Benefits of Trusts for Young Children

Importance of a Trust

A trust is a helpful financial tool that protects your wealth and income to safely be passed on to your children. A great aspect of a trust is it allows you to store your assets safely and be disbursed once your child is ready.

Despite common misconceptions, you do not have to be wealthy to establish a trust. This process is beneficial for any parent trying to leave money or assets to a child. It’s one of the best ways to help protect your child in the future and after you’re gone.

Reasons to Establish a Trust

If you are looking to set up a trust in the near future but are still thinking it over, consider these benefits:

• Minimize taxes assigned to estate distributions
• Skip probate court
• Beneficiaries receive more quickly
• Protect assets from children until they reach a certain age

What Type of Trust Is Best for Young Children?

The type of trust that is best for your child, especially young children, depends on what you think is best. There are different types of trusts out there, all with different attributes. Depending on what those attributes are, and how you think they would best support your child, is the better decision.

The different trusts to consider are:

One-Shot Trust. A one-shot trust holds the money until your child reaches an age set by you, then they receive the money. For example, once a child reaches age 30, they can receive the money held.

Tiered Trust. A tiered trust releases the money held in multiple stages.  For example, once a child reaches the age of 25, they can receive a set portion. Then once they reach another age set by you, they can receive the rest or another portion. A tiered trust can have as many tiers as you want, and percentages can be chosen to be disbursed when each tier is reached.

Common Pot Trust.  A common pot trust holds money for multiple children. This type of trust is beneficial in paying for the health and education of multiple children. Also note, once the youngest child reaches a certain age, all the children split what’s leftover.

Can Money Be Removed From My Child’s Trust?

A child trust fund belongs to the child and begins with a starting payment from the Government. Usually, the money within the account cannot be withdrawn from the account until the child reaches the age of 18, unless the child is terminally ill.

Section 66(2) of the Social Security Contributions and Benefits Act of 1992, states “a person is terminally ill if they are suffering from a progressive disease and are not expected to live longer than 6 months.”

Are There Disadvantages to a Trust?

There are various disadvantages to creating a trust, including:

• Legal counsel for preparation and drafting of a trust.
• Property Registration
• Title transfer and filing fees
• Compensation to the trustee, who manages the trust

No Protection from Creditors.

Creditors have the right to collect debts owed to them and can do when you’re gone as there is no time constraint. Once a creditor locates your assets and heirs of your estate, they can file a lawsuit to collect any debt owed.

This article was brought to you by Heban, Murphree & Lewandowski, LLC, an experienced probate law firm that has helped countless families plan their estates.