When people think about trusts, they often picture wealthy families worried about reckless heirs. But for most parents, the concern isn’t that their child is irresponsible—it’s simply that they’re young. Even the most mature 18-year-old isn’t ready to manage a retirement account or an inheritance.
Here’s a common scenario: a married couple each names the other as the beneficiary of their IRAs. If one spouse passes away, the surviving spouse inherits—simple enough. But what if the worst happens, and both pass away together? The money flows to the contingent beneficiary, typically a child. If that child is a minor, a court-appointed guardian manages the money until they turn 18. At that point, everything is handed over in a lump sum.
That’s a lot to drop in a teenager’s lap.
This is where a trust can make a real difference. Instead of leaving assets directly to children, parents can name a trust as the backup beneficiary. The trust can hold and manage the money until the child reaches certain ages or milestones. For example:
- If the child is under 21, the trustee may use funds for health, education, or living expenses.
- At 21, the child receives a portion.
- At 25, another portion.
- At 30, the balance.
This structure doesn’t assume the worst about your kids. It simply acknowledges that managing money is a skill that comes with age and experience. By staggering distributions, parents can ensure support along the way without overwhelming their children at too young an age.
Setting up a trust like this is considered fairly straightforward, and it can be customized to fit your family’s needs. For some families, even a simple “not until age 25” provision offers peace of mind.