“If we wait until we’re ready, we’ll be waiting for the rest of our lives.” – Lemony Snicket
is more than reading to your children or getting them to eat their
vegetables. It’s also about securing their financial future. One way to
do that is by drafting a trust and naming a trustee.
This is a great tool to consider, and it supersedes a will in many
cases. It’s definitely something that every family should look into.
Here are a few questions to ask yourself to determine if a trust is right for your family:
Do you anticipate leaving your children more than a modest sum of money?
A trust may not be worth the effort if you think you’ll
only be leaving a child (or children) $100,000 or less. On the other
hand, if you’re leaving life insurance money to cover four years of
school and you own a home, there’s a good chance a trust would make
sense for you.
Do you want to have some say in how your children’s money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care.
This is something that can’t be done with a custodial account. If the
custodian is a soft touch, he could end up lavishing your child with
designer jeans and a fancy car, leaving very little left for the college
years. Even worse, if the custodian is also the guardian, he could
start writing himself large “support” checks to help cover his other
Would you prefer that your children not inherit the money when they turn 18 or 21?
If you think giving a high-school senior a large sum of
cash is a recipe for disaster, then you should consider a trust. The
ability to delay inheritance is one of the great benefits of a trust.
Should something happen to both parents, for example, children can
receive half of their inheritance at age 30, and the remaining amount
when they reach 35 (or some other pre-established benchmark). Our 20’s
are such a transitional time that it often makes sense not to burden
children with weighty financial decisions.
Do you want the money to be used for a college education?
If you specifically bought life insurance so that there
would be enough money to help fund college in the event of your death,
then you’ll definitely want to delay the age at which your kids inherit
your money. Otherwise, your child could think a red Ferrari is a better
investment than a diploma.
Would you like your children to have recourse if their money is mismanaged?
One more benefit of a trust that you don’t get with a
custodial account is that a trust is a legal contract; the trustee has
an obligation to follow your directions and act in a reasonable and
prudent manner. If the beneficiary feels the trustee spent the money
frivolously, he can demand an accounting, and can sue for reimbursement
if the trustee acted improperly with the funds. It may be pretty tough
to prove illegal or improper actions with a trust, but just the threat
of a possible lawsuit can keep someone in line.
These ideas above are to help you keep control of your assets. If you want to get in control of your taxes, check out our free book on saving taxes. Just click on the top right to download.