Cash is king – or so the saying goes. That’s why a lot of people automatically assume that leaving cold, hard cash to their loved ones in their estate plan will be a blessing.
However, it doesn’t always work out that way. Leaving someone a hefty inheritance directly – instead of putting the assets into a trust – can actually do more harm than good. Consider these scenarios.
Your beneficiary is inexperienced with wealth
Beneficiaries who are very young, immature or simply inexperienced when it comes to wealth management can actually end up burning through an inheritance pretty fast. Even if they start out with good intentions, they may not have the financial savvy to recognize a good investment from a bad one. You don’t want the money you leave behind to fall through their fingers because they’re ill-equipped to manage the gift.
Your beneficiary is college-aged and eligible for grants
There are all kinds of scholarships and grants out there that young people can qualify for to pay for their schooling – but they may not be eligible for any that are based on financial need if they have immediate and unfettered access to a large amount of money of their own. If you structure the inheritance in a specific way, you may be able to leave the “seed money” for their life once they graduate instead.
Your beneficiary is approaching their golden years
You might think that an inheritance would provide comfort to an older beneficiary in their final years, but you could actually make it harder for them to qualify for the Medicaid assistance they may need for long-term care and complicate their plans.
These are just some of the reasons that it may be smarter to put assets in a well-designed trust instead of leaving them directly to your chosen beneficiaries. Good estate planning takes into consideration not only your goals but the goals and needs of those who stand to benefit from your generosity.