How to Leave an Inheritance for Your Children

How to Leave an Inheritance for Your Children

If you pass away before your children reach adulthood, you must take special care with their inheritance. A minor child cannot receive an inheritance outright. They can, however, have a guardian or trustee ensure that inheritance funds are used for their benefit.

During Childhood

While your children are still young they will need funds for daily and medical care. You can provide this by leaving funds in a trust created in your Last Will and Testament. During minority the Trustee of the trust created in your Last Will manages the funds. The person you designated to be the guardian of your child will be responsible for using those funds for your child's care. Once your child reaches adulthood he or she will inherit what remains of those funds.

If you do not name a guardian for your child, any inheritance they receive will be monitored by a court appointed guardian. This court supervised guardianship could eat away at some of your child's inheritance funds.

If you have more than one child you can use either a Pot Trust or Individual Trusts to provide for your children during their childhood. A Pot Trust is used for several beneficiaries and is sometimes used when children are close in age. For example, a Pot Trust could provide for them from a single source until all have graduated from college or the youngest reaches 25 years of age. On the other hand, Individual Trusts, which cost more to maintain, divide funds into separate trust shares for each beneficiary immediately upon your death.

During Adulthood

When you leave funds via a Last Will and Testament or in a Pot Trust, your children will receive their inheritance when they reach adulthood. The one exception is with Pot Trusts. As mentioned before, older children will have to wait for the youngest to reach adulthood or reach a minimum age before receiving their separate share of the remaining balance.

If you worry that your child will not be able to properly manage an inheritance at the beginning of adulthood, you may want to consider other options. Irrevocable Trusts offer flexibility to fit your child's inheritance to his or her needs. You can have their trust provide regular payouts even into your child's adult years. You can also create a Lifetime Trust to provide your child with a steady income for life. As an added bonus, an Irrevocable Trust will protect your child's inheritance from creditors and lawsuits.

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