Lifetime Trusts: An Excellent Way to Protect Assets for Your Children

When thinking about estate planning, many families wonder how to safeguard assets for their children and prevent squandering of their hard-earned money, including life insurance proceeds, which can be considerable.  Even though children legally become adults at 18, most parents don’t believe their kids would be ready to manage a large amount of money at that age.  Looking back on their own teenage years, many people realize they couldn’t have handled an inheritance of any significance at 18.     

There are a couple of common ways to protect assets from irresponsible spending when creating a revocable living trust:  first, by withholding an inheritance from children until they’ve reached a certain age and then giving it to them outright; and second, by safeguarding the children’s inheritance in a lifetime trust, then transferring control of that trust to the children at a designated age.  

Using a revocable living trust, parents can postpone giving money to their children outright until they reach an age when they’ll be old enough to make wise decisions.  At the designated age, the child’s trust will be dissolved and he or she will receive the money outright to invest or spend how the child chooses.  It’s also possible to give a portion of the inheritance to a child at say, age 25, and the remainder at age 30 (or any ages you choose).  That gives children a chance to practice making spending decisions for a few years and still have half the money coming a later age, when they should be even more mature about their choices.

Lifetime trusts are another popular way to transfer money to children of any age.  A lifetime trust keeps the trust itself in place, but changes the trustee to the child when he or she reaches a pre-determined age, commonly 25, 30, or 35.  With this setup, if a child decides to keep money in the trust even after she gains control as the trustee, then that money will retain certain legal protections from the child’s creditors and divorcing spouses.  What’s more, any assets remaining in that lifetime trust at the child’s death can pass to the child’s descendants without going through probate.  In addition, if a parent thinks a particular child should never get control of his trust because of addiction, poor judgment, or other reasons, it’s possible to set up a lifetime trust that always has a third-party trustee making spending decisions, protecting the assets even more.  

Trusts can be very useful in passing assets to your descendants and can be tailored to a variety of situations.  If you’d like more information, schedule your free initial consultation with me by calling 314-266-2649 or emailing emilykirk@kirkestateplanning.com.