Choosing Between Direct Distribution and Trust Allocation for My Children’s Inheritance

adult holding a Childs hand

When planning for the distribution of assets to our children, one important decision we should make is whether to leave the assets outright or in trust. While leaving assets outright may seem like a simpler option, it may not always be the most beneficial choice for our children’s future. Let’s explore the advantages of distributing assets through a trust rather than outright.

Guardianship and Court Intervention

If we choose to leave assets to a minor child outright, the court will have to establish a guardianship to manage the assets on behalf of the child. This can be a costly and cumbersome process, involving legal fees and court interventions. By setting up a trust, we can avoid the need for guardianship, as the trustee of the trust will be responsible for managing the assets until the child reaches a designated age.

Delayed Distribution

Another disadvantage of outright distribution to a minor child can be that they will receive the assets as soon as they turn 18. At such a young age, this sudden influx of wealth may not be beneficial for their financial well-being. With the California Uniform Transfers to Minors Act (CUTMA), we can transfer assets to a custodian who will administer them until the child reaches the age of 21 or 25, depending on whether it is a lifetime gift or a gift at death. This delayed distribution allows the child to be more financially mature and responsible when they receive the assets.

Protection and Control

A trust provides several advantages in terms of asset protection and control. By setting up a trust for our minor children, we can protect the assets from their creditors and even their spouse or ex-spouse. The trustee will distribute the assets according to the instructions outlined in the trust document, ensuring that the child’s needs are met while also preserving the assets for their long-term benefit. We can have the flexibility to specify the age at which the trust ends and the assets are distributed to the child. This control may allow us to cater the distribution to the child’s individual circumstances and financial maturity.

Tax Efficiency

In addition to the above benefits, a trust can also provide tax savings. By utilizing appropriate estate planning strategies, we can minimize the tax consequences associated with the transfer of assets to our children. This can have a significant impact on preserving the value of the assets and maximizing our children’s inheritance.

When deciding whether to distribute assets outright or through a trust, it is important to consider the long-term implications for our children. While outright distribution may seem simpler, it can lead to unnecessary court intervention and potentially harm our children’s financial well-being. By utilizing a trust, we can provide protection, control, and delayed distribution, ensuring that our children receive their inheritance in a manner that sets them up for financial success and security in the future.

I Have an estate plan. What are my child’s rights? 

Congratulations if you already have an estate plan! Overseen by a probate court, your selected executor will be legally bound to distribute assets to your children according to the terms of the estate plan. In most cases, a child will be the beneficiary of any property left to them by their parent. In other cases, that parent may leave nothing behind for their children, and may even disown their children. Sometimes, the courts may conclude the children could have been left out of an estate plan by accident. Because of this, the exclusion of the children in a parent’s estate plan must be detailed extremely explicitly, or that child may – against your wishes – be able to have a right, under state law, to inherit your property.  

There may also be instances where parents leave their children with more assets than the state law permits. For example, marital property cannot be left to a child simply because the surviving spouse has rights to a segment of the marital estate. READ MORE HERE

At Cannon Legal Firm, we know the legal process can be overwhelming and exhausting. Experienced Attorney Dana Cannon is here to We are dedicated to helping you with your Estate and Trust Planning, Administration, and Litigation matters. She will guide you through the core process and take some of the burdens off your shoulders so you can focus on what matters to you. Get a free consultation right now by booking an appointment HERE or call 562-543-4529. Voted Best Probate Lawyers in Long Beach, 2023.