Although the designation of a guardian to care for minor children can only be made through a will, it’s best to set aside money for them via a trust. Minors cannot directly inherit assets, so money left to them in a will would need to be managed by a court-supervised fiduciary. By establishing a trust, it is possible to specify how the assets in it are to be distributed, as well as to choose a trustee to oversee administration.
Use A Trust: Safeguarding Assets for Minors
When you are a parent of minor children, designating assets for their care should the worst happen is of the utmost importance. Pointing out that “Careful planning now can prevent costly delays, unnecessary court involvement, and potential misuse of assets later,” attorneys at Frank & Kraft recommend placing assets designated for minors in a trust, and offer this overview:
- A trust is a legal arrangement in which one person, known as the Settlor or Grantor, transfers property to a Trustee. The Trustee holds and manages that property for the benefit of the named beneficiaries, following the rules and instructions outlined in the trust agreement….
- For parents of young children, the key advantage of a trust is the ability to choose who will be responsible for safeguarding and managing the child’s inheritance. This selected Trustee must invest assets wisely, ensure that funds are available for important needs such as education and healthcare, and distribute money according to the terms you have set.
- Choosing the right Trustee is one of the most important decisions in the estate planning process because your chosen Trustee will have considerable authority over your child’s financial future. With that in mind, it is critical to select someone who is capable, trustworthy, and aligned with your goals.
Before naming the trustee who will administer your trust, it’s important to understand what the role requires, so you can choose the trustee wisely. Although it is common to appoint a spouse or other relation, not everyone has the time or financial experience to manage trust investments, taxes, and so on. Depending on the complexity and circumstances involved, it may turn out to be helpful to appoint a professional or institutional trustee, such as an attorney or a bank, to steward the funds placed in a trust. It’s even possible to appoint co-trustees, as well as a successor trustee. Three additional pointers from attorneys related to the designation of trustees include:
- Commitment to carrying out your wishes. The Trustee is legally obligated to follow the instructions in the trust document, but there will be times when discretion is required. You should appoint someone who you believe will act in your child’s best interest and stay true to the purpose you outlined for the trust, even in circumstances you may not have anticipated.
- It is also wise to think about potential conflicts of interest. A Trustee who stands to benefit personally from certain decisions could make choices that are not in the beneficiary’s best interest. For this reason, appointing an independent or professional Trustee can help maintain impartiality and reduce the likelihood of disputes.
- …Confirm the willingness to serve before making your decision. Administering a trust is a serious responsibility that can require years of careful management. Some individuals may decline due to personal limitations, lack of time, or emotional challenges, especially if they are grieving your loss.
Good To Know: Trust Distribution Options
When you create a trust, your trust document, sometimes referred to as trust agreement, lists the beneficiaries. You can also specify how and when funds are to be distributed to the named beneficiaries. Your intentions for how and when your beneficiaries receive funds from the trust inform the distribution option you choose. Attorneys at Tucker Allen provide these examples of trust distribution options:
- Outright trust distribution: A beneficiary’s share of the trust is distributed as a one-time lump sum amount after they have reached the age of inheritance. This is the most straightforward method of distribution.
- Periodic trust distribution: The trustee will be required to distribute a predetermined portion of the trust at predetermined times.
- Sprinkling trust distribution: Allows the trustee to have discretion in distributing funds according to beneficiaries’ needs before the youngest beneficiary turns a certain age. This distribution is most common in families with multiple minor children.
- Distribution in share trusts: Your beneficiary’s share of your assets is kept in trust forever. This distribution plan is great for protecting sensitive family members or protecting against outside influences.
Trustee Bonds?
Trustees have fiduciary obligations and are held to exceptionally high legal standards, “the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.” Given the seriousness of the role, trustee bonds are often required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere.
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