Virginia Beach, VA (Law Firm Newswire) January 19, 2016 – When creating a trust fund, parents can select a trustee to be in charge of the funds for as long as the parents wish.
One way of structuring inheritance is to have the trustee distribute the funds in three separate amounts. For example, the trustee could give the child one sum upon graduation from college, or at age 22, the second a few years later, and the last at around age 30.
The main reason cited by parents for releasing the funds in stages rather than all at once is to prevent their children from being wasteful with their money. The most significant factor to consider prior to establishing a trust fund is the size of the child’s inheritance. If the funds will be depleted by the time of graduation from college, then a long-term plan may be unnecessary.
“A well-crafted estate plan can incorporate the parents’ concerns about the child’s maturity and ability to handle large sums of money by including a trust that will be managed by a trustee,” said Andrew H. Hook, a Virginia estate planning attorney with Hook Law Center, with offices in Virginia Beach and northern Suffolk. “The child will then receive distributions for health, education, maintenance and support at various stages of the child’s life. This is known as a HEMS trust.”
Another important factor is the child’s maturity. While some children are sufficiently responsible to handle the receipt of a considerable sum of money, many are not. Many people who inherited money when they were teenagers, later lamented the ways in which they spent it. In addition, without proper guidance and direction, children who lack knowledge about investing may lose money. Furthermore, if a child habitually receives distribution checks without having to earn them, it can become difficult to learn how to prepare a budget and save.
While contemplating the creation of a trust fund, parents may wish to take into consideration their child’s choices after finishing high school. If the child plans to attend college, the parents may wish to set aside funds to be applied toward the child’s education through a trust, and to be made accessible to the child at age 18. But if the child plans to start a business, or a family, or purchase a house, funds could be transferred to a trust to be used for those purposes.
If the child intends to join the military, then the parent may wish to direct the trustee to invest the funds. There are also parents who retain control over the child’s inheritance long after the child reaches middle age out of fear that the child will squander the money. But such parental control can cause the child to become resentful toward the parent.
Some trust and estate attorneys advocate purposeful planning, which has a more profound meaning than the reduction of taxes. Such planning seeks to help beneficiaries feel gratitude, and to encourage clients to place fewer restrictions on trusts.
Hook Law Center
295 Bendix Road, Suite 170
Virginia Beach, Virginia 23452-1294
5806 Harbour View Blvd.
Suffolk VA 23435