Why You Need a Will or Trust with Sub-Trusts: Protecting Your Loved Ones in Times of Need

Planning for the future is never easy, but it’s essential—especially when it comes to protecting your loved ones. Whether you’re considering a Will, or a Trust (with a Will), it’s crucial to understand how these legal documents can help safeguard your assets and provide for your beneficiaries, particularly those with disabilities, minors, or spendthrift tendencies.

Understanding Wills and Trusts

A Will is a legal document that describes who will receive your assets after you pass away.

A Will can specify who you would like to serve as a guardian for your minor children and who you want to be in charge of managing your estate until assets can be distributed. A Will is not effective without a court process called probate. The probate process most often requires guidance from a law firm to assist your family through the rules and best practices. Your creditors can also easily make claims against your estate.

A Trust, on the other hand, is a legal entity created by a document to holds assets for the benefit of specific individuals. Trusts can be set up to avoid probate, provide more control over asset distribution, and ensure your beneficiaries receive the necessary support, especially during challenging times.

When you have a Trust as your main estate planning vehicle, you should also have a Will. That’s right! If you have a Trust you will also need a Will to help direct where any individually owned assets (assets that are not titled to the Trust and do not have beneficiary designations should go).

The Importance of Sub-Trusts

Sub-Trusts are specialized trusts that may be included within a larger trust. They can be help protect money for families and beneficiaries with unique needs or circumstances, such as:

1.     Disability: If you have a loved one with a disability, a special needs or supplemental needs sub-trust can ensure that they receive financial support without jeopardizing government benefits, like Medicaid or Social Security. By placing their inheritance in a special needs trust, you can provide for the needs of a loved one with a disability without disqualifying them from vital assistance programs.

2.     Minors: When it comes to minor children, a sub-trust can manage their inheritance until they reach a responsible age. This arrangement prevents the immediate distribution of assets, which could be mismanaged or squandered. Instead, the sub-trust can provide controlled distributions for education, healthcare, or other essential expenses.

3.     Spendthrift Beneficiaries: If you have a beneficiary who struggles with financial management, a spendthrift trust can protect their inheritance from being easily depleted. This type of sub-trust can prevent creditors from accessing the funds while allowing the trustee to manage distributions based on the beneficiary’s needs, thereby ensuring long-term financial stability.

Navigating Divorce and Bankruptcy

In the event of a divorce or bankruptcy, assets held in a trust may be better protected than those that are distributed to a beneficiary directly or outright through a Will. For beneficiaries going through these challenging situations, sub-trusts  can help shield their inheritance from being divided as marital property or claimed by creditors. By establishing sub-trusts, you can ensure that your loved ones retain access to their intended assets without interference from external financial difficulties.

Sub-trusts in a Will are Testamentary Trusts

If you don’t have a need for a trust during your lifetime, there could still be good reasons to plan for potential issues with your beneficiaries. For that reason if you are planning with a Will (and not a Trust), you should ask your attorney about including testamentary trusts within your Will.  A testamentary trust is basically a sub-trust but it has a different name because it is imbedded in your Will document and not in a Trust document. Testamentary trusts become official trusts through permission of the Court and require Court supervision. For that reason, if you know a trust for a beneficiary may be needed some clients prefer to create trusts outside of a Will, for less potential for private information to become public or for court intervention.

The Takeaway

While the thought of planning your estate may seem overwhelming, by sharing information with your estate planning attorney about your family and your concerns, you can assist your attorney with understanding what sub-trusts should be considered a Will or Trust to secure your family’s future. By addressing the specific needs of beneficiaries with disabilities, minors, or spendthrift tendencies, you can provide peace of mind knowing that your assets will be protected and your loved ones cared for—no matter the circumstances.

Ready to Take the Next Step?

Don’t leave your family’s future to chance. Reach out to the Harris-Pero Law Firm today at 518-860-5668 Ext. 1 to schedule a consultation so we can assist with a plan tailored to your family’s needs. You and your loved ones deserve it.