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Parents should strongly consider trusts

Wills can be effective estate planning tools for those who have few assets or don't have children. However, once a person becomes a parent, it can be a good idea to create a trust. The primary benefit is that it prevents a child from directly inheriting money when he or she turns 18. Instead, the assets inside of the trust will be managed by another person or entity.

While it is possible for a person in his or her 20s to manage money properly, this isn't always the case. There are plenty of stories of people who purchased houses, took vacations or spent lavishly on other items until the money was gone. A trustee can teach the child how to be fiscally literate and how to generate an income that lasts for many years or decades to come. At a minimum, a trust will provide boundaries that children and younger adults need.

Parents have the ability to allow their children to take an active role in managing their money. For instance, they may be allowed to become a second trustee so that they can have a say in how their money is used. It may also be possible to distribute the money in small chunks over time so that children get used to managing their own finances in a controlled manner.

Creating a trust is just one of many strategies that can help parents provide for their children after they become adults. In addition to helping them manage their money, trusts may protect assets from creditors or from being taken in a divorce. Those who are interested in creating such a document may want to consult with an estate planning attorney. An attorney may be able to explain the benefits and costs of doing so.

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