The Benefits of Creating a Trust to Hold a Child’s Inheritance

Providing for children in the event parents die prematurely takes more than choosing a guardian to raise them. Parents must also consider what will happen to any money or property their children will inherit. Children under the age of eighteen cannot directly inherit more than a small amount of money. With assets and life insurance, most parents will leave their children a great deal more than that. If the parents have made no provisions, a guardian will be appointed to manage the assets only until the child turns eighteen, at which point all the remaining assets are turned over the child. Creating a trust to hold the inheritance instead allows parents significantly more control over how the inheritance is spent for their children.

By creating a trust for their children, parents can control the age, or ages, the trust funds will be distributed to the children for their own management. This is the most significant benefit. Most people would probably agree that they did not make the most responsible decisions about money when they were very young adults. Placing the inheritance in a trust with staggered distributions when the child reaches different age, say 25 and 30, makes it much more likely that the money will be used wisely.

The parents choose the trustee who will manage the trust, and can also give that trustee written guidance regarding the distributions to the children. However, because the trustee controls the purse strings, this person should be chosen with care. There is no hard and fast rule about naming, or not naming, family members as the trustee. It’s more a matter of choosing a person who is appropriate for the role. The trustee should be someone who is trustworthy and is good with money. The trustee should be someone who will not give in to every request for money, but should also be someone who will not be overly restrictive in making distributions. While the children are younger, the trustee will also be working closely with the guardian raising the children, so the two should be individuals who can get along.

Implementing a trust to hold a child’s inheritance is one of the most beneficial things a parent can do, as it ensures that the funds will be available for the child, but also maintained in the trust until the child is more mature.

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