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Why New Parents Need a Trust

Here’s something no new parent wants to think about: What would your kids do without you?

But when you have children, you’ve got to plan for the unexpected. Hopefully you have life insurance in place, and that’s a great start. If you die prematurely, the death benefit can help to ensure your children will have the resources they need to reach adulthood and set out on their own. But planning for the unexpected involves more than making sure money will be available. You may have very specific ideas about how you want your children raised, who would care for them and what schools they’d attend. You may also feel strongly about how you’d want the money handled—who will manage finances on behalf of the children and when (and under what circumstances) money would be released directly to the kids.

That’s why you need a will or trust. If those legal documents are not in place, a judge could be making important decisions on behalf of your children, and there’s no guarantee that he or she would be aware of (or honor) your wishes.

Caring for Your Children: Name a Guardian

Naming a guardian for your children is one of the most important decisions you can make as a parent. If something happens to you and you can no longer care for your kids, who would you trust to raise them? It’s a tough decision, which is why some parents avoid naming a guardian all together. Don’t put it off; name someone. You can always change your mind later. And it’s not enough to informally ask your sister if she’d be willing to assume the role. Those casual conversations are not binding—a judge may choose not to even consider them in rendering his or her decision. The naming of a guardian is a legal process and is typically part of a will or trust drawn up by an estate planning attorney.

Managing the Money: Name a Trustee

You’ll also need to name someone to manage the money on behalf of your kids after you’re gone. If you and your spouse die without a will or die with a will that names your minor children as beneficiaries, the money you leave behind won’t go directly to them. A court will name someone to manage money on their behalf—and determine how much money can be spent—until the children become legal adults. In most states, as each child turns 18, he or she will be given full control of the money. How many 18-year-olds do you know who could handle an inheritance responsibly? Would you want them to assume that responsibility when they’re already dealing with the emotional trauma of having lost you?

So, you’ll want to name someone to manage the money on behalf of your kids and according to your wishes. Your trustee doesn’t have to be the same person who cares for your children. In fact, choosing different people for the roles of guardian and trustee can be a smart move because you’ll be establishing a system of checks and balances. Some parents also bring professional money management into the mix by naming co-trustees—a corporate trustee along with a family member or trusted friend.

In addition to establishing a trustee or co-trustees, a trust also gives you an opportunity to be specific about when you want your adult children to receive their inheritance. It’s not uncommon for parents to specify that money be released only when the children reach a certain age: 21, 25 or even older. And beyond that, you can set whatever conditions you choose as long as they’re legally allowable. For example, you could specify that your children receive a portion of their inheritance if they maintain a certain GPA in college or only after they’ve been fully employed for a period of time.

You’ll want to work with an estate planning attorney to draw up a will and trust. But it’ll be worth the time, effort and expense to know that your wishes for your children will be known and honored.