Client Alert

Why a trust might make sense for adult children

When you have a sizable estate, creating a trust for your minor children makes sense. It controls how the money is distributed and keeps the burden of money management off their small shoulders. When your child is an adult, creating a trust for him or her may not seem as necessary. However, being over the age of 18 does not guarantee your child is great with money. Even for someone who is financially responsible, the bigger the estate is the harder it will be to manage. Creating a trust can simplify matters and protect an inheritance for grown children.

Assess your children

Start by honestly assessing your children and their abilities. Your son or daughter may be brilliant, but have a hard time managing money. Even if they hire a money manager, do you trust them to pick the right person? If the answer to either of these questions is no, you might want to consider creating a trust. If your child struggles with substance abuse or gambling issues, creating a trust will ensure your child has access to the money, but that access is limited.

What can a trust do?

When you create a trust, you appoint a trustee. The trustee can be put in charge of distributing money based on the needs of your child. If that is your plan, you will want to make sure you pick a trustee that knows your family well. Maybe your child suffers from some type of addiction. With a trust, you could dictate that the trustee can cut off the child’s distribution for some time.

You may decide to base distributions on a yearly number, a percentage of the trust, or only include certain types of income. Distribution can also be done in increments, as your child hits certain ages. How you decide to distribute the money is mostly up to you and your estate planning attorney.

A trust protects the inheritance from outside parties

Maybe you are not concerned with your child spending the money, but you are worried about other people laying claim to the inheritance. With a trust, you can protect your child’s inheritance from potential creditors and generally, from a bankruptcy trustee. If your child is married and gets divorced, the trust can also protect this money from the ex-spouse. However, if you leave your estate outright to your child, his or her former spouse might be able to take part of the estate as a marital asset. Another benefit of a trust is that you can direct any unused money to pass to your grandchildren, in the case of your child’s passing. This would protect these assets in the same manner for your grandchildren.

Creating a trust for your adult children can make passing on a large estate much easier. It can help ensure the money lasts and is protected from outside parties. Only you know what is right for your family.

Posted in Client Alert, Trust, Trust Advisement.