If you are a parent to young children, you undoubtedly want to ensure they are financially secure if something happens to you.
More than any other type of beneficiary, your minor children, often need the funds immediately for his or her basic care. A revocable living trust can ensure there are no delays in the funds becoming available.
Your revocable living trust can also incorporate children’s trust to protect the assets intended for the support and maintenance of minor children.
What Is a Trust?
A trust is a legal arrangement that allows you to appoint someone to manage and protect the assets you want to pass down to your children. As the creator of the trust, you are referred to as the Settlor (also referred to as a Grantor or Trustor).
The person you designate to oversee the administration of the trust is the Trustee. You can appoint anyone as the Trustee and some parents choose to appoint a professional Trustee. Your children are the beneficiaries of the trust. As the Settlor, you create the terms of the trust, and those terms must be followed when distributing assets from the trust.
What Would Happen if I Didn’t Have a Children’s Trust?
Child under the age of 18 years cannot legally manage assets. In Georgia, if the total value of what you leave a minor child exceeds $15,000, the court would need to appoint someone (called a “conservator”) to manage the funds and assets until the child turns 18 years. This would be required even if one or both of the child’s parents are still living.
The conservator is legally required to file an initial inventory with the accounting for all assets and they must file an annual return updating it with an Inventory and Asset Management Plan. In addition, the conservator cannot use the assets on the child’s behalf without court permission. The conservator is further restricted in the investment strategy.
Benefits of a Children’s Trust
Many parents do not desire the strict standards and the associated expenses of a conservatorship. An alternative is to leave the inheritance via a minor trust. The person you choose (called your “Trustee”) is charged with investing and protecting trust assets as well as making distributions according to the terms you created. As the Settlor of the trust, you create the trust terms. Those terms can be used to provide financially for your children. If you pass away unexpectedly, a living trust avoids the need for a conservatorship and ensures that someone of your choosing manages money and assets intended for your children until they reach a certain age.
That same trust can stagger the inheritance left for your children when they become adults. While your children can legally inherit from your estate when they turn 18 (in most states), handing an 18-year-old a sizable lump sum inheritance is not always wise. To allow your children time to learn valuable money management skills, you can stagger distributions from the trust instead of simply distributing the remaining principal all at once.
Finally, a spendthrift and/or incentive provision can be included in the trust to further protect the inheritance meant for your children. A spendthrift provision prevents creditors of a beneficiary from accessing the trust assets as well as prohibits a beneficiary from selling or encumbering his/her interest in the trust.
An incentive provision in a children’s trust can be used to encourage a beneficiary to do or refrain from doing specific things. For example, you might include a trust provision that prohibits distributions if a beneficiary with an addiction problem has a relapse.
Delay the Inheritance
You can also include a provision that makes a lump sum distribution of the assets directly to your children after they reach a certain age. In the meantime, the funds can be used for the child’s support, education, and health needs.