Being fair to children does not always mean ensuring assets are equally gifted via an estate plan. Age, health, special needs, educational and vocational goals are among the dynamics that can make doing what’s fair more complex then simply cutting even slices of the pie. Estate planning experts explain how pot trusts can be helpful.
Lots of families have the goal of making sure everything’s divided up “fair and square” when it comes time to pass assets to the next generation. But, just as children have different needs from living parents who love them equally, they may also have different needs as parents pass on. For example, experts at Kiplinger offer a scenario about the creation of an estate plan for a family with three children at or near adulthood. The two oldest children have already completed college, with their education paid off by their parents. The youngest child is just beginning college, so if the parents were to die, fairness could look like the third child receiving tuition funds before the remaining assets are divided among all the siblings. Pot trusts can allow for this. Estate planners explain that pot trusts can be a sensible way to allow for fair, if unequal division of assets among surviving children:
A pot trust is a type of trust that lists multiple beneficiaries, such as your children, within a single common fund. Imagine a pot of available funds for all your named beneficiaries. Like other trust types, the pot trust is managed by a trustee, who is responsible for managing the trust for the benefit of the beneficiaries. Subject to certain legal obligations (called fiduciary responsibilities), your chosen trustee has the authority to determine how assets are distributed among your beneficiaries. A pot trust is most valuable when there’s some nuance and/or complexity among your beneficiaries’ circumstances. They might differ in age, means and needs, for example, and in such situations, slicing up the pie equally might be more theoretical than practical.
When any type of trust is created, lawyers advise careful consideration in choosing the trustee who will administer it. Since making “fair but unequal” judgment calls is not always easy, trustees must be up to the particular decisions they might need to make when managing a pot trust. While working with a lawyer to establish the trust, it’s important to incorporate as much detail as possible about its purpose and terms into the trust agreement. For a pot trust to achieve the goals of the settlor (aka the person establishing the trust), the appointed trustee must understand and be prepared to abide by the terms of the trust. Collins Law Group points out that among the skills trustees need are the ability to communicate with beneficiaries, resolve conflicts if they emerge and make discretionary decisions.
Given the gravitas of the role, trustees may be required to obtain a trustee bond. 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. Essentially, trustee bonds guarantee the faithful performance of the trustee. As a leading national provider of many types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere—even the estate planning office.
Kiplinger points out that sometimes, it might make sense for separate trusts to be set up for each child in a family, whereas pot trusts can be particularly helpful in these instances:
- You have children who are several years apart in age.
- You want your children to be financially supported after your death the same way they were when you were alive.
- You want to be prepared for your children’s unexpected needs.
- You are comfortable that your nominated trustee will communicate effectively with your children.
- You believe that your trustee understands your goals and priorities for your children and will consider them when making distribution decisions.
Keep in mind that If a trust is being established for a child or other loved one with special needs, extra diligence in the selection of the trustee is critical. Regardless of the type of trust involved and trustee named, fiduciary bonds can be helpful—or even required. Across the country, lawyers and their clients rely on Colonial Surety’s efficient online service to quickly obtain a quote, make the purchase and instantly print or e-file the bond. Colonial’s fiduciary bond portfolio includes: trustee, conservator, guardian, personal representative, administrator, estate, executor, probate, surrogate, and more.
In addition to providing bonds directly to the general public, Colonial offers The Partnership Account® for Attorneys . This free business service provides user-friendly client management dashboards, enabling attorneys to easily coordinate, view, complete and e-file the court and fiduciary bonds clients need. See for yourself today: The Partnership Account® for Attorneys.
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