14 Jun Do I need a trust in case something happens to me?
Q. I currently live in New Jersey and I have a wife and a son who is 6 years of age. I own a home and I have a Roth IRA account, as well as some stock investments. On my stock investments, I filled out my beneficiary forms passing all my assets to my wife and son should anything happen to me. The home I own is in my wife and my name. Do I need to set up a separate trust if most of my assets pass through beneficiary designations?
— Planning ahead
A. Leaving assets outright to minors is usually not a good idea.
First, the minor’s guardian and/or the surrogate’s court would take custody of the assets, both of which require significant court oversight and involvement, said Adam L. Sandler, an attorney with Einhorn. Barbarito, Frost & Botwinick in Denville.
Next, he said, the minor would receive the assets upon attaining the age of majority, which is typically age 18.
“When children are very young, it is impossible to tell what they will be like at the age of 18, especially after suffering the loss of their parents,” Sandler said. “Even if there are no significant issues — like drug addiction or special needs — I always ask the client, ‘What would you have done with that much money at that age?’”
Sandler said the better option is to leave assets in trust for the benefit of the minor.
The trustee can manage and use the assets for the benefit of the minor with limited court involvement, he said. Moreover, the terms of the trust can delay when the assets come out of trust and are ultimately paid over to the beneficiary, if at all.
For example, Sandler said, it is very common for a trust to say that the beneficiary receives one-third of the assets at 25, half of the remaining assets at 30 and the rest at 35,” Sandler said. “Other trusts do not provide for such mandatory distributions and can hold the assets for the beneficiary’s lifetime, which has its advantages.”
Often, the terms of the trust are included in a last will and testament and the “trust account” will be established after death, Sandler said.
“An experienced estate planning attorney will be able to assess the situation and provide guidance in creating an estate plan, which necessarily includes the way in which the intended beneficiaries inherit assets,” he said. “Moreover, the attorney can assist to ensure that assets are correctly titled and that beneficiary designations of retirement accounts and life insurance are correctly prepared so that the trust under the will receives those assets and not the minor individually.”
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This story was originally published on June 14, 2021.
NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.