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 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. We 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 squandering 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 surefire 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.
A trust can both provide for and protect your children after your death, as well as ensure you are cared for in the way you want in the event of your incapacity. If you’re ready to set up an effective plan for your family’s well-being and care, start by contacting us. We’ll help you protect, preserve, and enhance what matters most.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That is why we offer a Family Wealth Planning Session, during which you will get more financially organized than you have ever been before and make all the best choices for the people you love. You can begin by contacting our office today to schedule a planning session and mention this article to find out how to get this $750 session at no charge.
Disclaimer: All information on this website is for informational purposes only and is not legal advice. You should contact an attorney trained to work with families on estate planning matters regarding your specific situation. Use of and access to this website or any of the email links contained within the site do not create an attorney-client relationship between the Law Office of Keoni Souza, LLC, and any users or any other party.
