Trusts for Children: Some Basic Considerations

When estate planners bring up the topic of Trusts with clients, we’re met with a variety of reactions. Often, clients have preconceived notions that trusts are only for the very wealthy, or that they’re extremely complex. Fortunately, once we dispel these myths, we’re able to move on to a discussion of the benefits of trusts as an estate planning mechanism. One of the primary benefits of a revocable trust is the ability to plan how your children will benefit from your assets after your demise.

With a trust, parents can carefully and precisely determine when, where, why, and how to make distributions to or for the benefit of their children. In this post I will discuss two sets of considerations, of which families with children should be mindful, when establishing a trust: Age and Discretion.

Age

Do you know what happens if you (and your spouse, if married) die with only a simple will, or with no will at all? Everything goes to your children, and they have full access and authority over their inheritance at age 18. Now think about yourself at 18… How prudently would you manage a sizable inheritance? If you were like most 18 year olds, probably not very well.

This brings up one of the key benefits of a trust. You can keep assets in trust until your kids reach an age that you determine. For example, you could decide that your kids will receive an outright distribution upon reaching age 25, or 30, or 35. How about giving them one-half at 30, and the rest at 35? Or one-third at 25, one-third at 30, and the rest at 35? These are all perfectly legitimate distribution schedules that Massachusetts families make all the time.

In case you’re wondering what happens to your money before your children are all grown up, let me tell you. It can be used for their benefit for any purposes that you decide. This brings us to the next topic.

Discretion

So who decides how your Trustee spends your money for your children’s benefit? You do. Say you want your Trustee to pay for your kids’ college tuition. Sure. How about rent? That’s fine too. What about a trip to Europe? It’s up to you.

Most clients grant their Trustee discretion in one of two ways. First, they could grant the Trustee the authority to spend trust assets for “Health, Education, Maintenance, and Support.” This ensures that the trust assets will only go towards relatively important and basic needs, instead of more frivolous pursuits. Alternatively, many clients give their Trustee the power to make distributions for their children, “in the Trustee’s complete and unfettered discretion,” or some equivalent legalese. This allows the Trustee to cover all of your children’s basic needs, but if the trust’s finances are doing well, they can increase their generosity.

So which grant of discretion is best? Well, it’s largely a matter of personal preference. If you are have a relatively high standard of living, and want the same for your children, then granting more discretion to you Trustee will allow him or her to provide it. If you’re more protective of your wealth, perhaps your Trustee should be similarly limited.

In order to discuss you options, and how a trust can benefit your children as part of your estate plan, please contact a Massachusetts estate planning lawyer today. My Danvers office is very convenient to clients on the North Shore, Merrimack Valley, or Metro Boston. I’d love to talk to you.

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