Setting up a trust fund for your children can ensure that the money you are leaving behind for them is taken care for them, in the way that you want. But your efforts in completing this important, yet somber task can be ruined by making one of these common mistakes.
Leaving Assets Outright to Kids
One of the worst things you can do is to do nothing, which means that whatever you are leaving behind will go to your children outright, unprotected and directly to them when they turn 18. But, worse than that, it means that a Court will decide who handles the assets for them (and whoever is named as their guardian) before they turn 18. And, it’s very likely that those assets will not be used in the way you want. On top of that, if a professional Trustee is appointed, the costs of handling the assets could drain what’s left for your kids, quickly.
Not Carefully Choosing a Trustee
Even parents who do the right thing and set up a trust to hold what’s being left behind for their kids sometimes do not think carefully enough about who the Trustee should be taking care of the assets. Do you want one trustee or a co-trustee who can ensure the funds are well managed? Choosing more than one can provide some accountability for how the funds are used.
Not Properly Protecting Assets Left In Trust
Another mistake parents make when setting up a trust is distributing the assets out of the trust direct to their children at specific ages or stages, instead of holding those assets in a flexible lifetime trust that will protect their kids’ inheritance from future divorces, creditors or accidental lawsuits.
Unfortunately, most lawyers do not understand how to use trusts to establish this kind of vital protection for the inheritance you are leaving behind. And they may even suggest to you that it’s not necessary, if you have a smaller estate. I believe that even when you are leaving behind a small amount of assets, protecting those assets and teaching your children how to grow them (instead of squander them) can be the seed of a huge turning point for many generations to come.
Neglecting to Fix Beneficiary Designations
Lastly, make sure your insurance policies are directed to your trust and not directly to your children. This is a huge mistake we repeatedly see. Naming minors or even young adults as the beneficiaries of insurance and retirement accounts is a sure-fire way to ensure they are not used in the way you want and unnecessarily get stuck in a court process, which you can easily avoid.
One of the main goals of our law practice is to help families like yours plan for the safe, successful transfer of wealth to the next generation. Call our office today to schedule a time for us to sit down and talk about your estate plan, where we can identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.