Leaving money to your kids? A trust can help protect them

If your child isn’t ready to handle money or is facing outside pressures, your estate plan can help.

03 Oct 2016

One of the last acts of love a parent performs is to make sure that the gift of wealth to his or her children is in the best interest of those children. Depending on the child, an outright inheritance might not be the best option. That’s where trusts come into the picture. “Trusts can help protect assets for your children, whether you’re worried about an adult child’s financial acumen or you want to shield your son’s or daughter’s inheritance from an ex-daughter-in-law or ex-son-in-law,” says Erin Wilms, Head of Advanced Planning for UBS Financial Services Inc.

Key takeaways

  • While you want to provide for your children after your death, a will may not be the best option.
  • Children who aren’t ready to handle money can benefit from a trustee’s guidance.
  • If your child is at risk for lawsuits due to previous marriages or legal troubles, a trust can help protect assets from certain types of creditors.
  • Trusts can be used to protect children from a previous marriage.
  • Talk to your Financial Advisor to see whether trusts might be useful in your estate planning, and of course, discuss these matters with your independent legal or tax adviser.

Children not ready to handle the money

Trusts can also ensure that you have a say in how assets you leave your children will be distributed, which can be helpful if they’re very young or, in your view, not ready to handle a large inheritance. According to David English, professor of law at the University of Missouri School of Law and author of numerous books on estate and financial planning, parents often give trustees discretion over how much money adult children should get, and when, or even how, the assets will be used.

You may also want to put a vacation home in trust for the kids—along with enough money to maintain it—to prevent squabbles among siblings, adds English. “Sometimes the worst way to gift property is to divide it equally among the children in your will,” he says.

Many parents with young children create a trust in their will that specifies when their children should receive assets if both parents die when the children are minors. “In the absence of a trust, the money will go to a child at age 18, and most parents think that any child under the age of 25 is too young to manage money,” says English.

Making the trust decision

Complex and often emotionally charged topics like this benefit from the help of an outside expert who has experience and perspective. Your UBS Financial Advisor is familiar with the nuances of inheritance and can provide a roadmap for setting up a trust now.

Blended families frequently use trusts to protect children from a previous marriage.

Children in extended and blended families

Maybe you’re confident that your adult child can handle an inheritance—but it’s his or her spouse you have doubts about. You might create a trust for your son or daughter so that only your child will receive the assets. And should there be a divorce, the ex-spouse, in many states, won’t have access to those assets. If your children happen to be in professions that are at high risk for lawsuits, such as medicine or architecture, an inheritance in trust is also protected from certain types of creditors.

Blended families frequently use trusts to protect children from a previous marriage. If you die first, there is nothing stopping your spouse from giving your assets to his or her own children from a previous marriage, leaving nothing to your own children. Instead, you can create a marital trust that is funded when you die. The trust provides for your spouse’s needs during his or her lifetime, and upon his or her death, the remaining assets go to your children.

“Trusts are the most flexible legal tool available to provide for your family in ways that you see fit,” says Wilms. “Good inheritance planning is much more than having a static will, and trusts can creatively address many of the complexities of family life.”