Basic plans typically distribute a child’s inheritance when he or she reaches a particular age, say at age 25. Sometimes the distribution is divided in half or thirds, and spread out over a period of years – for example one half at age 25 and the balance at age 30. Before the child reaches that age, the trustee is in charge of using the funds for the child’s benefit, ensuring that school is paid for, and other necessities. Once the child reaches that magic age however, the money is “pushed out” of the trust, and paid directly to the child.
Why can this be a bad thing? Parents want their children to learn how to manage their assets wisely before handing over control, and hope that by the time the child reaches the specified age, they will have learned enough life lessons to not waste their inheritance. But what if it were possible to protect your child’s inheritance from predators and creditors too? We can do this by letting the child keep their inheritance in the trust, rather than forcing the trustee to push the money or assets out of the trust. Once the money is forced out, it is exposed to all of the child’s creditors and predators.
A properly designed trust can hold the assets for the child and still leave the child in full control of when assets are distributed to him or her. This not only protects the assets themselves, but the future growth of the asset. What beneficiaries often buy with their inheritance is a home or vacation property. If they make that purchase in their own name, the asset is subject to all of the child’s creditors, and long term care costs. Those risks are reduced when the child can have his or her own personal asset trust purchase the asset instead. When you create your estate plan, consider the benefits of a personal asset trust for a lifetime of asset protection for your children.
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