The precocious and pint-sized Alana "Honey Boo Boo" Thompson, 7-year-old beauty pageant pro and popular reality TV star of TLC's "Here Comes Honey Boo Boo," may understand the art of attracting national attention, but it's doubtful she knows the ins and outs of high finance.
Not to worry: Honey Boo Boo can continue to focus on smiling for the judges and the cameras without having to learn about yield curves and capital gains taxes just yet. In a move that made headlines, her mother, June "Mama Bear" Shannon, announced she is placing most of the family's earnings in a trust that Honey Boo Boo and her four sisters won't be able to access until they reach the age of 21 -- except for medical emergencies or schooling.
Cautionary tales of young stars with profligate spending habits that landed them in the red are common enough. TV actress Tori Spelling, from the series "Beverly Hills, 90210" and recently her own reality show "Tori & Dean," reportedly inherited a mere $800,000 from her producer father's vast fortune. However, she still managed to rack up credit card debt to the extent that she said she considered bankruptcy in 2008.
Though Spelling eventually gained control over her fiscal life, there are sadder accounts of those who never recovered from financial ruin. Eighties heartthrob Corey Haim ended up losing his fortune to drug addiction. He died destitute. The late Gary Coleman from "Diff'rent Strokes" sued his adoptive parents in 1989 for mismanaging his $18 million fortune and declared bankruptcy a decade later.
By setting up a trust, parents can protect children from the overwhelming impact of too much money at an age when they are ill-prepared to handle it, according to Rosanne Duane, a Jupiter, Fla., estate planning attorney.
A minor child cannot legally inherit, nor can a minor create a trust. Technically, the money Honey Boo Boo earns on "Here Comes Honey Boo Boo" belongs to her, not her parents. Since she can't set up the trust, the money would probably go into a court-supervised guardianship or conservatorship until she is 18 or 21, depending on the state, Duane says.
But parents can use their own money to create a trust for a child that provides support, such as education and medical care, until the child is legally able to receive the money. That's a wise move if parents plan to leave their children a significant amount of money, Duane says, because it circumvents the courts and puts control in the hands of the parents.
Aside from shielding a child from potentially disastrous financial mistakes at a young age, trusts for minors have several benefits that Honey Boo Boo and her family can benefit from.
Protection from liability
The trustee and money manager of a trust are held to a fiduciary obligation, Duane says, so relying on third parties removes parents from liability. No one wants to end up in court being sued for mismanagement, as in the extreme case of Gary Coleman.
Although a parent can be a trustee, and that arrangement often works out well with a professional money manager, Duane says, it pays to consider family harmony by appointing a trusted person to act as trustee. "It removes all the emotional issues. No matter what people say, they are always emotional about money."
One of the biggest benefits for parents is the ability to control when a child will gain access to the money. Honey Boo Boo can tap into her trust at 21, but Duane cautions that it might be too early. "Everyone at age 21 thinks they're capable of handling money," Duane says, "but unless the child is Alex P. Keaton (the preternaturally money-savvy teen from the TV series "Family Ties"), I don't know many 21-year-olds who can manage significant amounts of money."
Most kids just entering adulthood don't have a good grasp of investments, taxes or even income, she says.
She says parents who are setting up a trust for their children usually have in mind an age when they feel the children can handle fiscal responsibility. "For most people that's somewhere between 30 and 40."
Often, parents will request that payments from a trust be staggered so it's not all distributed at once. In those situations, Duane says, parents most typically choose to stagger two payments at age 35 and 40, or three payments at ages 25, 30 and 35.
Duane recommends to clients that they allow trustees the ability to withhold distributions as an additional safeguard against irresponsible or ill-prepared beneficiaries. "In this way, the trustee can act as a protector, but it should be an independent trustee to avoid family conflict," she says.
Setting aside money in a trust that will pay out later -- sometimes many years later -- provides a great opportunity for parents to ensure a child is ready to handle the money. An older child can be named co-trustee to gain more experience with the money while there are still controls in place, Duane says. Another way to instill responsibility is to teach the child how to make a budget with the income from the trust.
"Mama Bear" knows the reality TV fame won't last forever, and Honey Boo Boo will eventually retire her beauty-pageant crown. She's made a smart move teaching the clan how to manage the money now and to not live above their means.
Travers Korch contributed to this article.