A Trust Fund for Kids: Does Your Family Need One?

The Purpose of a Trust for Kids and Your Family

When You Do (and Don’t) Need to Establish a Trust

When You May Not Need a Trust:

  • You don’t have minor children. If you don’t have dependents (or none of your heirs are under the age of 18), a will may be sufficient. When minor children are in the picture, however, a trust can provide more protection for them.
  • You don’t need to stipulate exactly how your assets are distributed or used. A will might be sufficient if you do not have specific wishes for how any beneficiaries use their inherited assets. For example, a married couple with no children may simply leave their assets to adult family members (like their siblings), knowing those heirs would have full control over how the money is used. If you prefer to stipulate precisely how and when the inheritance you leave is used, a trust might be a better way to go.
  • You don’t have financial assets outside of retirement accounts. If your current investments consist of money in a 401(k) or similar plan, like a 403(b), and/or IRAs (including traditional, Roth, SEP, and SIMPLE accounts), you may not need to set up a trust in order to ensure those funds get to your children or other heirs. You can set up beneficiaries on these accounts; if something happens to you, the assets automatically pass to those beneficiaries. You can set up primary and contingent beneficiaries, and stipulate what percentage of assets go to each person you name. Keep in mind that if your children are minors, then their guardian will have full access to their inherited assets unless you have a trust.
  • Your bank accounts are payable or transferable at death. Having this designation on bank accounts means the money could go straight to a person you name as the beneficiary, without going through probate. (You might see this abbreviated as “POD” or “TOD.”)
  • You’re still building up your assets and need to focus your available cash on contributing to savings and investments. Trusts aren’t free to set up; depending on your situation and your state, it could cost several thousand dollars to establish a trust. If all other signs point to “you need a trust,” don’t let the cost dissuade you from putting an essential piece of your estate plan in place. But, if you discuss with a financial planner and/or estate planning attorney and you don’t feel it’s critical right now, you might want to wait. You can always revisit this as your life changes and evolves in the future.

When It Might Make Sense to Establish a Trust Fund

  • You have assets beyond money you’ve saved into retirement accounts (like taxable brokerages, for example)
  • You have minor children
  • You have adult children but do not necessarily want to leave their inheritance to them on a “no-strings-attached” basis
  • You want to stipulate precisely how inherited funds may be used or accessed by your heirs
  • You have, for whatever reason, a more complex financial or family situation (for example, if you’ve been married more than once and/or have children from multiple marriages, if you want to leave money to individuals outside of your immediate family, if your assets go beyond qualified retirement accounts, and so on)
  • You have tangible assets, like jewelry or art
  • You own your own business, which may factor into your estate planning
  • You own property in multiple states

The Various Roles You Need to Fill If Establishing a Trust

Should Your Trust Be Revocable or Irrevocable?

Yes, You Need to Work with the Pros for This

  • Understanding wills, and what yours might need to include
  • Identifying individuals you’d want to grant power of attorney to, or name as guardians of minor children
  • Establishing healthcare proxies

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Eric Roberge

Eric Roberge

#FinancialPlanner helping 30 & 40-somethings build #wealth & think differently about #money • Top #FinancialAdvisor in #Boston • www.BeyondYourHammock.com