Most parents feel fortunate when they have considerable assets to pass on to their children, either while they’re still alive or after they’re gone. However, there are some situations where parents may not feel it’s wise to give an adult child sole control over a large amount of money.
Sons or daughters may have shown that they are not responsible with money. They may have grown up with considerable wealth and don’t appreciate how fast it can disappear. Just the same, when young people — who grew up in a family of fairly modest means — suddenly get a windfall, they may not be any more skilled at handling it.
If an adult child has a substance abuse issue or engages in other destructive behavior, giving him or her a large amount of money could also be a prescription for tragedy. A final reason why parents may hesitate to leave a significant amount of money to a child is because they don’t want it to end up being divided with a spouse they don’t like (or who doesn’t even exist yet) in a divorce.
Putting the money in a trust can be a solution for all of these issues. A trust can be set up so that a trustee is responsible for distributing the funds to your child under terms you designate as the grantor. You may want the money to be used only for higher education, for example, to buy a first home or in the case of an unexpected emergency. A trust can also prevent money and property from becoming marital assets that have to be divided if your child divorces.
One estate planning expert, however, notes that if the issue is your lack of confidence in your kids to properly manage money, it’s wise to focus on teaching them financial responsibility. They need to understand that no matter how much they have, it won’t last forever unless they plan wisely — and that a financial advisor can be a great help with this. If you’ve worked hard to accumulate your wealth, talk with your estate planning attorney to find out what your options are under Illinois law and what he or she advises given your particular circumstances.
Source: Morningstar, “Estate-Planning Tips for Parents of Spendthrift Children,” Christine Benz, accessed June 23, 2017