Parents have many tough decisions to make when raising their kids, and one of the most difficult can be how they plan to pass along their assets. Most families do not want children under the age of 18 inheriting money or property, so choosing a qualified trustee is one of the most crucial decisions they will make.
While each family is different, there are a few guidelines that parents should consider before setting up their trust, including:
- A trustee and a guardian may not be the same person: You may choose a close family member to be your children’s guardian if you die, however, is that person a good money manager? If not, choose someone who you believe is more qualified in financial matters.
- Create separate shares for children in their 20s: An equitable approach considers that each child may have different needs. Creating separate shares allows each child to access those funds as needed.
- Consider a lifetime trust: This option provides greater financial security for your child. A trustee has the discretion to distribute funds, but the child can never take huge chunks of money. This is important because once the child withdraws funds, it becomes fair game for their creditors or a divorcing spouse.
- Protect a “problem” child: A lifetime trust is also a good option for parents who worry about a child with a substance abuse problem or gambling addiction.
- Distribute the money in stages: For children who are responsible in handling money, consider turning over funds at different ages, for instance, release a quarter of the assets to them at age 25, age 30 and so on. You may also consider naming them as co-trustees at a certain age, so they have some say over managing the funds.
- Plan for the worst: Although it’s difficult to think about, parents should consider what happens if their child dies while money remains in the trust. You can direct that money to go to their children or siblings.
Seek legal advice for setting up a trust
You have worked hard to build your family’s wealth and passing as much of it along as possible to your children and grandchildren can be complicated. Working with an experienced estate planning attorney here in New York can help you weigh the options to provide as much security as possible for future generations.
