5 Common Mistakes When Creating a Trust Fund for Your Child
By SEAN BRYANT Updated June 29, 2021
Reviewed by ANTHONY BATTLE
Fact checked by TIMOTHY LI
The term “trust fund baby” is associated with a negative stigma. It brings up images of privileged children who grew up having every material possession that money could buy. While that may be true in some instances, it is far from the norm when talking about trust funds.
Most people would be surprised at how many trust funds have been established for children. It has nothing to do with providing an excessive amount of cash so that the young person can buy whatever they want. Instead, a trust fund is established so that if the parents are not around to provide for the child, the child has a source of income and assets necessary to survive.
If you have life insurance, this probably sounds familiar. In fact, if you have life insurance, and your underage children are beneficiaries, they will have a trust fund established for them if you happen to pass away.
Unfortunately, there are a number of mistakes that parents make when creating trust funds for their children. Many are the result of not knowing how these funds are supposed to work.
If you have a great attorney working for you, many of these problems never arise. However, there are many times when things slip through the cracks, or the individual setting up the trust simply doesn’t have the necessary experience. Here are some of the most common mistakes that parents make when they set up a trust for their children.
KEY TAKEAWAYS
When establishing a trust fund for your children, be sure to pick the right trustee, keeping in mind that a family member may not always be the right person.
Be aware that young adults aren't great at managing money, and put in place limits to what they can withdraw the money for, particularly when they are under the age of 25.
Make sure you have your paperwork in order and that the correct beneficiaries are named, including the name of the trust when appropriate.
Be sure to review the trust each year to make sure you still feel comfortable with the trustee and with other aspects of the plan.
Don't forget about college planning and how the money in the trust might impact any request your children make for student loans or scholarships.
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5 Common Mistakes When Creating a Trust Fund for Your Child
By SEAN BRYANT Updated June 29, 2021
Reviewed by ANTHONY BATTLE
Fact checked by TIMOTHY LI
The term “trust fund baby” is associated with a negative stigma. It brings up images of privileged children who grew up having every material possession that money could buy. While that may be true in some instances, it is far from the norm when talking about trust funds.
Most people would be surprised at how many trust funds have been established for children. It has nothing to do with providing an excessive amount of cash so that the young person can buy whatever they want. Instead, a trust fund is established so that if the parents are not around to provide for the child, the child has a source of income and assets necessary to survive.
If you have life insurance, this probably sounds familiar. In fact, if you have life insurance, and your underage children are beneficiaries, they will have a trust fund established for them if you happen to pass away.
Unfortunately, there are a number of mistakes that parents make when creating trust funds for their children. Many are the result of not knowing how these funds are supposed to work.
If you have a great attorney working for you, many of these problems never arise. However, there are many times when things slip through the cracks, or the individual setting up the trust simply doesn’t have the necessary experience. Here are some of the most common mistakes that parents make when they set up a trust for their children.
KEY TAKEAWAYS
When establishing a trust fund for your children, be sure to pick the right trustee, keeping in mind that a family member may not always be the right person.
Be aware that young adults aren't great at managing money, and put in place limits to what they can withdraw the money for, particularly when they are under the age of 25.
Make sure you have your paperwork in order and that the correct beneficiaries are named, including the name of the trust when appropriate.
Be sure to review the trust each year to make sure you still feel comfortable with the trustee and with other aspects of the plan.
Don't forget about college planning and how the money in the trust might impact any request your children make for student loans or scholarships.