Having children is often an impetus for couples to start estate planning. Wanting to name a guardian for your children and provide them with an inheritance if anything happens to you can be a strong motivator for creating a last will.
While a will allows you to allocate assets to your children in the event of your death and name a guardian who will provide them with care and support, parents who want to really ensure the best standard of care for their children and the most protections for their planned legacy may want to consider creating a trust as a way to protect their children.
Integrating a trust into your estate plan has several benefits for parents with dependent children.
Trusts can help you protect your children from potential financial abuse
If you pick someone to be your children’s guardian, you probably trust them deeply. Unfortunately, that person may not have this strong of a bond with your children as they do with you. The temptation of significant assets can sway even the most upstanding person into questionable behavior.
If your children are minors when you die, the guardian you name will have control over the assets you leave behind. It is possible that they could spend everything you wanted to leave for your children, resulting in your children getting nothing when they become adults.
Putting your assets into a trust or having them transfer to a trust upon your death will allow you to control the conditions under which the guardian can access the funds and limit how much they can withdraw before the child turns 18.
Creating a trust can help your child avoid inheritance pitfalls
Receiving who wants some inheritance at a young age, even if your child has technically become an adult, could lead to unhealthy behaviors. Especially when you consider the effect that the traumatic loss of their parents would have on their mental health, the misuse or dissipation of an inheritance is very possible.
Putting funds into a trust can ensure that your child can only use a little bit at a time or can only use the assets you pass on to them to cover expenses like college tuition, a down payment on a home or an investment in a business they hope to start. Your trust can provide your child with both a source of financial stability and an incentive to keep growing as they mature.