Trusts for Children

The most flexible solution to the problem of handling the children’s funds is to create a trust under your will. If the children were orphaned, the entire estate could be divided equally among the children and then held in a separate trust for each. This would allow each child to receive his or her share upon reaching whatever age you designate (often 21 or older). Except in the very large estate, however, this may fail to address all of the parental concerns. It is quite possible that at the parents’ death one child will be an adult, finished with education, and living independently, while another is looking forward to the expenses of education and the need for continued support. If you pay the educational expenses of the older child, would it be fair then to give that child a full share, while charging the younger child for his own education, to be paid out of his own share? What if the fund available to the younger child is not sufficient to provide for all his or her needs? The solution is to use a single trust for the benefit of all children. This is referred to as a “sprinkling” trust. It gets that name from the fact that the trustee is allowed to use the income or principal of the trust for the needs of any of the children, without treating them equally. Such a trust would terminate when the youngest child reaches age 21, or whatever other age you choose.

The older child is disadvantaged somewhat by having to wait for outright delivery of the property, but the younger child is protected. After the youngest reaches adulthood, separate trusts can be used to hold the inheritance longer. When we consider the extent of our property, it is common to overlook very valuable assets. For example, life insurance may be provided through employment, or you may own substantial individual coverage. While you are living, the insurance represents more of a liability than an asset, since the premium must be paid. Planning for a trust for your children, however, should include consideration of the proceeds of the insurance. Careful thought should be given to how and when you want your children to take their share outright. Apart from protecting the needs of the youngest, many people chose to structure the termination of the trust so that each of the beneficiaries receives the final share in stages. We all hope that our children will gain in maturity as they age. If they might make an irresponsible decision about how they would spend their money at age 21, perhaps they would have more wisdom at age 25. By calling for distribution of one-half of their share at age 21 and the balance at age 25, you may “hedge” the bet on their maturity.

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