As a parent you want to protect your children and this means planning ahead for a time when you are no longer there to guide them. Whether you have minor children or adult children that need help managing their money, using a trust is a good way to insure that their inheritance is protected.
There are several kinds of trust options; one that provides many benefits is a revocable living trust. A revocable living trust is a trust established while you are alive that you are able to change or amend at any time at your own discretion. The assets that you place in the trust are managed by a trustee (you or someone you choose) according to your instructions. Through a revocable living trust the money that you leave your children can be set up to be distributed to them after they reach the age of majority at times you choose such as 1/4th at age 21, 1/4th at age 25, and the balance of the trust at age 30 or when they reach certain milestones such as entering college. By being able to elect at what time your child receives their money it allows you to circumvent the financial mistake of an inexperienced young adult getting a sudden windfall.
If your children are under 18 when you die, the trustee will be able to use money from the trust as they deem necessary for the education, health, maintenance, and support needs of the children. Also since the trust is revocable, if the circumstances of your family change such as a marriage that brings in stepchildren, it is easy to amend your trust to reflect that. Another benefit is the assets that you transfer to the trust pass outside of probate so your beneficiaries do not have to wait to inherit them.
A planning option to consider if you have children who have creditor issues or who are mentally ill is to leave money to them through a spendthrift trust. A spendthrift trust contains language that gives the trustee discretion to choose when to distribute money to the beneficiary. This allows the trustee to withhold money when they feel it would be wasted and to give money when it is needed. The beneficiary also has little to no right to demand assets from the trust and because the beneficiary does not own the assets they are usually not subject to a creditor’s claims.
An option available to parents of children who receive government benefits is a special needs trust also known as a supplemental needs trust. A special needs trust provides the child with a source of funds without disqualifying them from receiving government benefits because as with the spendthrift trust they do not own the assets. This is important because inheriting money another way could eliminate or reduce the amount of government benefits the child receives.
If you think that one of these options might be right for your family or you have any questions please give us a call.