Tips for Managing a Child’s Inheritance
From the moment parenthood became a reality, your focus likely shifted towards safeguarding and providing for your child. This protective instinct extends to your estate plan, ensuring financial security for your child in the event of your incapacity or untimely death. Merely bequeathing an inheritance is insufficient. As emphasized by the Indianapolis attorneys at Frank & Kraft, it is crucial to give considerable thought to managing your child’s inheritance within your estate plan.
Opting for a Trust to Guard an Inheritance Intended for Your Child
Traditionally, individuals rely on a Last Will and Testament for estate asset distribution. While a Will can legally distribute your entire estate, there are compelling reasons to supplement it when all or part of an estate is meant to be used to support a minor child. All other reasons aside, a minor cannot legally inherit directly from a parent’s estate. Consequently, if assets are bequeathed in a Will, an adult must oversee them until the child attains adulthood. When there is no plan for the management of a minor’s inheritance, a court must appoint the guardian. That, however, deprives you of the opportunity to provide specific instructions on asset management and eventual distribution. Utilizing a trust to safeguard your child’s inheritance is often a more prudent and effective choice for parents of minors when the goal is to protect an inheritance meant for the child.
The Key to Managing a Child’s Inheritance: Choosing the Right Trustee
The number one tip for managing an inheritance meant for a minor child is to choose the right person(s) to be the Trustee of the trust you create. As the Settlor (creator) of the trust, you can appoint anyone to be the Trustee. While you may be tempted to name someone close to you (a family member or close friend) based solely on the fact that you trust that individual, take some time to really contemplate your choice first. The primary responsibility of a Trustee is to manage trust assets and execute distributions according to the Settlor’s terms. The day-to-day work of a Trustee, however, requires a Trustee to have sufficient financial and legal acumen to successfully administer the trust and protect the trust assets. For parents intending to use a trust to protect their child’s inheritance, vital considerations in selecting a Trustee include:
- Willingness to serve: Before assessing other qualities, it is crucial to determine if a prospective Trustee is willing to assume the role. Failure to confirm willingness may lead to complications, especially if the individual is emotionally unprepared due to grief.
- Experience/skills: While appointing a spouse or family member may seem natural, understanding relevant laws and financial concepts is imperative for effective trust administration. If lacking these skills, considering a professional Trustee becomes prudent.
- Commitment to honoring wishes: Legally bound by trust terms, a Trustee should also possess discretion. Choosing someone who aligns with your wishes and the trust’s purpose, even if opinions differ, is vital.
- Absence of conflicts: To prevent conflicts of interest with beneficiaries, selecting a Trustee without personal ties is advisable. This rationale often favors the appointment of a professional Trustee.
By addressing these considerations, parents can fortify their child’s financial future and ensure that their wishes for asset management are conscientiously upheld.
Are You a Parent Who Is Ready to Discuss Managing a Child’s Inheritance?
For more information, please join us for an upcoming FREE seminar. If you have additions questions about how to ensure that your child’s inheritance is properly managed after you pass away, contact an experienced Indianapolis estate planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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