When it comes to estate planning, most families have the same objectives: to provide income for their children or other descendants. Parents want their children to continue having the sa
me comfortable lifestyle and the freedom to pursue their education and career objectives. But what happens if your children are still under 18? What happens if they are 18?
For children under 18 the court will appoint a guardian to act as the children’s custodian. That individual may also have the authority to manage their inheritance. A guardian will have to post a bond with the court and make reports to the commissioner of accounts office. For children over 18 they will simply receive their inheritance outright when the estate is settled.
Now, many children may understand and recognize that the funds are meant to be used for their health, education, and welfare, but if they need a car, why not a Range Rover? If they are going to college, why not an international program or expensive private school? How can you be sure that your assets are utilized in the best way possible to promote your children’s success after you are gone? The answer, most often, is through a trust.
In establishing a trust for the benefit of your children you have several different options. Some of the most popular choices are to either set up a revocable family trust during your life that continues after your passing, or, a testamentary trust which is a directive in your will requiring a trust to be established after you pass. Both have their own benefits and drawbacks.
The Revocable Family Trust
This option allows you to receive the benefits of the trust during your lifetime. Many individuals manage their own revocable trusts, which keeps the management cost minimal. Families can transfer assets such as real estate, cash, investment accounts, and even retirement accounts into a trust during their lifetime. One major benefit of this type of trust is the ability to establish exactly what you want during your life and an easy transition after your passing.
If management of the trust becomes complicated and overly time-consuming, you always have the option to appoint an individual or corporate trustee. The trustee will manage the assets in the trust and follow the trust’s directives on making distributions. Some financial firms offer co-trustee services which provide a cost savings compared to other trustee services.
The Testamentary Trust
A few simple provisions added to your traditional will can direct that any distributions to parties under a certain age must be placed into a trust. It can direct how the trust is organized and name an individual or corporate trustee to manage the trust. In order for the testamentary trustee to be appointed, they will have to qualify with the court the same way an executor or personal representative qualifies. A testamentary trust may provide for distributions of income over a certain period of time, or it may provide for one payout once the beneficiary reaches a certain age.
Under either option the trust or the will may waive any requirement of a trustee to post bond and file reports with the commissioner’s office. You must balance any concerns over mismanagement of funds with convenience and ease of management for your guardian or trustee.
Revocable trusts and testamentary trusts can both help you achieve your estate planning goals, and provide income and support to your children after you are gone. The attorneys at Melone Law, P.C. can help you evaluate your options and achieve your estate planning goals. Contact us for a free estate plan evaluation.