How to Use Age Restrictions to Protect You Children in Your Estate Plan

For parents of minor children, there is nothing you can do in your estate plan that even comes close to matching the importance of nominating responsible guardians for your children. That said, the second most important thing to do would be to ensure that your children do not gain control of a large inheritance at an immature age. Here’s why: 

Think back to when you graduated high school. How much money did you have? Probably not much. What kind of car did you drive? Probably nothing flashy. What kind of clothes did you wear? Probably nothing too high-end. You were at an age when you had to learn about saving and getting the most out of your dollar, skills that would help you develop into the responsible adult you are today.

Now imagine if at 18 somebody dropped $100,000 in your lap, no strings attached. What are you going do to?

Seriously, what are you going to do? Are you going to be focused on saving and stretching your dollar now? Doubtful! You’ve just been given all the money in the world (so it would seem). You’re going to be buying better clothes and a better car. You’re going to be taking your friends to sporting events, concerts, and on trips.

And what about your responsibilities? Are you going to be focused on your studies, or are you going be too distracted by all the perks of your new-found financial freedom?

Need I say more? Money added to youth will stagnate character development and distract from current responsibilities. So, make sure you don’t wind up giving a boatload of cash to your children in your estate plan if they’re too young!

Here are two common ways to make sure you kids don’t mess up their lives with money:

Distributions at stated ages. In your estate plan, you leave your child’s inheritance in a trust. You also name a mature and responsible trustee the control the trust’s assets. Usually this would be an older relative or a professional trustee, like a bank. You state ages at which the trustee must distribute a portion of the trust assets to your child. Your child is given no right to demand any more than what they receive at those ages. This may look like this: “one-third of the trust principal distributed at 25, one-half of the remaining trust principal distributed at 30, and all of the remaining trust principal distributed at 35.” This will ensure that your children won’t have the ability to blow it all at once, and will hopefully inspire them to save their distributions.

Ease into control. Instead of having the trust assets distributed to your child at certain ages, you could state ages at which your child gains a level of control over the trust. This may look like “my child may appoint him/herself as co-trustee of the trust at 25, and may appoint him/herself as sole trustee at 30.” So, the child will be able pull up a seat at the table at 25 and can help make spending/investing decisions, and can choose to fly solo at 30. The advantage of this plan is the inheritance remains in trust, which means it will have spendthrift protections, which will prevent forced distributions in the event of divorce, lawsuits, or bankruptcy (click HERE for more details on that point).

For more information on estate planning or to schedule your free initial appointment, contact me at (920) 221-0320 or By Email.