In an ideal world, people could leave their estates to their children and that estate would serve to make life more comfortable for those children. But in the real world, there are plenty of parents who know that their financially irresponsible children would squander an entire estate in just a few years.

Parents always want to look out for their children's best interests, and that is also true when putting together an estate planning program. If you have little confidence in the financial judgement of your child when it comes to your estate, then there are steps you can take to protect your child from themselves and make sure that the money you leave behind does truly make your child's life better.

A Lifetime Trust

A lifetime trust is an estate planning vehicle that would provide an income to your child for their entire lifetime after you have passed away. There are several forms a lifetime trust can take and you can choose how often and how much your child is paid throughout their lifetime. A lifetime trust can also have provisions that provide for financial emergencies, should your child ever come across that sort of need.

The key to a lifetime trust being effective is making sure the trustee you name is a responsible person who will look out for the best interests of your child. Most people leave their family attorney or a family member as a trustee to look after the lifetime trust. Some people even leave a family friend as a trustee in the event that their child does not have a strong relationship with the rest of the family.

These traditional types of trustees are convenient, but they are not practical. More than likely, your child is going to live longer that a family friend, attorney, or family member. Instead of naming a person as the trustee, you can name a financial organization as the trustee and ensure that there will always be someone responsible in charge of the account.

An Annuity

Your other option for leaving money to a financially irresponsible child is to instruct a trustee to purchase an annuity that pays a monthly income in the name of your child after you pass away. This is a very reliable way of distributing funds that offers plenty of security for your money and your child.

The issue with an annuity is that it can often be difficult for your child to get at the money during a financial emergency. There may be a legitimate medical emergency or some other type of situation where your child would benefit significantly if they could access the money, but it is extremely difficult to get a large lump sum from an annuity.

Parents work hard to raise the best possible children, but there can be personality traits in people that make them very irresponsible with money. A parent knows their child better than anyone else, and that is why it is practical for a parent to arrange in their estate planning process to protect their financially irresponsible child from themselves and set up ways for an inheritance to be distributed gradually instead of all at once.

When parents look at setting up their estate plans, they should ask their attorney about creating a trust that will make sure that their children have money for many years to come. Even after they have passed away, parents can still bestow important lessons on their children about money and life thanks to trusts.

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