Whether you are a new parent or the parent of adult children, protecting the inheritance you plan to leave your children is a common goal. Creating a trust is among the most popular ways to accomplish this goal. To help you avoid making common mistakes, the Beverly trust attorneys at DeBruyckere Law Offices offer five tips for parents when creating a trust for children.
What Is a Trust?
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor (also referred to as a Maker, Trustor, or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts fall into one of two broad categories – testamentary and living trusts. A testamentary trust is one that does not take effect until the death of the Settlor and is usually triggered by a provision in the Settlor’s Last Will and Testament. A living trust is a trust that takes effect during the lifetime of the Settlor. Living trusts can be sub-divided into revocable and irrevocable living trusts.
Tips for Parents
- Appoint the right Trustee. The Trustee of a trust is responsible for protecting and growing the trust assets as well as administering the trust using the terms in the trust agreement. The right Trustee adds to the success of a trust while the wrong Trustee can cause a trust to fail. Parents often appoint a family member or close friend to be the Trustee despite the individual’s lack of experience in financial and legal matters. To ensure that your trust operates as intended, consider appointing a professional Trustee.
- Give your Trustee enough discretion. It can be difficult to anticipate all the reasons your children might need access to trust funds, especially if they are very young when you establish the trust. Failing to give your Trustee enough discretion to approve disbursements for unanticipated needs may leave your children without access to funds when they truly need them. If you appoint a professional Trustee, it should be safe to give the Trustee the discretion to use his/her best judgment when unanticipated requests come up.
- Don’t give your Trustee too much discretion. Conversely, you also want to avoid giving the Trustee too much discretion, especially if you did not appoint a professional Trustee. This can put the Trustee in a difficult position if a beneficiary is asking for a disbursement, but the Trustee questions the need for the funds. You also risk creating conflict between a beneficiary and the Trustee if the Trustee is a family member or family friend. To avoid this problem, be sure to give the Trustee the ability to deny a questionable disbursement by tightening the Trustee’s discretion within the trust terms.
- Consider staggering distributions. A trust can be extremely beneficial when your children are minors because they cannot yet inherit directly from your estate. That same trust can still be useful when they are young adults if you include trust terms that stagger the inheritance you leave them instead of handling a young adult a large lump sum inheritance. Give your kids time to learn how to manage money before distributing a large sum of money. Instead, stagger the distributions over several years.
- Remember to review and revise the trust. Parents often make the mistake of creating a trust agreement when they first become parents – and then forgetting about the trust. While the trust you establish when your children are very young can still be beneficial when they become young adults, you will undoubtedly need to update the trust to reflect the fact that they can now inherit directly. As your children get older, and the value of the trust assets increases, you should revisit the trust agreement every few years to make any necessary revisions. This ensures that the trust terms reflect your current wishes and that it will continue to accomplish your objectives.
Contact a Beverly Trust Attorney
For more information, please sign up for one of our upcoming FREE seminars. If you have additional questions or concerns relating to creating a trust, contact estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Londonderry and Nashua, New Hampshire office can be reached at (603) 894-4141.
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