When parents of young children begin to think about estate planning, their primary goal is often ensuring the future of their minor children should something happen to them. There are a few ways to approach planning with this priority in mind. The most common is establishing a trust to hold the assets for minor children until a they are capable of managing the assets themselves.

Trusts are a lot more common than people think. We have this notion of “trust fund babies” who are the children of ultra-wealthy parents that live lives free of responsibilities because their families set up trusts for them. But if you are creating a plan to pass any assets, including the value of your home, on to your minor children, they have to be held in trust until the children are at least 18 because Texas does not allow minors to own and manage assets. If part of your planning is to ensure that your children will have sufficient resources should something unexpected happen to you, setting up a trust on your own terms allows you to control how you pass those assets. If you don’t set up the rules of the trust, the State of Texas will require your assets to pass under the Texas Uniform Transfer to Minors Act (UTMA).

Allowing your assets to pass to your children under the UTMA comes with specific rules. First, a “custodian” must be named to manage the assets. This is similar to a trustee in a traditional trust, except the court will name the custodian if you have not. The primary difference between a traditional trust and a trust created under the UTMA is that the trust under the UTMA must pay all assets to the child at the age of 21. If the assets have been managed well and have had substantial growth, this could be a significant windfall for a very young person. Most of my clients would rather give guidance to their children instead of having them receive one large lump sum at 21.

To offer this guidance, my clients generally create a trust under their wills, called a testamentary trust. In it, my clients can set the rules for when and how their children receive assets. For example, a testamentary trust can hold provisions allowing the trust to pay for the child’s education and then slowly distribute the assets based on age or specific events. My clients control how their legacy will be used and, when, if at all, the beneficiary can have direct access. Setting up a trust for your minor children puts the control of your legacy in your hands and keeps a potential windfall out of your 21 year old’s.