Part of your role as a parent is to prepare your child for a successful adulthood, including protecting him from his own inexperience and immaturity. This is why many parents choose to leave an inheritance for a minor child in a testamentary trust, to be released when that child is old enough to responsibly manage the money or assets.
At the time you establish this type of trust, you’ll specify how the trust assets are to be managed, and under what circumstances they are to be used on your child’s behalf or distributed to your child.
For many families, it’s important to build flexibility into a child’s trust, and here’s why:
No one can predict the future, and while you’re alive and well you have the ability to respond flexibly and creatively to the life choices your child makes, and the circumstances in which he finds himself from year to year. However, as a practical matter, what would happen if you passed away?
After your death, your child’s finances would be in the hands of a trustee who would be obligated to adhere to the instructions contained in the trust when making decisions for your child. If a trust is too restrictive, it can tie a trustee’s hands, making it difficult to respond effectively to the multitude of different circumstances that can arise as a child grows up.
How do you build flexibility into a trust? If you select a trustee in whom you have confidence, you can establish the trust so that it allows him or her discretion in making financial decisions for your child. This way, your trustee can use his or her judgment to make appropriate choices when it comes to spending trust assets on a new hobby, an important purchase, or even the timing for terminating the trust. Of course, the amount of discretion you afford to the trustee is up to you.
Your estate planning attorney can help you put a trust in place for your child that will provide the right balance of protection and freedom.