4 Factors to Consider When Passing Trust Assets to Your Children

Passing trust assets to your kids is the best way to ensure they’re financially secure after you’re gone. They’re a common estate planning tool that helps you pass an inheritance to your children. Trust assets provide kids with creditor protection, divorce protection, predator protection, estate tax protection, and self-protection

They also reduce the tax burden allocated to distributions from your estate, bypass the probate court so your beneficiaries can get the assets faster, and safeguard assets from children until they reach a specific age. This article outlines four factors to consider when passing trust assets to your children.

4 Factors to Consider When Passing Trust Assets to Your Children

The trustee you choose

A trust instrument dictates how the distribution of trust assets to beneficiaries in California and other states should be done. Trustees are mandated to distribute the trust assets according to the trust document. Picking the wrong trustee means compromising your children’s future, so make sure you put some thought into choosing a trustee.

The right trustee must have the experience and knowledge to manage trust assets. They should also have sufficient resources and time to handle this role. A good trustee must be responsible, honest, reliable, and trustworthy. They should be ethical to ensure they make decisions based on your children’s best interests.

Consider whether to choose a revocable or irrevocable trust

In a revocable or living trust, you, the owner, can alter its terms at any time, including removing beneficiaries, designating new ones, and modifying provisions on how the trust assets are managed. This level of control means the assets added into a revocable trust aren’t protected from creditors. If you’re sued, the assets may be liquidated to meet any judgment passed. Should you die, the assets in a revocable trust are subject to federal and state estate laws.

In an irrevocable trust, no changes can be made. If any changes are needed, they should be done with the beneficiaries’ full consent or by a court order. Irrevocable trusts aren’t subjected to estate tax once you die. They relieve the benefactors of tax responsibilities for the income the assets generate.

Your goals for the trust assets

When passing on the trust assets to your children, you must decide what the assets may be used for before maturity. Since most young adults aren’t responsible with finances, it may not be in their best interest to have complete control over their assets even after turning 18. You can add terminating distributions if you aim to safeguard the trust assets.

The provisions may entitle beneficiaries to access trust assets in phases. While these trusts protect trust assets for your children, the asset protection they offer isn’t long-term. If long-term asset protection is your objective, create a discretionary trust that lasts your beneficiaries’ lifetime for maximum protection.

Trust annual review

Just as life constantly changes, laws change too. A trust you created several years ago may no longer suit your beneficiaries today. Once you pass trust assets to your children, ensure its provisions are reviewed annually. If one of your children dies, revise the trust immediately to ensure it’s up-to-date and accurate to avoid issues down the line.

Endnote

Trust assets are an excellent way to secure your kids’ future while ensuring your peace of mind. Consider these factors when passing trust assets to your children.