Creating a children’s trust does not mean you are creating irresponsible teenagers, driving fancy cars, and vacationing in Caan for the weekend. You may be picturing the old school version of a “trust fund kid”. Don’t worry, I was too.
But children’s trusts are not just for the wealthy anymore, it’s a smart estate planning tool that may benefit your family for years to come.
Putting together a children’s trust may be easier than you think. All you need is a good estate planning attorney to create a trust deed that’s worded precisely how you want in order for your wishes to be executed.
Here are the 3 easy steps you need to follow:
1. Select a Trustee
First of all, quick terms to know:
Grantor / Settlor – Creator of the Trust
Trustee – Manager of the Trust
Technically, you, the grantor, can name yourself as the trustee, so that you can manage the trust while you’re still alive, but you must also name a successor trustee, to take over for you when needed.
When choosing a trustee for your children’s trust, you must consider someone you can rely on to manage the trust funds for years to come.
A common choice for a trustee is your children’s guardian, as someone who will have your kid’s best interest at heart. The guardian will be named in your Will, to care for your minor children in the event of your untimely passing.
If you prefer more of a checks and balances system, your children’s guardian and the trustee can be two different people.
2. Decide On The Terms of The Trust
Now that you’ve selected who will manage the trust, it’s time to decide on how your money will be distributed to or for your child or children.
If your kids are still minors at the time of your untimely death, a trust can protect their inheritance until they are responsible enough to manage the money themselves.
If your kids are older on the other hand, but will most likely not ever be able to manage the money, the trustee can hold the money in trust for the child’s lifetime and distribute it as needed.
There are many ways in which your kids can inherit their share. Here are a few ideas:
- Lump-sum – if you know your kid is extremely responsible and will use the money for good instead of for evil.
- Staggered – You can set up the trust in such a way that the assets are disbursed to your adult child only at certain ages, like 25, 35, and 45.
- Maybe you only want to save money for your child’s college education, with the stipulation that they can access the remainder of the funds only after they graduate.
- You can also split their inheritance among specific events in their life. Tagging some money for college, some for a wedding, and some for the purchase of their first home.
3. Fund The Trust
Once the trust is created, the most important part is ensuring that assets will pass to the trust, for your children to inherit.
Children’s trusts that are meant to provide control and responsible oversight for the funds are usually funded at the time of the parent’s death. While you’re alive, you are paying for most everything the child needs, so they don’t need a Trust.
But when you die, you want to make sure the money you’ve left the children is held in the trust. This requires you to make a Will that states any assets that should pass to your children, should pass to the trust.
It also requires that you name the trust as beneficiary or contingent beneficiary of your retirement and life insurance. If the kids are named as beneficiaries, they get the money!
Why a Children’s Trust?
Placing your assets in trust for the next generation could have many benefits. As parents, we want our kids to succeed in life, and knowing that we are able to help financially, even after we are gone, could be a huge weight off our shoulders.
Stand-alone Trust Vs. Testamentary Trust
So why create a separate trust as opposed to leaving your assets to them in a testamentary trust (trust within the will)?
Because the separate children’s trust is outside of the Will, the trustee will hold and manage your children’s inheritance for them free of court supervision. No court approval is needed. This would save on costs, which leaves more money for your children.
Additionally, a stand-alone trust is a valid document when it is signed, so it can be named a beneficiary. A testamentary trust cannot.
Consult an Estate Planning Attorney
Creating a Trust of any kind takes careful planning. An estate planning attorney can provide the guidance and wisdom you need, to ensure your plans are properly documented.
Marketing Director & Probate Paralegal at RWC, LLC, Attorneys & Counselors at Law
Ukraine born and Israel / Miami, FL raised. University of Miami graduate in the Marketing field.
Mom to a girl, boy, and a Siberian Husky. Blogger, health & fitness enthusiast, and lover of balance like any true Libra.