Client: Prosperity Law
Title: “The Parents’ Guide To Creating A Revocable Trust For Your Children”
Source: The Prosperity Law Blog
Word Count: 976
The majority of my work revolves around families in the event of loss or divorce. On the plus side, I help to create peace of mind for families. I’ve discussed many aspects regarding marriages, divorces, and parents—but not children—until now. For this blog, I’ll be explaining revocable trusts and the value of establishing them for your children. More important, are the provisions which may and should be included in revocable trusts for the future. Let’s start off with the term itself.
What Is A Revocable Trust?
A revocable trust, also known as a revocable living trust (or RLT), is a trust established by a Grantor or Settlor for the benefit of one or multiple beneficiaries. The main definition of a revocable trust is right in the title; it enables the Grantor or Settlor to revoke part or all of the trust. It is flexible and can be amended by way of a trust amendment. Of course, each type of trust has its pros and cons. I’ll dive into the pros of a revocable trust. It is essentially a set of directions for how to guard your assets in for the use by your family in the future.
Timing is a big reason to choose a revocable trust. If you have young children or are planning for children, and have the resources to establish a trust, things can still change. In your life, it is important to plan ahead, of course. However, life throws us curveballs and in order to succeed, we as humans, need to adapt. Consider the fact that your children may not be the best with money or the curveballs life throws at them could impact their finances or living situations. Regardless of the state you live in, I believe a revocable trust is part of a well-thought-out estate plan.
To most people, probate sounds daunting and expensive. For those who don’t know what probate is, I’ll explain. Probate court filing is the process which the court determines the validity of a will and then executes the demands of said will. Not having proper representation or proper language in a will increases the risk of the state being involved far past your comfort level. Imagine fighting between your family members for assets without a proper will in place. Your imagination is serving you correctly. Above all else, protect yourself. Therefore, establishing a revocable trust can circumvent the process of the probate court. Who wouldn’t want to avoid additional fees, attorneys, judges, courts, and other legal obstacles?
Revocable Trust Provisions
As I mentioned before, the terms of the trust are set forth with the possibility of being changed down the road. The entire process is administered by a trustee whom you have the freedom to appoint and change. Setting up a trust with a trustee and pre-determined beneficiaries save you and your family an immense amount of time and money. The good news is that there are no set methods of distributions from a trust. Here are a few great examples:
- Require your trustee to hold children’s inheritance in trust until they reach the age of 25, 30, or 35. Give it to them in stages, e.g., a third at age 25, a third at age 30, and the final third at age 35.
- Use a joint trust for minor children until the youngest reaches age 23, then split up the trust into individual trusts for each child. (This makes it easier for the trustee to manage the trust while the children are minors and insures each child is afforded the same opportunity to attend college. Then, when different children pursue business, education, marriage, or even world travel, their trust is accounted for separately from the others).
- Consider having the trustee give the guardian of your children a specific amount each month to take care of the living costs of your minor children (room, board, clothing, school supplies, etc.). It could be something like $1,000 a month, adjusted for inflation as of the date of your trust.
- Place restrictions on inheritance if there’s drug or alcohol abuse. An attorney can insert a provision that prevents a distribution to any child with an abuse problem and allow for the trustee to hold their funds in the trust until they have their life under control.
- Give the inheritance in matching funds, distributing $1 for every $1 the child earns.
- Give them a bonus for graduating from certain levels of college or don’t allow full distribution until they obtain a certain level of higher education. However, still distribute funds for school or any secondary education program, skills training course, etc.
- Distribute funds for education or use their GPA as a “carrot.” (Distribute funds only if the children maintain a minimum GPA that you set. You could also tie funds for tuition or books to GPA to help keep the children focused on finishing school, rather than becoming career students).
- Distribute a certain amount of funds for a wedding.
- Distribute funds to start a business upon the presentation of an acceptable business plan to the trustee. Name a board of advisors to approve any small business or investments by the children.” — Source: Entrepreneur
In The Unlikely Event…
Family can sometimes be stressful and although I hope things turn out for the best, it can and does happen. To that end, some parents may not want certain heirs to be named in the will. Additionally, parents may not want things distributed evenly to all their heirs. There’s a slew of combinations wherein everyone is set to receive something different. As a result, it’s smart to specifically spell out all your wishes in the trust to ensure each one is executed, good or bad. The more details you provide in the trust, the better the distribution process will unfold by the trustee.