Why leave assets to your children in trust? Why not keep it simple and just leave assets to them directly?
You work hard while raising kids and you save for your future. Now your kids are grown, so why not just leave their inheritance to them individually? You see no need for trust planning for your children and believe your children and grandchildren will enjoy their inheritance for years to come.
But will they?
Let’s say you leave four adult children at your death: Abbie (35), Bob (30), Cathy (28) and Danny (19).
Abbie has been happily married for nine years but later gets a divorce, as about half of married couples do. It’s likely her inherited assets will be considered marital property for divorce purposes, such that she loses a significant part to her ex-husband. He remarries, and now this new couple enjoys assets intended for your daughter and her children.
But what about Bob? He just completed a rehab program for drug and alcohol addiction and was doing well. However, after your death he spirals down and spends his inheritance on his addiction.
Cathy unexpectedly passes away in a car accident leaving two young children and her husband behind. Her husband inherited all she owned (including her inheritance) and remarries a gold digger who spends all the money on herself instead of Cathy’s children.
And Danny? At 19, Danny thought his inheritance would last forever -- but it didn’t.
With proper planning, having your inheritance go in a trust for your children can increase the likelihood that the inheritance will actually be used for the benefit of your children and their children. While banks or trust companies are often named to serve as a trustee, you might name your child as his or her own trustee (or co-trustee).
When leaving assets to your children, consider protecting those assets so that the legacy you leave is long-lasting, not short-lived. Trust it, or they could lose it.
Kay Wilburn is a Shareholder at Dominick Feld Hyde and a member of the firm’s Corporate Practice and Estate Planning/Probate practice groups.