Then importance of having life insurance in place when children are young can not be stressed enough. Life insurance is a tax-free, cash payout that unless someone is structured otherwise, is available to a beneficiary at age 18.

If one chose to leave a family member as a beneficiary of a life insurance policy to control the money, here are two concerns:

1. The family member can only give a certain amount per year to each beneficiary. Amounts over that limit (which is $13,000 in 2010) are subject to a gift tax.
2. The family member has no legal obligation to use the money on the beneficiaries. Everybody has heard stories about family members doing crazy when money becomes involved after someone passes. A trust forces the manager of the money to perform action only in the best interests of the intended beneficiary.

A living trust or testamentary trust is a simple way to hold distributions for young beneficiaries until they are financially mature.

What you would do at age eighteen or twenty-five if you were handed a hundred thousand dollars in cash?

How does a trust control assets for a beneficiary?

Here is a scenario:

1. Trust states a beneficiary must be age 30 before receiving1/2 of their inheritance without restrictions. At age 35, the beneficiary receives the remainder.
2. Life insurance payouts and proceeds from the sale of other assets of the grantor are placed in the trust’s bank account.
3. The beneficiary can make requests for early distributions, which can be approved by the successor trustee if it is a reasonable health, education, maintenance or support request. This language is intentionally vague to cover a variety of unforeseen events that might require money. It can cover a vacation or the down-payment on a home.

You may wish to include in your estate planning binder a list of examples of what you consider reasonable and unreasonable requests for early distributions by beneficiaries. An attorney can provide a variety of different ways to control distributions that other families employ with various estate planning documents.