Your children are a huge part of your life, and you likely feel a deep sense of responsibility to them. You want to leave them as much as possible from your estate when you die. Still, that does not mean that leaving them a direct inheritance is the appropriate solution.
Leaving assets to your children directly in your estate plan can be a mistake. It puts your children at risk in two distinct ways.
They are at risk of caregiver misconduct
When your children receive an inheritance from you, they will likely also have to go live with a guardian or their other parents. Until they turn 18, they cannot live on their own. They also typically can’t own major assets.
The guardian or parent who assumes custody when one parent dies will usually have control over any inherited assets. If you leave your house to the children, their guardian could sell the house while they are still minors. If you leave them the proceeds from your life insurance policy, that money could all go toward their cost of living expenses, leaving nothing for them to receive when they become adults.
When a guardian or caregiver will have direct control over a child’s inheritance, short-term greed could affect what your children inherit and also how their caregiver treats them.
They could waste what they inherit
Even if the person caring for your children until they turn 18 is ethical and doesn’t touch their inheritance, someone barely old enough to be done with high school won’t have the maturity in most cases to make good decisions with significant financial resources. They might spend everything on a few vacations or use their inheritance to cover their cost of living expenses, enjoying a lifestyle that they can’t sustain and will never achieve again.
Structuring your child’s inheritance carefully with a trust helps avoid both of these risks. The caregiver won’t be able to access the funds except in limited circumstances as approved by the trustee that you named. More importantly, children will only be able to use their inheritance for specific purposes, like pursuing a college degree, starting a small business or buying their first home.
Carefully considering the benefits and risks of different estate solutions will lead to an estate plan that truly achieved your goals.