Establishing a Trust for Your Kids

You likely want to ensure your kid’s financial needs are met. But giving children and young adults unlimited access to a pool of money can be a bad idea. They may be too immature to make sound financial decisions. Also, state law may restrict distributions to minor children in some circumstances. A trust is an excellent way to ensure your children have money for things like education and health care.

This article explains the types of trusts you can make for your kids. Trust laws are complex and vary by state. Consider contacting an estate planning attorney in your state experienced in creating trusts for help. They can ensure your trust meets your goals and conforms to state law.

Why Create a Trust for Your Kids?

You don’t have to be ultra-wealthy to make a trust for your kids. Even a family of modest means can benefit. Following are some common reasons to make a trust for your kids:

• Tax benefits: Your estate must pay the federal estate tax if its value exceeds the estate tax exemption amount. A properly structured estate can double the exemption for a married couple. You can also lower the size of your estate by giving away part of it while avoiding the gift tax.
• Avoid probate: Probate is the legal process for closing an estate. It can be a long, expensive process. You can avoid probate by using trusts.
• Care for a special needs child: Special needs children may need care after you die. A special needs trust can give them financial support. It does so while keeping their eligibility for government benefits.
• Asset protection: You can use a trust to protect assets from creditors and lawsuits. You can also use a trust to support children who may be irresponsible with money. You can specify in the terms of the trust how you want the trust assets used. For example, to pay for college or start a business.

Types of Trusts for Kids

There are several different types of trusts you can make for your kids. Which is best depends on your situation and goals. There are two categories of trusts.

A revocable trust is a trust that you can change or revoke. A revocable living trust is the most common revocable trust. People use them instead of a will to avoid probate and maintain privacy. The person creating a revocable trust keeps control of the trust assets. They are called the grantor. That makes these trusts good as a will replacement but bad for tax benefits and asset protection.

You can’t change or revoke an irrevocable trust without a court order. The grantor of an irrevocable trust gives up control of the trust assets. That makes them suitable for protecting assets. They may also offer tax advantages.

How To Set Up a Trust for Your Kids

When you’re ready to create a trust, keep the following process in mind:

• Decide the purpose of the trust: What are your goals for making the trust?
• Choose the type of trust: Your goals for the trust will determine what kind of trust you need. For example, you’ll use a special needs trust if you have a special needs child.
• Choose a trustee: The trustee manages your trust. The trustee is a fiduciary. That means they have a heightened duty to manage the trust responsibly. You’ll likely be the trustee if you create a revocable living trust. It would be best to name a third party for an irrevocable trust.
• Choose a successor trustee: The successor trustee takes over managing your trust when the trustee steps down. They manage your revocable living trust when you die.
• Decide who the trust beneficiaries will be: The beneficiaries are the people who the trust benefits, like your children. You could also include family members, friends, or charities.
• Create the trust document: State law specifies what you need for a valid trust. You likely must put it in writing and sign it. You also must notarize it, have it witnessed, or both. There may also be more requirements in your state. Check your state laws to ensure you create your trust correctly.
• Transfer assets to the trust: The final step is to put assets into the trust. Trust assets often include real estate, investments, and bank accounts. But you can put other assets in the trust as well. You retitle the asset in the trust’s name to move it into the trust.

Contact an Estate Planning Attorney for Help

There are many trusts you can use to provide for your kids. Which is best for you depends on your unique situation. An experienced estate planning attorney can give you legal advice. They can also help make and fund your trust.