As we have written time and time again in previous blog articles, as well as spoken about at numerous speaking engagements time and time again, trusts are a great estate planning tool and can be used to accomplish nearly every estate planning goal imaginable. However, the two most common estate planning goals that families will ask us about include avoiding probate and providing for their children.
As I stated above, trusts can be used to accomplish nearly every estate planning goal imaginable. However, how can trusts be used to provide for your children after you are gone? Well, there are a number of ways that trusts can be used to provide for your children after you die. The first way is perhaps the simplest way. A revocable living trust can be used to provide outright gifts to your children at your death, or can be used to provide a staggered distribution at your death. For example, a revocable living trust can be designed whereby 25% is distributed at age 25, 25% is distributed at age 30, 25% is distributed at age 35, and the remainder of the child’s share is distributed at age 40. This technique is usually used to prevent a child squandering his or her inheritance, or even as an asset protection strategy to prevent the child from losing his or her inheritance to creditors and/or divorce.
In addition, another way, especially among younger families, is to structure their trust to provide for their minor children in the event that both spouses pass away while the children are still minors. A revocable living trust can be structured whereby you can name a successor trustee to manage all of your trust assets and distribute those assets for only the minor child’s health, care, and general wellbeing, and then after the child reaches the age of 18, to only be used for the pursuit of higher education of the child.
However, you may be asking yourself, can’t all of this be accomplished with a Last Will and Testament under the Uniform Transfer to Minor’s Act? You are correct! Under the Uniform Transfer to Minor’s Act, a minor cannot inherit money into their own name until he or she reaches the age of majority. Also, you are correct that you can name a guardian in your will to manage these assets and distribute them to your child only as the assets are needed. However, what a Will cannot do, is that it cannot state with specificity how the assets are to be used, i.e., to be used to pursue higher education after the child reaches the age of 18. In addition, with a Will, your estate will have to go through a long and drawn out probate court process that could result in costs in excess of $20,000 when it is all said and done. By establishing a revocable living trust for the benefit of your children, whether your children are adult when you pass away, or whether your children are minors when you pass away, a trust will allow you to completely eliminate probate costs, prevent your children’s inheritance from being subject to attack by creditors and divorce, and even provide for the support of your children and your children’s education should you and/or your spouse pass away while your children are still minors.