Friday, December 09, 2011 Going Beyond the Will | Estate Planning Law Firm in Houston
Parenting is more than reading to your children or getting them to eat their vegetables. It's also about securing their financial future. One way to do that is by drafting a trust and naming a trustee.
Here are a few questions to ask yourself to determine if a trust is right for your family:
How much money will you be leaving to your children?
A trust may not be worth the effort if you think you will only be leaving a child (or children) $100,000 or less. On the other hand, if you are leaving life insurance money to cover four years of school and you own a home, there is a good chance a trust would make sense for you.
Are you wanting to provide boundaries to how the money is spent?
A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can't be done with a custodial account. If the custodian is a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little left for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large "support" checks to help cover his other expenses.
Would you want to give your children some breathing room before the money hits-- to fail well, or to find their own path?
If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. Kids in their 20's are in such a transitional time that we do not necessarily want them to have significant financial decisions to make, when they could be pursuing their passions.
Is your bequest to be used only for education?
If you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you will definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma.
Do you want to set up a way for your children to hold mismanagement of funds accountable?
One more benefit of a trust that you don't get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.
Don't forget -- we are only a phone call or email away, and our consistent question for you is this: "What more could we do for you, to help?"
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