It’s never fun to think about gloom and doom. However, if you have been successful in building up an asset base or you carry a lot of life insurance, you may be considering setting up a trust fund for your children if something happens to you. There are many potholes that a family can stumble into when establishing a trust, but here are three mistakes parents often make.
First, parents don’t often think through who they want as the trustee of trust for their kids. As complicated as it is to select a custodian, parents should consider whether they want a single trustee or a co-trustee to have some check and balance system for the trust. It is crucial to make sure you’ll have the right people in charge of the funds when you are no longer in the picture.
Second, parents need to be clear about the goals of the trust. Specifically, most parents don’t think through when and how money can be distributed to the children. Should it be every five years? Should it be upon attainment of a certain age? Could you perhaps tie trust income to future earnings? No matter what route you go, be thoughtful about how the trust will distribute money.
Last, it is important to circle back on all of your beneficiary designations once the trusts are established. Often, parents set up trusts and are hopeful that the proceeds of their insurance policies will go into the trust. However, without changing these beneficiaries you will not be able to accomplish your goals.
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Written by: Ted Jenkin
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