Trusts are great estate planning tools meant to protect your legacy for your family. However, not all trusts operate the same way, just as there are different types of trusts for different types of beneficiaries. Let our Sacramento trust attorneys explain some of the important considerations regarding trusts for children.
Trusts for Children: The Basics
When it comes to estate planning for the benefit of children, parents can use trusts to easily and precisely plan for when and how their children will receive their inheritance. Two of the most important considerations when establishing a trust for children is their age and the amount of discretion they should have with regard to their inheritances. Our Sacramento trust attorneys can assist you with the basics.
Why is the age of your child when they receive their inheritance an important issue?
One of the things our Sacramento trust attorneys can explain to you is that, if you and your spouse (if you’re married) die with only a simple will or not will at all, your minor children will inherit all of your property. The bad thing about that is they will have complete access and authority over that inheritance once they reach the age of 18. How capable are most 18-year-olds of managing their money prudently? If you could have the ability to control when and how your children receive their inheritance so that you can be in the best position to protect them, especially from themselves, then a trust is probably your best option.
Trusts can protect your child’s inheritance until they are ready
One of the primary benefits of a trust, especially where children are concerned, is the ability to retain your estate assets in trust until your children reach a certain age, as you determine in the trust provisions. There are many options available. For example, you can plan for your children to receive an outright distribution when they reach the age of 25 or you could give them half at 25 and half at 30. Until they reach the desired age, the trust assets can still be used for their benefit for any purposes you choose.
How much discretion do you want the trustee to have?
Typically, the trustee will be the one with the discretion to decide how to spend the money left for your children until they receive their inheritance outright. You can determine whether to spend the money on college tuition, rent, and even vacations. Basically, you can give your trustee either general or limited discretion.
If you give your trustee the authority to make distribution “in the Trustee’s complete and autonomous discretion,” for example, then the trustee will have general discretion. However, you can limit the trustee’s discretion so that they only have the authority to spend trust funds on “health, education, maintenance, and support,” then you can ensure that the trust assets will only be used for important and basic needs.
Consider creating a pooled trust
If you have several children, you may want to consider creating a pooled trust, which is a special type of trust that “pools” or combines the trust assets for the benefit of more than one beneficiary. With this type of trust, you can again decide how much discretion the trustee will have in distributing the assets. Even though a pooled trust can benefit several children or grandchildren, you can stipulate that the trustee is not required to distribute the funds equally to all beneficiaries, but to instead use their discretion. Our Sacramento trust attorneys can help you establish this specific type of trust if you believe it will fit your needs and the needs of your family. Whether you should use a pooled trust or separate trusts for each child depends on your situation and the goals for your estate plan.
Factors to consider in choosing a pooled or separate trust
The size of the trust will determine whether it is cost-effective to administer several separate trusts or one large trust. If you have smaller trusts, the time and expense of administering all of them separately may outweigh the benefits.
Another consideration is the needs of the beneficiaries. If your beneficiaries are adults by the time they receive their inheritance, then establishing equal, separate trusts may be the fairest way to distribute their inheritances. If one of your children has some special need, then you may want to have separate trusts so that child can receive what they need financially. Similarly, a pooled trust providing greater flexibility and discretion to the trustee can also allow a child with greater needs to have what they need.
If you have questions regarding trusts or any other estate planning matters, please contact us for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!