When you are creating an estate plan, you might think that you can breathe a sigh of relief when your children become adults. Many parents assume that if they leave assets to an adult child that they will be able to handle the responsibility that comes with it. While this might be true in some cases, it isn’t in every case.
There are times when you might have to think hard about what you are going to do to pass the assets to them. Fortunately, you have an option that can help you handle the transition of assets from your estate to your adult children.
Some parents know that their adult children aren’t ready to handle a big financial windfall responsibly. Still, the parent might want to support their children in some tangible way. This might be the case if the person has a drug addiction, a gambling habit or just isn’t able to take care of financial matters. By setting up a trust for the assets you are passing on, you can likely meet your goals for your estate without having to worry that your heir will squander the assets.
Different types of trusts
You will have to determine what type of trust is appropriate for the situation. You need to think about the goals that you have for your estate and your child’s situation to determine the best option. Make sure you think about other aspects of the estate, including estate taxes and creditor claims when you are making the decision about the type of trust to use. For example, revocable trusts might not offer protection from creditors, but irrevocable ones often do.
Conditions of the trust
One primary benefit of trusts that many people appreciate is that they can set conditions on when the trust is distributed. This might include life milestones, such as getting something from the trust when they get married. You might even put conditions in the trust that would stop the heir from getting the assets from the trust. For example, confirmed drug abuse might stop the person from getting anything until they have gone through rehab.
If you plan to use trusts to pass along assets, be sure you understand exactly what terms are being used and what this means for you. In the case of irrevocable trusts, you can’t alter the terms once they are set. The ultimate goal is for your beneficiaries to receive the assets you are sending them in accordance with your wishes.