There may have been a time in your life when you had a piggy bank for your child \u2013 a fun and interactive way for you to teach money management, patience, and basic math.\u00a0 The money went in, but it was often difficult to retrieve.<\/p>\n
Using a trust as an estate planning tool for parents provides a similar concept to that of the traditional piggy bank: money easily goes in but not out. Generally, there are two main ways your children will receive their inheritance: 1. Outright \u2013 into their hands all at once or 2. Through a trust.<\/p>\n
Put simply, a trust is like a container: at your death, it could \u201chold\u201d your financial assets or even real estate. When such property is held, you could give your child a right to withdraw certain amounts over time or hold the funds for the child\u2019s lifetime leaving them to benefit from the trust at the discretion of a Trustee.<\/p>\n
The key is that a trust permits you, after your death, to name an individual (referred to as a Trustee) to control and manage your child\u2019s access to their inheritance preserving it for your child\u2019s health, education, and general well-being. Here are five things to consider when setting up a trust:<\/p>\n
Do you feel that your child is irresponsible with money or is your child too young for you to know? A revocable trust (one that can be amended or terminated) can hold funds for your child\u2019s benefit and if circumstances change, so can the trust.<\/p>\n
A child\u2019s troubled marriage or a history of divorce should have you considering a trust to protect your child\u2019s inheritance. Depending on the state in which your child resides, an inheritance could be a marital asset subject to division between the parties.\u00a0 A trust can help keep your child\u2019s inheritance out of divorce court.<\/p>\n
Also, consider your child\u2019s profession and the risk of liability if, for example, they practice medicine or own a business.<\/p>\n
Often times, struggles with addiction, including alcoholism or gambling, impairs your child\u2019s ability to manage their assets appropriately.<\/p>\n
If your child has a physical or cognitive impairment, a certain kind of trust can be used to preserve your child\u2019s inheritance without jeopardizing their eligibility for government services such as social security income (SSI) or public housing.<\/p>\n
Perhaps your child is in an unstable career where income ebbs and flows or they have experienced frequent and long periods of unemployment. A trust can help provide a soft landing, helping to carry them through over a long period of time.<\/p>\n
As you can see, these considerations require a review of your circumstances. Talking to an estate planning lawyer can help you determine whether a trust should be a part of your estate plan.<\/p>\n
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