the best protection for both you and your beneficiaries, and it makes sure that your wishes are carried out when you pass away without the necessity of a probate.
Naming your children as co-owners of your assets is often not a good option for estate planning. Your assets would then be considered your children’s assets as well as yours. If your child encountered any sort of legal problem, such as a bankruptcy or divorce, your assets could get wrapped up in their issues. In addition, a lot people don’t realize that if they have only one of their children named as a co-owner on a bank account or other asset, that one child becomes the sole owner of the asset when you die and all other potential heirs are excluded—regardless of how you say you want your estate divided in a trust or will. Properly utilizing a trust can solve these problems. Your assets remain your assets under your control while you are living. And when you pass away your assets will be distributed to your beneficiaries exactly how you want.
Naming your children as death beneficiaries is another option, and it is better than naming children as co-owners, but it is often not the best planning technique either. This option has very limited flexibility and no protection for your beneficiaries. What if one of your children dies before you do? What if you don’t want your children to receive equal shares? What if you want a portion of your estate to go to a third party, such as your church? A trust allows you the flexibility to set out your wishes for all of these scenarios.
A trust also allows you to set up provisions to protect your beneficiaries—either from themselves or others. If your children are minors or not good with handling their finances, you can set out how and when you want them to receive their inheritance. You can also add provisions in your trust to protect your children’s inheritance from getting wrapped up in a potential future divorce or other legal proceeding.
A trust is a great estate planning option—it avoids probate, allows you to protect yourself as well as your children, and ensures that your estate is distributed exactly how you want when you pass away.