Several estate planning tools can be used to make sure your loved ones are taken care of financially and otherwise after you pass away. A will is typically the most common estate planning document and are often used to distribute assets, as well as name guardians for minor children.
If you have minor children, you may also want to consider creating a trust to protect your children in a way that wills do not. Here are some advantages to creating a trust to benefit your children.
Ensure that children will receive funds
Even if you are financially secure, there is always a chance that you fall into debt or have financial troubles that require creditors to seize certain assets. Assets that are included in a trust are safe from creditors. By placing certain assets in a trust for your kids, you will ensure that your children will receive the assets you intended for them to receive, even if you are struggling financially.
Avoid probate and minimize taxes
Assets within the trust do not have to go through probate and therefore, your children will be spared from a lengthy and costly process after you are gone. A trust can also be used to reduce or eliminate the federal estate tax due, as any assets you place within the trust will not be included when determining the size of your estate.
Control amount and frequency of trust distributions
If your children are minors or young adults, they may not be mature enough to make wise financial decisions. If a parent passes away and a child receives a large sum of money all at once, the child may decide to spend recklessly rather than save for the future.
A trust allows you to control when your child will receive these payments and how much they will receive each time. You may also set up age requirements for payment (e.g., require that your child cannot access any funds until they are 25 years old). These restrictions can help prevent your child from spending their inheritance impulsively.
Control how funds are used
In addition to controlling when payments are distributed and how much is distributed each time, you may also use a trust to control what the funds are used for. For example, you may stipulate that funds from the trust are only to be used for your child’s education.
Setting up a trust may be more complicated and costlier than drafting a will but is often well worth it to protect your children’s future.