How Do I Protect My Child’s Inheritance?
As a parent, you want the best for your children. You have worked hard and managed your finances to support them and provide a safe and comfortable environment throughout their lives.
In addition, you may want to protect them after you pass away or unexpectedly become incapacitated. However, even if you do set aside money for your kids’ inheritance in your will, it may still be subject to probate.
Setting Up an Inheritance Trust Fund
To guarantee funds are available for their children, many families have created a trust fund. A trust fund is a legal entity that safeguards assets and ensures they are awarded to specific beneficiaries, including children. Fortunately, setting up a trust fund is not exclusively for wealthy families.
A trust allows you to permanently name certain beneficiaries. On the other hand, while a will also enables you to disperse general assets, any part of the legal document could be challenged by third parties. A trust will ensure that your beneficiaries will receive your money or assets.
Should I Give My Kids a Trust Fund?
Absolutely! A well-planned and well-managed trust can ensure your children have financial security when they become adults or later in their lives.
The following are several provisions and protections a carefully drafted trust could provide to your children:
Estate tax protection – If you leave assets to your children in a will or outright, those funds could be subject to taxation as part of your child’s estate. However, if you leave assets to your kids in a trust, the assets will be kept separate from your child’s taxable estate, which means those assets cannot be taxed.
Divorce protection – If your child’s inheritance is in a trust, it is not considered a joint asset with your spouse. Therefore, in the event of a divorce, your child’s inheritance is protected from being subject to property division.
Creditor protection – Whether your child accumulates debt or is held liable in an accident, creditors or suing parties will be unable to go after his/her inheritance in a trust.
Predator protection – This provision could protect your child’s inheritance from financial predators, including your child’s significant other and family members.
One of the main benefits of a trust is being able to control how your money is dispersed to your children. You could give your child his/her entire inheritance when he/she reaches a certain age, create a tiered system so that the child receives the money at certain ages, or designate some funds for specific expenses (e.g., education, housing, etc.).
How Do I Set Up a Trust for My Child?
Working with an experienced financial advisor is an important step toward creating a trust for your child. At Piermont Wealth Management, our team will ask you about your goals, examine your finances, and determine what type of trust would be best for your child’s inheritance and ensure your wishes are fulfilled.
If you are interested in setting up a trust fund for your child in New York or Florida, call us at (888) 910-1666 or fill out our online contact form today to schedule an initial consultation.