How Long Should I Keep My Children’s Inheritance in Trust?

An important decision for couples with young children is determining if both parents are gone how long their children’s inheritance will be maintained in trust.

Each child is different and parents – who presumably know their children better than anyone – usually come into the estate planning process with strong opinions concerning what age they believe their children will be mature and responsible enough to handle their inheritances.

Some parents are adamant children should receive an inheritance outright at age 18. For too many reasons to count most estate planning attorneys will advise parents against making outright distributions to children at such an early age.

Other parents may initially desire that their children never receive any form of control over an inheritance. While there many situations call for limiting a child’s control (e.g., children with special needs, drug or alcohol addiction, mental illness, spendthrift issues, etc.), most estate planning attorneys are hesitant to advise taking extreme measures unless a child has a problem or potential problem they are unlikely to overcome fully during their lifetime.

Determining what age a child will be capable of handling an inheritance is a guessing game. Most parents take into consideration their child’s previous patterns of behavior and their own life experiences. Because every situation is unique so there is no “perfect” age.

For many parents, however, age 30 tends to be a good starting point. It is widely perceived that individuals who will have a youthful indiscretion such as first divorce, bankruptcy or creditor/judgment lien (i.e., a lawsuit) are most likely to do so in their 20s than in any other decade of their lifetime.

People in later life decades can of course have problems that negatively affect an inheritance. However, because there is a perceived higher risk of having adverse issues in one’s 20s it is often prudent to consider age 30 as a starting point for giving a child control over an inheritance.

Another argument against giving children outright control of an inheritance at an early age is the potential to disincentive a child from working hard. For many people their 20s is when they develop strong working habits that will stay with them the rest of their lives.

Who knows, instead of being so anxious to graduate college and become gainfully employed, had I received an outright inheritance in my early 20s I may have been inclined to not “rush” things and hangout around campus for another college football season or two…?

Keeping a child’s inheritance in trust until age 30 does not mean the child will not have access to their inheritance until then, but rather a different individual (or trust company) you trust, called the trustee, will, in their reasonable discretion, manage your children’s assets and use/expend the trust assets for the benefit of your children.

Some parents decide to give their children an outright distribution of all trust assets upon attaining an appropriate age. More cautious parents may specify that distributions are to be made a different ages. For example, upon attaining age 30 a child gets half of the trust principal and at 40 the child gets the remaining trust assets.

Another alternative often preferred to outright distributions is leaving an inheritance in trust for a child’s lifetime, but permit the child to serve as co-trustee or sole trustee of such child’s trust upon attaining an appropriate age. This arrangement can, if structured properly, over time give a child sufficient control of their inheritance while at the same time providing continued creditor protection and protection from ex-spouses.

“Son, a little struggle is a good thing. It builds character.” My father would tell my two younger brothers and I this growing up when we whined about any number of things such as working a minimum-wage job or when stuck at home doing homework. At the time these words were uttered by my father they were not received by me with much consolation. Now that I am grown and have some more perspective I see where he was coming from.

When devising an estate plan and determining what age children are to receive control of an inheritance don’t forget that a little struggle is always a good thing.

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