Some Newport Beach parents think that they should start giving money away to their children right now, as they're getting older, to avoid different estate planning and tax consequences when they die. If you're one of these parents, you're definitely on to something. If your children are as good as you are -- or better -- at handling their finances, this could be a good idea.
However, a lot of parents may be concerned about the financial management skills of their kids. If you're in this category, you may want to consider using a trust to pass money over to your children. A trust provides the assets you give your children enormous protection. Potentially a trust will provide:
- Protection from creditors
- Protection from probate proceedings
- Protection from taxes
- Confidentiality protections (or protection from prying and curious eyes)
- Protection from the bad financial decisions of the beneficiaries who will receive the money and more
Simply signing over assets to your children -- either while you're alive or through a will -- exposes the assets and the recipient to very real risks. However, a trust provides confidential protections from those risks.
Imagine your child has a disability and receives government benefits, or maybe your beneficiary is elderly and you want to protect him or her from losing the ability to collecting Medicaid benefits. A trust will allow your beneficiary to benefit from your assets while not legally owning them -- thus preventing the loss of vital government support.
Trusts are flexible and they can be tailored to your needs. You can also plan a trust to distribute assets to heirs in small payments over time rather than in one large lump-sum. When it comes to trusts, the choice is yours. Be sure that you consider this powerful estate planning tool which could benefit your family immeasurably.
Source: Forbes, "Don't Just Sign Over Your Assets to Your Kids," Mark Eghrari, Oct. 02, 2017