Question for parents: “Should you ‘trust’ your children?”

“The first step to getting the things you want out of life is this: Decide what you want.”

- Ben Stein

Well, right away you’ll have to forgive my pun in the subject line. This note isn’t about issues of whether or not your children have integrity, of course.

No, I’m delving into my primary area of expertise here, and laying out a simple template for parents to use as they consider how they would like their children to handle the gift of inherited wealth.

After all–I’ve seen families *thrive* in this process … and I’ve seen families fall apart.

So I’ve put together a primer on these issues, which you can use to determine how to make this decision.

We really do love to help you! Don’t let our relationship go to waste .

A Will or a Trust?

Quite obviously, parenting is more than reading to your children or getting them to eat their vegetables. It’s also about securing their financial future.

But, many parents are confused about exactly how to decide whether they should do this. They hear the “trust fund baby” conversation, and they assume it’s only for the uber-wealthy.

Not true. In fact, for some “uber-wealthy” it may be the WRONG tool! And, alternatively, for some in the “middle class”, it’s still quite a useful legal instrument.

So, I’m going to put the kibosh on all of the confusion out there, and lay this out, real simple-like. Here are the questions to consider:

Do you foresee leaving your children more than just a modest amount of money?

A trust may not be worth the effort if you think you’ll only be leaving a child (or children) $100,000 or less. But don’t write yourself off too fast! Because if you’re leaving life insurance money to cover four years of school and you own a home, there’s a good chance a trust would make sense for you.

Do you want to have control over *exactly* how the money is spent?

A trust allows you to restrict spending to basic support, including food, clothing, education and health care. This is something that can’t be done with a custodial account. If the custodian has a soft touch, he could end up lavishing your child with designer jeans and a fancy car, leaving very little for the college years. Even worse, if the custodian is also the guardian, he could start writing himself large “support” checks to help cover his other expenses.

Would you prefer that your children not inherit the money when they turn 18 or 21?

If you think giving a high-school senior a large sum of cash is a recipe for disaster, then you should consider a trust. The ability to delay inheritance is the main draw for couples who decide that their children should be eased into significant financial decisions.

Do you want the money to be only used for a certain purpose?

Like many parents, if you specifically bought life insurance so that there would be enough money to help fund college in the event of your death, then you’ll definitely want to delay the age at which your kids inherit your money. Otherwise, your child could think a red Ferrari is a better investment than a crimson Harvard diploma, or some such.

Would you like your children to have recourse if their money is mismanaged?

One more benefit of a trust that you don’t get with a custodial account is that a trust is a legal contract; the trustee has an obligation to follow your directions and act in a reasonable and prudent manner. If the beneficiary feels the trustee spent the money frivolously, he can demand an accounting, and can sue for reimbursement if the trustee acted improperly with the funds. It may be pretty tough to prove illegal or improper actions with a trust, but just the threat of a possible lawsuit can keep someone in line.

So, start thinking about your answers…and make them happen.