Which Distribution Method Is Best? Showing Your Children the Love
Every parent wishes they could love and protect their children forever. Leaving an inheritance through trust ensures you can still contribute to their well-being once you are gone. There are a variety of ways that you can leave money and property to your children. You should choose the best method to serve your estate planning goals, as well as the needs of your children!
Naming your child as trustee: You can name your child both a beneficiary of your trust and the trustee. This option allows you to draft trust terms that will specify the amount of discretion your child will have in making distributions to him or herself. This is not a good option for parents who fear sibling turmoil or future money issues for their children. However, those concerns can sometimes be addressed with a neutral co-trustee.
Distributing a percentage: A common distribution method is to provide that your child or children is to receive a certain percentage of their inheritance when they reach a specific age or ages. For example, you could specify that each child is to receive 1/4 at age 25, 1/4 at age 30 and the balance at age 35. This option is great for parents who are concerned about giving their children a large sum all at once. However, there is some vulnerability to creditor claims with this method.
Distributing for a specific purpose: Limiting distributions for the children’s health, maintenance, education, or support is very common. You can also give the trustee the discretion to make distributions to beneficiaries for other specific purposes. For example, starting a business or buying a house may warrant a distribution. You can ask the trustee to evaluate a number of factors before making a distribution. Like other types of discretionary trusts, the money and property held by the trust will be protected from claims by creditors, divorcing spouses, or lawsuits.
Let’s Talk about the Best Option for You and Your Family! Each type of trust has its pros and cons. The right strategy–or combination of strategies–for your family depends upon your unique circumstances and goals.
Call to schedule a consultation so we can help!