Creating a trust is one of the most common methods to pass assets from parent to child. By leaving money and other assets in trust, you can ensure that the assets are used in the way that you intend. Don’t let your efforts in completing this important, yet often dreaded task, be ruined by making one of these common mistakes.
Leaving Assets Outright to Kids
One of the most avoidable mistakes is to do nothing – that is, not putting a plan in place. This not only means that your assets might pass through court-supervised probate before getting to your kids, but also means that they might get full access to the money and assets before they are mature enough to use it wisely. By default, any person over the age of 18 will have full access to any inheritance. If the child is under the age of 18, the assets might be frozen until they turn 18, or the court will have to appoint a person to oversee the use of the property. In Virginia, even with a court-appointed guardian, the court often requires prior approval before any disbursement is made.
Not Carefully Choosing a Trustee
Even parents who do the right thing and set up a trust to hold their child’s inheritance can make the mistake of choosing the wrong person to manage the assets. By consulting with a trained estate planning attorney, parents can identify one or more people who have the characteristics of a good trustee – someone who is honest, organized, and knowledgeable.
Not Properly Protecting Assets Left in Trust
Some parents go through the process of creating a trust so that assets can be managed for their children, but don’t think through the level of maturity a child may have even after turning 18. At a minimum, parents should consider extending the lifetime of the trust until the child reaches a certain age. Parents should also think about whether it is a good idea to keep the assets in trust for the lifetime of the child, so that the inheritance isn’t subject to access by creditors, lawsuits, or future divorces.
Neglecting to Fund the Trust or Fix Beneficiary Designations
Lastly, if you make a trust, make sure your insurance policies and financial accounts are directed to your trust and not directly to your children. Failing to name the proper beneficiary is a sure-fire way to undermine all the estate planning you’ve done and leave the assets subject to court oversight or outright freezing until the child turns 18.
While a trust is one of the most flexible estate planning tools available, creating a trust may not be appropriate in all situations. The documents that make up your estate plan should serve your needs and goals, not the other way around. Working with an attorney invested in the best outcome for you is one of the best ways to ensure you have the proper estate plan in place.
This article is a service of Jeremy Forrest and Forrest Law Center PLLC. We don’t just draft documents; we ensure that clients make informed and empowered decisions about life and death. To learn more about how Forrest Law Center can help you and your family, feel free to schedule a no-charge 15-minute phone call with Jeremy Forrest. If you are ready for a complete Estate Planning Session, you can learn more here.