Setting up a trust fund for your children can ensure that the money you are leaving behind for them is taking care of 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, worst 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. One top of that, if a professional Trustee is appointed by the Court, 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. Do you want one trustee or a co-trusteet (i.e., someone with the skills to manage the finances and someone else who more closely understands your wishes, but lacks the financial literacy to help the assets last throughout your kids' lives). Choosing more than one can provide some accountability for how the funds are used.
Not Properly Protecting Assets Left in Trust
Another mistake parents make when setting up a trust is distributing the assets out of the trust direct to their children at specific ages or stages, instead of holding those assets in a flexible lifetime trust that will protect their kids' inheritance from future divorces, creditors, accidental lawsuits, or bankruptcy.
Unfortunately, most lawyers do not understand how to use trusts to establish this kind of vital protection for the inheritance you are leaving behind. And they may even suggest to you that it's not necessary, if you have a smaller estate. I believe that even when you are leaving behind a small amount of assets, protecting those assets and teaching your children how to grow them (instead of squander them) can be the seed of a huge turning point for many generations to come. It would be my honor to share more about this with you during a Family Wealth Planning Session™.
Neglecting to Fix Beneficiary Designations
Lastly, make sure your insurance policies are directed to your trust and not directly to your children. This is a huge mistake we repeatedly see. Naming minors or even young adults as the beneficiaries of insurance and retirement accounts is a sure-fire way to ensure they are not 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 with us. As your Family Business Lawyer™, we'll help you protect, preserve and enhance what matters most.
This article is a service of Sky Unlimited Legal Advisory PC, Family Business Lawyer™. We don't just draft documents, we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you've ever been before, and make all the best choices for the people you love. You can begin by calling our office at (650) 761-0992 today or book online to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session for FREE.
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