Without proper planning, the default for your children is that the courts will name a financial guardian to manage the assets and accounts on behalf of your children while they are minors and then the accounts will be turned over to your children on their 18th birthday. Outright. No strings attached. Does that seem like a good idea to you? Most parents don’t think so.
Take Control of Your Children's Financial Future
First, establishing a trust puts you in control—rather than a judge that doesn't know you and your family. A judge may not understand the nuances of your family dynamics, nor your wishes as a parent. With a trust, you get to decide who you feel would be equipped to manage your children's inheritance while they are underage. If you are divorced, this is especially important—do you really want your ex managing the assets?
A trust also provides greater ease and privacy upon death. A living trust plan will permit your family to avoid the time-consuming and expensive probate process and ensure that funds are more readily available for your children’s care. In addition, probate is a matter of public record—meaning that any nosy person or opportunist can review the court records and see what you owned and who is receiving it—leaving your financially immature children as sitting ducks for scammers.
Establish Guardrails to Protect Your Children
You can also specify the terms for how you want your children to receive things, how the trust funds should be used, and how much access and control you want your children to have. So, for example, you can specify that you don’t want your children to have access to the funds until age 21, 25, 30, or older. While they are under the specified age, the trustee you named will manage the accounts on the child’s behalf and can spend them for the child’s benefit—such as paying for care and educational expenses.
Protect Your Children from Future Lawsuits, Creditors, or Divorce
Depending on the design of trust, you can protect your children’s assets. By leaving the assets to your child in an asset protection trust, you can protect your children's inheritance from their future potential lawsuits, creditors, bankruptcy, and divorce. As your children become older and more mature, you can determine how much direct access and control you wish them to have over the trust. Now, if your children are quite young, this may seem too far off to think about, but consider that if you do pass away prematurely it may be all the more important to protect your children's future financial security. Clients often ask whether they can just leave it up to their children to protect their own assets, but due to how the trust and asset protection laws work, you are able to provide your children with better asset protection than they could create for themselves.
Protect Your Children from Accidental Disinheritance
Finally, a trust-based plan can protect your children if your surviving spouse ever remarries so your children are not accidentally disinherited. Here's an example of how accidental disinheritance happens:
Bob and Mary are married. Bob has two children from his first marriage. Bob and Mary have one child together. Having been married a long time, Bob and Mary have the majority of their assets titled jointly and their estate planning documents provide that when the first spouse dies, everything will pass to the surviving spouse, and then when the surviving spouse dies, the estate is to be divided equally between the collective 3 children.
When Bob dies, everything passes to Mary. Several years later, Mary remarries. She and her new husband, John begin building a life together. Ten years later, Mary dies. Due to a variety of factors regarding how Mary handled the assets during the marriage, marital rights, and such, a majority of Mary’s estate passes to John. John has no obligation to leave anything to Bob and Mary's children, and therefore they are “accidentally” disinherited.
With the proper trust provisions, Bob and Mary could have avoided this situation and ensured that the children could not be disinherited this way.
Give Your Family the Gift of Protection and Peace of Mind
Don’t leave your children unprotected. Give yourself and your family peace of mind that they will be protected and cared for in the event of a tragedy. Contact us online or call our office at 919-443-3035 to get started or read more about estate planning to protect minor children in our Children’s Safeguard Planning Guide.
