If you are wondering, “Should I set up a trust for my children?” the answer is yes! There are several benefits to creating a trust for children, whether they are minor children, children with special needs, or adult children.
However, it is crucial to ensure you establish your trust document correctly. Otherwise, the provisions in the trust may cause more harm than good. This article will explore the benefits of setting up a trust for your children’s future, how to set up a trust, and the mistakes to avoid when establishing a trust for children.
What are the Benefits of Creating Trusts for Children?
Trust funds for children have several benefits. Individuals who choose to set up a trust may have various reasons, as each family’s needs are unique. If you are considering setting up a trust, here are the primary benefits to consider:
Reduce the Amount of Estate Tax Paid
Establishing a trust may reduce the estate and gift taxes your beneficiaries will need to pay.
Prevent Assets from Going Through Probate
Upon your passing, any assets you have put in the trust are protected from probate.
Ensure Care for Children with Special Needs
The trust provisions can ensure proper instruction for the care of and financial provision for your child or children with special needs.
Protect Assets in the Event of Liability
If you are held liable for some accident or financial debt you have neglected to pay, having your assets held in trust will help protect them.
7 Steps for Setting Up Trusts for Children
There are quite a few steps that go into establishing a trust for children:
1) State the Purpose of the Trust
Make it clear why you have decided to establish the trust, such as one or more of the benefits listed above.
2) Determine the Type of Trust
There are several options to choose from, but they usually fall under a revocable living trust or irrevocable trust.
3) Choose the Assets the Trust will Hold
You may fund some or all of your assets into the trust, depending on your needs. You may want to set up different trusts for certain assets.
4) Choose a Trustee
Selecting the individual who will manage and administer the trust, the trustee, is a crucial step. This should be a trusted individual, as you are granting them authority to manage the trust for the benefit of the trust beneficiaries.
5) Create the Trust Document with Your Desired Provisions
The trust provisions explain how the trustee should manage and administer the assets. This can include examples such as when a child reaches a certain age, becoming a young adult. It can also include instructions on who is to receive the assets should the child die.
6) Legally Establish the Trust
This step is accomplished when you sign the trust document in front of witnesses and a notary.
7) Fund the Trust
The final step is ensuring the assets are funded into the trust. This can involve title changes for real estate or investments, creating new accounts, and transferring assets out of your name and into the name of the trust.
8 Mistakes to Avoid When Setting Up Trusts for Children
1) Going the DIY Route
As you can see, there is a lot of planning and necessary items to understand when establishing a trust. This makes it crucial to work with an experienced attorney rather than create a trust document using a template that cannot consider all of your family’s needs.
2) Naming the Wrong Trustee
Make sure you name a trustworthy trustee who can make the right decisions on behalf of your beneficiaries.
3) Unclear Terms of the Trust
A lack of clear terms and provisions in your trust can lead to mismanagement and hinder the trust’s goal.
4) Lack of Asset Protection
A significant benefit of having a trust is asset protection, so failing to plan for this is a big mistake to avoid.
5) Failure to Review the Trust Document Annually
It’s crucial to review your trust and update it, as there may be new family members to add or other changes to make.
6) Providing Full Access to Funds too Early
The trust holds assets for children until they come of age, but granting full access as soon as this age is achieved may not be helpful for your children. Consider distributing assets in phases.
7) Naming the Wrong Beneficiaries
To avoid complications with transferring your assets to beneficiaries, ensure that assets such as policies and accounts are titled correctly.
8) Failure to Plan for College
If you want your child to receive financial aid for college, you must plan how much money to distribute to them and when. Too much at an early stage could hinder their access to financial assistance.
Set Up a Trust for Your Children the Right Way: Work with an Experienced Estate Planning Attorney
As you can see, there are many benefits to establishing a trust for your children – if done correctly. At The Legacy Lawyers, our attorneys are experienced with estate planning, tax planning, and asset protection. Call us at (800) 840-1998 to schedule a consultation today!