While a trust is an often touted part of estate planning, not everyone needs a trust. So who does need a Trust? Today we will look at one category of people who need a trust – people with children, especially minor children. So what about having children makes a trust the best solution to estate planning needs? There are actually several reasons.
The first is protection against extravagant spending sprees if the child inherits the funds at a young age. Without a trust, the child generally has full access to the inherited funds at age 18. How many 18 year olds can be expected to spend funds wisely?
Additionally, if a minor receives an inheritance of more than $15,000, Florida law requires a court-appointed guardian to look after the assets for the child. The guardian is in place until the child is 18 and must file reports with the court every year – a time-consuming burden which can deplete the child’s assets depending on who is appointed guardian. And again, the child receives the remainder of the assets upon turning 18.
Which leads to a reason a trust is important when you have children of any age. While a basic trust does not protect your assets from your creditors, when done correctly, a trust can protect your child’s trust assets from your child’s creditors, angry spouses, or plaintiffs in a law suit. This protection comes from the use of the simple word “may.” Worded correctly, the trust says the child may take a certain amount after reaching a certain point – generally an age set by the parent. The “may take” language allows the child to choose not to take the distribution of the assets. If the child does not take the assets, then the assets legally do not belong to the child. Therefore, these assets are protected if the child is involved in bankruptcy, an ugly divorce, or a law suit. The bankruptcy trustee, soon-to-be ex-spouse, or plaintiff cannot get at those assets because the assets do not belong to your child until the child chooses to take the assets out of the trust.
Finally, a trust can also be set up to limit or withhold funds in the unfortunate case of the child having a substance abuse problem.
For all of these reasons, parents should think carefully about using a trust to protect their children after they are gone.
If you have any questions on this article or other aspects of estate planning, please feel free to give me a call at 813-758-3492 or e-mail me at LSJohnson@LorienSJohnson.com.