Most Pennsylvanians know that when people die, control of their estates passes to someone left behind. To ensure the estate goes directly to the person’s heirs and is not delayed by state-mandated probate, wills are drawn up. So if someone wants to make sure a competent person looks after his or her wealth and protects the interest heirs, what do they do?
Some experts believe that passing wealth from generation to the next can reduce its value. For instance, once a second generation of heirs transfers family wealth to the third generation, the value could be nearly wiped out because of mismanagement. According to a study of U.S. trusts, almost 60 percent of American parents believe their children are not well prepared to manage a financial inheritance.
One way to resolve this issue proactively is to set up a trust. A trust is a legal way to protect and preserve assets while protecting the beneficiaries over a certain timetable. Technically, the heirs do not own the properties while they are in the trust. The estate owner can assign a trustee, who could be a person or an institution, to manage the assets and regularly report the financial results to the beneficiaries.
A trust can help an estate owner manage his or her children’s actions even after death. A trustee can enforce the wishes of the owner to ensure that the beneficiaries receive an ample amount of financial support to cover health, education and basic needs but not enough that they can live off the trust.
Trusts are important estate-planning tools, especially when there are heirs who are not competent to manage the inheritance. Determining what kind of trust to implement the estate owner’s wishes is as critical as assigning a trustee who is competent to make sound financial decisions.
Source: Fiscal Times, “Trust Your Heirs Not to Squander Your Estate,” Eric Sherman, Nov. 29, 2013