Inheriting a large sum of money at an early age without any adult financial supervision can lead to the money being misspent very quickly. In order to preserve the assets that you wish to pass on to your child, you may want to consider establishing a trust.
The Benefits of a Trust
You, the grantor, would use your will or a living trust to name a trustee, whether it be a trusted relative, friend or corporate trust company. The trustee would be responsible to oversee any money or property that your child inherits until the child reaches a certain age that you specify.
Having a trust allows you to enact a greater degree of control over the amount that would be spent to support the young beneficiary on things such as food, clothing, healthcare, education and extracurricular activities.
Additionally, you can instruct the trustee to distribute the inheritance to your child in several payments over a number of years, or that a disbursement is contingent upon meeting specific criteria such as graduating from college.
It is crucial to clearly state how you want the inheritance to be distributed as the trustee is not able to modify anything that was already set forth in the will or living trust upon your death. Once a trust is established, you must properly transfer your assets into the trust. Failure to do the latter results in a trust that is not funded and therefore not able to fulfill your intended wishes..
What Happens Without A Trust
In the event of your death, if your estate planning documents do not designate a trustee for a minor child, your will be subject to probate. A court will appoint a property guardian to manage the assets of your minor beneficiary until the child turns 18 or 21, depending on the state.
The property guardian may be required to submit a request to the court in order to receive funds and this can take time to be processed by the court. Ultimately, a court appointed property guardian arrangement may not reflect the wishes of what you might have intended for your child
The Importance of Selecting The Right Trustee
The mandate of the trustee is to serve in the best interests of the beneficiary. The powers of a trustee are limited to the extent of what is stated in the will or living trust document, or according to the state statutes in which the document was created..
A trustee’s role is very complex so selecting someone who has the required knowledge and time to fulfill their obligations is essential. The trustee must be able to administer the trust according to federal and state requirements along with filing an annual tax return for the trust..
Choosing a family member or friend may be the first option that comes to mind. Although they may be trustworthy, they may not have the time or desire to manage the requirements of servicing a trust for years.
A corporate trustee can be an ideal solution as they are able to remain objective and provide a high degree of knowledge and expertise. You also can name an individual along with a corporate trustee to become co-trustees if you desire an added layer of accountability.
A trust is a definitive answer to the concern of carefully managing an inheritance for your child. You can be assured through your trust, that your assets will be distributed exactly as you see fit.
To obtain objective and specific information relative to your situation about the options of establishing a trust for your child, you should consult with a licensed estate lawyer or corporate trust company.