5 ways a trust can be used to control distributions to children

4/15/2015 | Kaplin Stewart Blog

Parents want to make sure that their children will be taken care of financially should anything happen to them. It is one of the reasons that children are probably the most common beneficiaries of money or property in estate plans. Of course, parents know that just handing over a lump sum of money is not always the best option.

Trusts are a great solution to this problem. Parents have a lot of flexibility when it comes to setting limitations, restrictions or conditions for the distribution of money. What are some situations in which a trust would be beneficial?

Listed below are only five examples of situations in which a trust may be helpful.

1. Do you have minor children? A trust provides an avenue for the controlled use of money for children while they are minors. Parents can set a certain age for final distribution or stagger distributions, like every five or ten years, and even increase the distribution amount over time. The answer to number three is also helpful here.
2. Do you have a child with substance abuse problems? Parents can condition distributions on drug testing, requiring a negative test result or preventing distribution if the child fails a drug test.
3. Do you have a child who is not very good at managing money? The terms of a trust can restrict use of the money to the “health, education, maintenance and support” of the beneficiary, granting the trustee with discretion over distributions.
4. Do you want to encourage certain life choices? The terms of a trust can act as incentives, like restricting money for a college education, purchasing a home or starting a business.
5. Do you have a special needs child? Giving money directly to a disabled child (by way of their guardian) can affect his or her ability to obtain government assistance, like Supplement Security Income benefits. A trust protects against this unintended consequence and others, like financial abuse.

Although they provide a lot of flexibility, setting up trusts is a complicated process. All applicable rules must be met, the terms must be precise and the assets need to be transferred properly. You should always seek the assistance of an experienced attorney in Pennsylvania.

Source: Business Insider, “Here’s The Right Way To Leave Your Child A Trust Fund,” Anne Brennan, Sept. 20, 2015