Most people think that creating a trust is only for the wealthy. This could not be further from the truth. While setting up a trust may not be an ideal solution for everyone, it’s a highly valuable tool in estate planning.
A trust can circumvent the probate process, distribute assets to children and minor, and legally control the assets even after you’ve passed away. In certain scenarios, a trust can lower the estate taxes. Creating a trust can also protect your assets from liabilities, lawsuits, and personal creditors.
Securing the Future of Your Children
Parents want the best for their children. Even after they pass, they want to ensure that the future of their children is protected. Thus, creating a trust is the way to go to make this happen. When setting up a trust, there are many considerations in how the assets are administered to children and minors.
While each situation is unique, there are general factors that affect the creation of trusts.
Essentially, creating a trust is preparing for the future. It’s a step parents take that entails long-term decisions to take effect. When you’re establishing a trust for your children, you’re making decisions that will affect your children’s lives down the line.
This has an advantage. By factoring in time, the hope is for your assets to compound and grow by the time your children are eligible to receive it. However, there’s also a disadvantage to this. You will have to predict and think about how their lives would turn out and accommodate those outcomes.
When Should Your Trust Take Effect?
One of the first things you should think about when creating a trust is when you want it to take effect. Would you want to establish it right away or after you pass? Another thing to take into consideration is whether to make your trust revocable or irrevocable.
Revocable trusts, as the name suggests, are those that let you make provisions whenever you wish. On the other hand, irrevocable trusts are those that cannot be consequently altered.
Most opt for revocable trusts. These trusts govern their assets while they are still living.
However, they can change it to an irrevocable trust when they pass away or become incapacitated. The idea behind this is to bypass the probate process. This also allows parents to provide directions on how to manage their assets. There are, however, those who are not too concerned about probate. They often choose to create a trust and indicate it in their wills. This will then go into effect upon their death.
Another option is to establish an irrevocable trust for children and minors in the form of an education trust. Parents choose to go this route, so their assets are taken out of their estate and avoid estate taxes. Creating an irrevocable trust also takes away the tax responsibility from the benefactor.
What Are the Steps to Take?
The following is an overview of the steps parents should take when setting up a trust for their children. Like we mentioned, every situation is different for everybody. It’s essential to consult with your trusted estate planning attorney before you make any crucial decisions.
Select a Trustee
When the inevitable happens, you should have already selected a trustee or custodian to run your trust and administer the distribution of your assets. A custodian will also have the responsibility of financially managing the funds allotted for your children. These funds are usually used for their care or education if they are still underage.
Another vital directive you should indicate in your trust is how and when you want your children to obtain their inheritance. If, for instance, your daughter is financially irresponsible and yet you’re leaving her a substantial amount of money, your trust can indicate that she receives her bequest in increments. This will hopefully prevent her from wasting the money all at once.
On the other hand, if you anticipate that your minor daughter is poised for an Ivy League school, you can specify in your trust that you’re setting aside funds to use for her schooling.
Setting Up the Trust Documents
Once you have these main points ready, turn to your estate planning attorney for the next steps to take. By creating a trust, you’re making sure that your children’s future is secured.