7 REASONS TO SET UP A TRUST FOR YOUR KIDS

Setting up a trust fund for your children is one of the best ways to pass an inheritance, which differs from handing them something during your life. However, back in the day, “trusts” were primarily a facility for the well-off. For such over-privileged, sour, adult children, the term “trust-fund babies” was coined (by the society, of course). However, guardians and other adults find it essential to leverage the power of trust funds, especially for their children. How so? Because this is a decision that will guarantee a somewhat easy life when the guardians are gone.

Trust funds also give you more control over how and when to distribute money to your child, and they may save you probate fees or taxes. If that isn’t convincing enough, here are some of the reasons why you must set up a trust fund in the name of your children:

1. Guaranteed money for your children.

One of the first reasons you must choose to establish trust for your children is that it will provide you with legal protection. While many assets are susceptible to seizure by debt holders and the courts, trust funds are not. In addition, nobody knows what the future will hold for your children, and even the most successful people face financial hurdles.

2. To pay for their higher education.

Another common reason for establishing a trust fund for your children is to pay for their education. A college trust fund provides flexibility in how and when money is apportioned for educational expenses, whether the guardian pays for one child or several.

You have to pay each child’s college and tuition expenditures for educational trusts. Any leftover assets in the trust will be divided equally among all children. In some cases, the children’s financial needs will vary, such as if one child attends nursing school and, at the same time, the other earn a bachelor’s degree. As a guardian, you can choose to give each child the same quantity irrespective of the rate of their education or offer varying amounts based on every child’s educational expenditures. Regardless of your decision, you will be paying for your children’s education, even after parting with them.

3. Safeguarding your own money

A trust allows you to identify specific beneficiaries, and once you do, you cannot change your motives later. You will be able to name your children as trust beneficiaries precisely—and even preclude specific children if you prefer. That way, you will have someone to carry out your hopes and dreams. It is not always the case with regular savings and investments, and it is not always the case with a will. Because a “Will” distributes your available assets, unforeseen third parties may question any portion of it. A trust ensures that the money only goes to the people named in the trust fund.

Furthermore, you may not be present to provide funds for all of those critical needs, but the trust fund will assist in meeting them in your utter lack. An independent trustee can be ordained to handle the distribution of assets upon your death under the terms you specified in the trust. It will ensure to make all payments promptly, and at the time frames you deem appropriate.

4. You can decide when they’ll receive their inheritance. 

Many 18-year-olds are not prepared to handle the responsibilities of a large or even a small inheritance. A bit more maturity is required. Some parents choose to set a specific age at which their adult child will be able to access the funds. Although there is no standard, 25 appears to be an appropriate age for an adult child to have gained the maturity required to be financially responsible in some cases. You are the best judge of what is best for your children, so make your decision based on what you believe will benefit them the most in the long run.

5. For handing over your assets 

Another good reason to establish a trust fund is to keep your assets strictly reserved for your children. Having a trust fund in place will allow your children to access purchases more quickly while making it more difficult for people to contest them. In addition, that will offer you the peace of mind that your assets will be going to the rightful owners (your kiln) and that no one out of line would be reaching for them.

There is also the added benefit of greater control. You can specify what the money is to be used for and control the amount distributed to ensure more careful budgeting on your children’s part. In many ways, a trust fund can be more secure than a Will because it allows you to be more specific about what assets can be shared or used among the children.

6. Reducing estate taxes

According to the IRS, an estate tax is a tax on your right to transfer property after your death. Because property and assets placed in a trust are not subject to these taxes, a trust can help you reduce or avoid estate taxes. In addition, it is constructive, as it would save your spouse and children from taxes.

You can also make tax-free monetary gifts from an estate to children through a children’s trust. The donor reduces the estate’s overall taxable amount by making these gifts, reducing tax liability. However, there are boundaries to how much you can give without incurring taxes. So be sure to check in with the latest annual exclusions to understand what applies to your situation.

7. Protection against spendthrift beneficiaries 

Trusts can also serve helpful when you have concerns regarding how your children will deal with their financial affairs. The trust fund can fulfill their income and capital needs as they arise. Often, children have no idea how to manage their money, so there is a chance that they might dispose of the funds recklessly and end up with a poor financial standing in the long run. However, trust funds can offer long-term protection for family assets, even in children’s names.

Conclusion

As you can see, a trust fund is a valuable financial tool that will allow you to pass your wealth onto your children. Even if you have young children, you can still keep those assets safe until your kids are ready to handle the responsibility. And of course, establishing a trust fund in your kids’ name might involve some work, but the benefits that come with it will be worth the trouble. So go ahead, hire a reasonable attorney and create a fund that you can adjust with time (in your lifetime) and give your children the life they deserve.