If you’ve been weighing the pros and cons of setting up a trust for your young child, wondering if you really have enough assets to warrant such an expense, you must read Stacey L. Bradford’s recent article in the Wall Street Journal entitled “Deciding if Your Kid Is Trust-Worthy”. In her article Bradford explains why every parent should consider a trust for their minor child, even parents with small estates and few significant assets.
You see, legally, non-adult children cannot inherit large sums of money (and if you have a home or a life-insurance policy then you have “large sums of money” to pass on to your child); if a parent dies and leaves this money directly to a minor child the court will step in and appoint a guardian to manage your child’s money for him—and this guardian may not be the trusted friend or relative whom you might have preferred. A trust will prevent your child from having to grow up with the added level of bureaucracy required by such court-appointed guardianship, and allow you more control over how the money is managed and spent.
Bradford goes on to explain the other benefits of creating a trust for your minor child (paying for education, delaying the age at which your child has outright access to the money, reducing taxes, etc.), She also gives helpful tips about how to choose a trustee, “The trustee holds the purse strings, so don’t delegate this job lightly. You need someone who is trustworthy, is good with money and has great attention to detail.”
Bradford’s article is a great introduction to trusts for parents of young children. And if you find this article helpful, you may want to check out the book from whence it came, The Wall Street Journal’s Financial Guidebook for New Parents.