Special Trusts- Part One
"Preparing a Pathway of Protection"
Special Trusts- Part One
Special Trusts-Part One
The term “trust fund” tends to conjure up images of rich folks’ spoiled children squandering inherited money and never truly learning how to provide for themselves. The truth is that trusts are available and advisable for all types of people, and they may allow you to guide your family by deciding now how your assets will be used after you are gone. Contrary to the “trust fund baby” stereotype, a carefully drafted trust can provide comfort and security for your children, safeguard your children against foreseen and unforeseen circumstances, and also encourage independence and money management skills. A trust is therefore a vital part of many Estate Plans.
A trust is like a tree that bears fruit for the benefit of your children and grandchildren. Through careful investment of the principal and income, your trust can provide for your loved ones long after you pass. Trusts are especially crucial for parents, regardless of how old your children are. For example, John and Lisa passed away in a plane crash, leaving behind their 2 year-old son, Adam. Without a trust, Adam’s inheritance would be limited to whatever assets John and Lisa had at their death; these assets would be controlled by a court-appointed conservator until Adam turned 18, at which point he would receive the full remaining amount. The assets would not grow and likely would not be able to support Adam for very long. However, because John and Lisa had created a trust for the benefit of Adam, he grew up receiving the fruits of the tree his parents had planted; his education, medical care, and other expenses were all covered.
Even if your children are adults with children of their own, you should at least consider the value of a trust. William and Claire, both school teachers, often had difficulty putting money away for their two daughters’ education. Fortunately, Claire’s parents had left a trust which helped support William and Claire, and also specifically provided for the grandchildren’s college education. This trust that Claire’s parents created was able to bear fruit for two generations of their family.
Parents can also use a trust to protect young adult children who have not yet learned how to properly manage money. Often, giving a large sum of money to a young adult ends with the money being spent quickly and unwisely. Staggered distribution of a trust is a simple way to protect funds from being wasted or mismanaged. Parents can choose to have percentages of the principal paid out to their children at pre-determined ages. For example, John and Lisa arranged their trust so that Adam receives one quarter of the principal at age 23, one quarter at 33, and the remainder at 43. As long as the trust exists, the Trustee may pay Adam the income from the fund’s investments. Also, the Trustee is permitted to use the principal to support Adam, pay for his medical and education expenses, or to help him start a business or pay for a home.
A trust like the one created for Adam serves both to maintain money in the fund for a significant period of time, and also helps Adam learn how to handle money. Adam might receive his first share of the principal at 23 and quickly spend it all. However, he has not killed the tree his parents planted; it will continue to bear fruit for years. He still has the safety net of income distributions and future principal payments. He has also learned the value of his money by attempting to manage and potentially losing some of it. The timing and amount of principal payments are completely up to the grantor, who may custom tailor distribution to best fit his children’s needs.
Not all trusts are the same. These are basic examples that make clear how important it is to consider a trust as part of your estate plan. Every trust should be carefully crafted to fit your family’s needs. To best ensure that your loved ones are well cared for, contact The Kearse Law Firm to discuss how you can create the trust which best serves your family.