When determining how to distribute your assets upon your passing, it’s important to determine whether your child is responsible enough to manage an inheritance. Managing money is tough, and if your child isn’t yet mature enough to responsibly handle money, you need to take this into account during the estate planning process. In this article, we review the ways in which you can leave money to a child who, for whatever reason, isn’t quite ready to responsibly handle it.
Establishing a Trust
A trust is an estate planning tool that provides you with control over how and when an inheritance is distributed to your child. In other words, rather than providing a child or young adult with a lump sum of money that he or she may not be mature enough to handle, a trust allows you to distribute payments in a controlled manner. When you establish a trust, a trustee manages the assets in the trust and makes sure they are properly distributed. There are several ways to structure a trust depending on your specific needs, including:
An annuity trust: With this type of trust, funds are distributed over time based on an established payment schedule. Usually, payments are made in equal amounts annually.
An incentive trust: An incentive trust imposes conditions on a child in order for him or her to earn distributions. Parents often tie distributions to things like educational goals, life goals, and even philanthropic service.
An income-matching trust: An income-matching trust makes annual distributions to a child that match his or her earned income (or a percentage of that income).
An age-based trust: An age-based trust makes distributions based on the age of a beneficiary. For example, with an age-based trust, you may direct that certain assets be distributed to your child when he or she turns 21.
Additional Options
In addition to providing your child with cash distributions, a trust allows you to pass along non-monetary assets. For example, you can leave a home in a trust. And to ensure your child can’t sell the house, you can place it in a trust that requires money from the sale of the home to be reinvested in another house.
The Bottom Line
When it comes to leaving money to your children, there is no one-size-fits-all solution. Ultimately, the estate planning strategy you implement should take your child’s needs, maturity level, and ability to handle money into consideration.
Contact a Michigan estate planning attorney
If you want to ensure that your child is responsible for his or her inherited assets after you’re gone, you need the help of an experienced Michigan estate planning attorney. At Keating Law, PLC, we will help you craft an estate plan that will ensure that your child is taken care of after you’re gone. If you are ready to begin the Michigan estate planning process, please contact us today for a free initial consultation.