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Estate planning should not be one-size-fits-all

Every child has individual needs, goals and challenges. Although many parents recognize this, they often fail to incorporate this knowledge when estate planning. Although many parents want to leave their assets to their children, simple estate plans can put children into situations they are not prepared to handle. This can risk family assets being squandered or misused.

As a parent, you will love your children no matter what. However, there may be situations when it is appropriate to save them from themselves. A trust can allow a parent more control than a will can over the circumstances surrounding a child’s inheritance.

Minor and young adult children

Assets left to a minor child should always be held in a trust to make sure the child benefits from the assets instead of the child’s guardian. This may be especially important if the person you appoint as your child’s guardian is great with kids but bad with money. Alternatively, if you are divorced, your ex-spouse may be the one caring for your child, and without a trust to keep the child’s inheritance safe, your ex-spouse may end up with control of the assets.

You should also consider the manner in which your child will inherit when he or she turns 18. Many young adults lack the skills to appropriately manage their money, and receiving a large inheritance on an 18th birthday could result in assets being squandered or misused. Instead of distributing money all at once, you could use a trust to distribute the money in stages. You could also bring the young adult on as a co-trustee before he or she receives a large disbursement. This can help your child gain the skills needed to successfully manage the money.

Consider a lifetime trust

Sometimes the struggles adult children face go beyond poor money management. For example, an adult child with a substance abuse issue could get into a dangerous situation if he or she were to suddenly receive a large amount of money, and an adult child in an unhappy marriage could lose half of an inheritance in divorce.

By keeping the money in a trust throughout a child’s lifetime, a parent can help protect the child and the money. In this situation, the trustee would be able to distribute money, but the child would not be able to demand money.

Each situation is different and the precautions that one child may require may not be necessary for another child. Deciding what is best for your family is ultimately up to you. However, it is important to consider some of the options available to you through trusts that may not be possible with a simple will.

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