There are many reasons why people establishing estate plans create trusts. Some people worry about their ability to qualify for Medicaid when they are older and medically vulnerable. Others want to limit their estate tax liability.
For many testators, concern about beneficiaries is what motivates the creation of a trust. They want to properly protect vulnerable loved ones. If a close friend or family member struggles with a substance abuse disorder, a trust can be a helpful form of protection.
Preventing the misuse of an inheritance
Most people leaving property to loved ones do not want them to squander or misuse those resources. The idea of an alcoholic going on a binge after an inheritance is a frightening one. They could put themselves in the hospital or cause a drunk driving crash. Creating a degree of separation between the beneficiary and the resources can prevent them from abusing those resources.
Protecting inherited property
Substance abuse can compromise financial responsibility. People addicted to alcohol or other substances may incur major financial obligations by not paying their bills or causing injury to others. Their assets could be at risk if a creditor or injured person sues them. Trust assets do not belong directly to beneficiaries and therefore are typically not at risk during lawsuits or even divorce.
Incentivizing rehabilitation
People establishing trusts can impose many restrictions on fund distribution. For example, they might require that an individual pass a drug test. They might limit the use of trust funds for specific types of expenses, such as substance abuse treatment or educational expenses. The possibility of accessing those funds could motivate a beneficiary to get sober and improve their life.
Learning more about trusts and other estate planning tools can help people use the best tools given their circumstances. Trusts can be helpful in a broad range of challenging circumstances.