ALP: Is there any reason to set up a trust to hold assets for my child when I pass away if I do not have a significant amount of assets?
March 5, 2008
By establishing a trust, a parent is able to choose a trusted person(s), bank, trust company or other fiduciary to serve as Trustee of the trust and manage the trust assets. The parent is also able to specify the Trustee’s duties and the breadth of the Trustee’s authority.
Second, by establishing a trust, a parent is able to determine whether the Trustee of such trust will be subject to the rules and oversight of the probate court. If the child does not have any special needs, the parent will typically set up either a testamentary trust, which is a trust created under the parent’s Will, or an inter vivos trust, which is a document separate from the parent’s Will. While both types of trust are revocable and can be amended prior to the parent’s death if the parent is competent, a testamentary trust is subject to the rules and oversight of the probate court while an inter vivos trust is not.
Third, by establishing a trust, a parent is able to control the age or ages at which the child will receive income and principal distributions from the trust. A parent is able to specify that his or her child must receive all income from the trust at least annually or that the child may receive trust income in the Trustee’s discretion. A parent also has the ability to specify the ages at which the child is to receive principal distributions. By staggering the ages that a child will receive principal distributions, such as one-third of the trust principal at age 25, one-half of the balance of the trust principal at age 30, and the balance of the trust principal at age 35, a parent is better able to control the amount of money his or her child will receive at any given time.
Fourth, by establishing a trust, a parent is able to control the reasons for which the child is to receive trust income and principal. For example, a parent is able to specify that his or her child may receive income or principal from the trust for his or her health, support, education and maintenance. A parent may also provide that the Trustee may make distributions to the child for more supplemental purposes, such as to enable the child to marry, purchase a home, to enter into a trade or business, or for any similar purpose the trustee may deem to be in the best interest of the child.
While there are a multitude of reasons that a parent should consider establishing a trust to hold assets for his or her child, the reasons listed above are significant. Every parent should discuss with his or her attorney the possibility of setting up a trust for his or her child and any specific circumstances involved.
Stacy Christman Blomeke is certified by the OSBA as an Estate Planning, Trust & Probate Law Specialist. Ms. Blomeke may be contacted at (513) 651-6966 or Sblomeke@fbtlaw.com