Easy Mistakes to Avoid When Passing Assets to Your Child
Posted on: November 22nd, 2017
Setting up a trust fund for your children can ensure that the money you are leaving behind for them is taken care for them, in the way that you want. But your efforts in completing this important, yet somber task can be ruined by making one of these common mistakes.
Leaving Assets Outright to Kids
One of the worst things you can do is to do nothing, which means that whatever you are leaving behind will go to your children outright, unprotected and directly to them when they turn 18. But, worse than that, it means that a Court will decide who handles the assets for them (and whoever is named as their guardian) before they turn 18. And, it’s very likely that those assets will not be used in the way you want. On top of that, if a professional Trustee is appointed, the costs of handling the assets could drain what’s left for your kids, quickly.
Not Carefully Choosing a Trustee
Even parents who do the right thing and set up a trust to hold what’s being left behind for their kids sometimes do not think carefully enough about who the Trustee should be taking care of the assets. Do you want one trustee or a co-trustee who can ensure the funds are well managed? Choosing more than one can provide some accountability for how the funds are used.
Not Properly Protecting Assets left in Trust
We recommend holding the trust assets in a flexible lifetime trust that will protect your kids’ inheritance from future divorces, creditors or accidental lawsuits. However, if you prefer to give access to trust funds to your children, we recommend at least to allow your children to withdraw trust assets at specific ages or stages.
Neglecting to Fix Beneficiary Designations
Lastly, make sure your insurance policies are directed to your trust and not directly to your children. Naming minors or even young adults as the beneficiaries of insurance and retirement accounts may result in the funds not being used in the way you want and unnecessarily get stuck in a court process, which you can easily avoid.
A trust can both provide for and protect your children after your death, as well as ensure you are cared for the way you want in the event of your incapacity. If you’re ready to set up an effective plan for your family’s well-being and care, start by sitting down for a consultation with us. We’ll help you protect, preserve and enhance what matters most.