What is a living trust?
A living trust is a legal way of holding, managing, and distributing property. That’s a lot of fancy legal jargon for saying it’s a way of owning things. You can hold anything in a trust – bank account, your house, your car, your coin collection. The list is endless. The cool thing about a trust is that you can then decide how to give away everything that you own. Maybe that doesn’t sound so cool, but it’s a pretty neat trick, and it makes life much more comfortable for your loved ones after you die. (Check out this article to learn more about living trusts.)
What are the Top 5 Things Your Kids Don’t Want You to Know About Trusts?
Aside from the different tax treatment that trusts give you, the ease in transferring assets after death, and being able to provide for a spouse, a special-needs child, or young children, there are some other things a living trust lets you do that your kids don’t want you to know about.
#1. You can control how your kids inherit and use money and property that you leave to them.
A trust lets you define how money is used. It’s your money. You worked hard for it! You have the right to decide how that money gets used. This sometimes means specifying that the money is used for education, buying a house, or starting a business, but it can also mean setting it aside for yearly vacations for your grandkids, paying off debt (ahem, student loans anyone?).
#2. You can make sure that your new spouse is cared for before your kids inherit anything from you.
Blended families create unique planning challenges that cannot always be addressed through a Will. If you to protect your assets for your children, but also make sure that your new spouse (your kids’ step-parent) is provided for if you were to die first, a Will wouldn’t get you there. A lot of simple “I love you” Wills often name the spouse as the executor, leaving everything first to the spouse and then to the kids. However, this will cut out your kids because your new spouse’s Will then controls how all of your stuff gets divided. And yes, we’ve seen spouses change Wills after losing their spouse and completely cutting out their step-kids. You can prevent this through a carefully constructed revocable living trust and make sure that your kids will always receive an inheritance from your life’s work.
#3. You can require your kids to get along or risk losing everything.
This one is more controversial, but if you have kids that are always fighting, you can require that they continue to get along or risk being cut out of their inheritance.
#4. You can entirely skip your kids and leave everything to your grandkids.
If you don’t especially like your kids, but your grandkids are just the apple of your eye, you can entirely skip your children and make sure that your grandchildren will have a soft place to land. This is more often done when your kids are successful in their own right, and you want to make sure that your grandkids will have a top-notch education, or will be able to pursue their interests separate from their parents.
#5. You can require your kids to do certain things before they can receive any inheritance.
Suppose you don’t want to release any of your money to your kids until they complete some tertiary education? Whether that’s a trade school, college, some grad school, or perhaps finally mastering underwater basket weaving (hey, college credits are expensive!). You can make your kid’s inheritance contingent on that education.
The sky is almost the limit on the restrictions and conditions you can place within your trust. Your trust acts as the guidance documents for how your money is used, spent, and distributed after you’ve died. A trust also controls how it makes, earns, and assigns money that comes into it. Yes, your trust can continue to receive money after you’ve died if you’ve included certain kinds of assets like properties, investments, and annuities.
If you want to talk about how you and make sure that you’re able to control how your hard-earned money is used when you’re no longer around to guard the purse-strings, you might be a good candidate for a trust.
Ready to talk about your plan?
Let’s talk about how you can make sure your kids make awesome decisions with your hard earned money.