If you have an heir who is still a minor, and you’re doing your estate planning, you may run into some complications. For instance, you may have substantial financial assets that you want to leave to this individual. But it is clear that they are not ready or able to receive them at their age; perhaps you fear that they will waste the money and make poor financial decisions. So how do you leave that money to them?
One option is to use a trust. You can set it up with age-based distributions. The full balance of the inheritance goes into the fund, and certain percentages are paid out at specific ages. For instance, your heir gets 25% of their inheritance when they become a legal adult at 18. They get another 25% when they turn 25, and they get the remaining balance at 30. You still leave them the money, but you just delay exactly when you do so.
Other types of trusts
It’s also important to remember that trusts can be used for many specific purposes. Education is a common one, with trusts paying for college tuition. If you set things up this way, you ensure that your heir has to make wise decisions with the money because they can’t use it for another purpose. You also automatically delay when they get the money, if they are still a minor, as most people don’t go to college until they are 18.
These are just a few ways to use trusts in your estate plan. Be sure you know what legal steps to take to set everything up.