You don’t need to be a billionaire to provide for your children after your death. More and more people are accumulating enough assets to leave something for their loved ones. But leaving everything to your kids may not always be the smartest decision — think Paris Hilton.
However, there are ways for parents to provide for their loved ones without having to worry about their children blowing the money on cars and champagne. One common way is setting up a trust fund. The following are four tips from The Fiscal Times for setting up a trust fund to provide for your loved ones while also ensuring they do not waste their windfall:
- Make the gift before taxes go up. Currently, you can gift up to $5 million and still be exempt from federal estate taxes. This maximum amount will remain in effect through 2012, and the limit may be lowered back to $1 million (the amount prior to 2010) in the following year.
- Stagger the inheritance. With a trust fund, you do not have to give away all your wealth at once. Instead, you can leave instructions to give a certain amount on a recurring basis, such as once a year, to ensure that your children do not receive too much money at once.
- Give incentives to your children. Just as you can set up a trust fund to release a certain amount of funds on certain dates, you can also set up a trust to disburse funds on the occurrence of certain events such as marriage, getting a degree, or becoming a parent. This can encourage certain behaviors and discourage others.
- Give away assets that are depressed. Right now real estate and stocks are valued far below their values from a few years ago. Gifting these assets now can ensure a lower tax impact.
These four tips for setting up a trust fund can help you give away your assets while minimizing the tax impact and ensuring that your gift is not wasted in an orgy of spending.