Assets of minor children should always be held in trust. You do not want children under 18 inheriting assets. While they are under 18, their guardian or conservator will control the money for them. If you’ve already decided that your sister Sally will be a wonderful guardian for your children because she has a great relationship with your kids and a cozy home, think carefully about if she will also be a strong guardian of their money. If her afternoons are spent shopping and her finances are in disarray, it is best to leave the kids’ inheritance in the hands of a more qualified trustee.

Being 18 is not easy. In most states, the guardian has to turn over control of the assets to the children once they turn 18. When you are 18, an inheritance of $3 million seems like it will last a lifetime. And it can, if you are prudent and live frugally. But most 18-year-olds will use up the trust money on a lifestyle that they cannot afford. Flash forward 20 years and the 18-year-old is now approaching 40, with little money left and no means to support himself.

Consider a lifetime trust. Another important issue is whether you should distribute the monies to the children outright when they reach a certain age. First, if you give your children the right to withdraw trust money, it becomes their own money and is subject to their creditors as well as their divorcing spouse. Keeping the monies in trust for the child’s lifetime will provide better liability protection. The trustee would have discretion to distribute money, but the child would never have a right to demand chunks of cash. This is the best approach if you are concerned that a child has creditors or may divorce in the future. For example, if your child receives a $5 million inheritance and has no prenuptial agreement, that money will be a marital asset subject to division.

Protect your “problem” child. Giving a large sum of money to a child with a substance abuse problem (drug addiction, gambling, etc.) could have fatal consequences. The only way to protect a child from himself is with a lifetime trust.

Giving your kids a longer leash. If you are confident your child could handle the money and want to turn it over to her at a certain age, the best practice is to distribute it in stages. A typically scenario is giving the child one quarter of the assets at age 25, one half of the remainder at age 30 and the rest at age 35. This distribution could comprise any ages or percentages you choose. Another suggestion is to bring the child on a as co-trustee at age 25 so he gets used to managing the trust money.

Planning for a child’s death. What happens to the trust money if the child dies and there are still monies held in trust? You can direct that the monies go to her children, if any, or to your remaining children. Some people will give their children special powers to direct where the money goes when the child dies. These are called “powers of appointment.” The thought is that after you are long gone, your child should have flexibility to alter the distribution of the trust money among the child’s own children. After all, your grandchildren may end up with some of the same issues you considered in planning for your children – creditors, divorcing spouses and addictive behavior. Your child should have the flexibility to change the trust distribution if needed. You can also give your child the ability to leave the trust money to his spouse. Some people feel strongly against this, but if your child has a loving spouse and they are living prudently, perhaps you would want her to be able to live in the same lifestyle she enjoyed when your child was alive.

There is a lot to consider when leaving assets in trust for children. Don’t let the considerations overwhelm you or keep you from planning. You can always defer to your attorney’s suggestion and then make adjustments to the trust over time as your decisions solidify.