Parents: Why Setting Up a Trust for Your Children is Important
A trust can be an effective tool for protecting a child’s financial interests in a number of ways.
Control of assets
A trust can give the grantor (the person who creates the trust) or a designated trustee control over the assets held in the trust, allowing them to manage the assets and ensure that they are used in the best interests of the child. Depending on the type of trust, there may also be tax benefits that can help maximize the value of the assets held in the trust and minimize the tax burden on the child.
Asset protection A
A trust can provide protection for the assets held in the trust, shielding them from creditors, lawsuits, and other potential threats. This can help ensure that the child’s assets are not at risk of being seized or depleted in the event of a legal judgment or other financial hardship.
A trust also ensures that funds are available in the long-term, allowing grantors to disperse the assets as provided by the trust. A trust can be set up to distribute assets to the child gradually, over a period of years or in specific stages, rather than all at once. This can help ensure that the child is not overwhelmed by a sudden windfall and that the assets are used responsibly over time. Young children and adults may not have a full understanding of how to manage money responsibly and in their best interest, so many trusts include a “spendthrift provision.” These provisions help protect your children from making premature decisions with their money by either only allowing the money at a certain age or having the money dispensed in set increments as provided by the trust.
Special needs planning
If a child has special needs or disabilities, a trust can be used to provide ongoing financial support and ensure that the child’s needs are met over the long term. These trusts can help meet the needs of the disabled person without risk their eligibility for government assistance programs such as Medicaid or Nutritional Assistance.
There are three types of special-needs trusts
- Third-party special needs trusts – parents or loved ones usually establish these trusts for the disabled person for funds to be placed into a Third-Party Trust
- First party special needs trusts – These trusts allow the disabled trustee to create their own special needs trusts
- Pooled special needs trusts – Assets are pooled into one trust for use by multiple beneficiaries
How to Get Started
When setting up a trust, it is important to work with an experienced estate planning attorney to ensure that the trust is tailored to meet your children’s specific needs and your family. Contact Windrose Law Center today at 602-857-9386 to speak with one of our helpful and experienced attorneys about planning for your children’s financial futures.