Many parents include revocable living trusts in their overall estate plan. Included in their trust is a sub-trust for minor children that can protect the inheritance. It is the best way to ensure that your child will inherit your assets, while protecting those assets until your child receives distribution. Such a trust will also identify a trustee who will be responsible for managing, investing and distributing those assets, in compliance with your specific instructions.
What happens if you do not have a trust?
If you do not have an appropriate plan in place, the court will determine what happens to your minor child upon your death. That also includes naming a financial guardian to manage any assets your child will receive as an inheritance. Another issue to consider is that, under the law, all of those assets will be turned over to your children on his or her 18th birthday, with no more supervision. Most parents, if given a choice, would not trust their young adult with a substantial amount of money or assets.
The benefits of establishing a trust for your minor child
By establishing a trust for your minor child, you are given the opportunity to provide more detailed instructions regarding the management and use of the trust assets. First, you have the ability to choose who will manage the assets on behalf of your child, instead of leaving this decision to the court. Second, you get to determine how and when you want your child to receive the assets. So, for instance, you may decide that you don’t want your child to have full access to the trust funds until age 30, or upon graduation from college. Until your specified conditions have been met, the trustee you named will continue to manage the assets, which can be used for your child’s benefit, such as paying for care and educational expenses. A living trust plan will allow your family to avoid the time consuming and expensive probate process, while still ensuring that the funds are readily available for your children’s care, as needed.
A trust can prevent accidental disinheritance
Blended families are very common these days. Having a trust-based estate plan can protect your child and his or her assets, if your surviving spouse ever remarries. Accidental disinheritance would be tragic for your child, and it can be avoided. Consider the following situation. Tom and Sharon create an estate plan together that leaves everything to each other and then to their children. Tom dies, leaving everything to Sharon. A couple of years later, Sharon meets Frank and remarries.
Without thinking about the consequences, Sharon and Frank execute a new estate plan that leaves everything to each other and then to their respective children from their prior marriages. What happens if Sharon dies before Frank? Everything passes to Frank, who has no obligation to leave anything to Tom and Sharon's children. In other words, Sharon accidentally disinherited her own children. With the proper trust provisions, Tom and Sharon can avoid this situation and ensure that their children are not disinherited.
If you have questions regarding trusts for minor children, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.