Most parents set up living trusts in hopes of caring for their children in the case of an emergency. However, various legal issues may arise when inheritances are left to minor children. Minors cannot hold title to property. If you make a gift to a minor during your lifetime, it must be made pursuant to state laws.
Parents who believe their beneficiaries are unable to effectively manage money or can't be relied on to make sound financial decisions, can disburse funds to the beneficiary in smaller, regular amounts instead of one large lump sum, so the beneficiary doesn't spend all the money at once. The money can be given out in installments—for example, one-third at age 25, one-third at age 30, and the rest at age 35. Or payments could be made yearly. The person you choose to serve as trustee will manage the money, but won't have to make decisions about how to spend it. Instead, the
trustee will simply make the distributions as stated in the trust document. Additionally, parents can specify how the funds can be spent (e.g., on rent, food, healthcare, and other necessary or unexpected expenses).
Parents can also establish trusts to pay for education. A college trust fund offers flexibility in how and when money is disbursed for educational expenses. Typically, an education trust will specify that each child's full tuition and college expenses be paid, after which any remaining assets in the trust can be split evenly among all of the children. Most times, the children will have different financial needs—for example, if one child obtains a graduate degree, while another simply earns a bachelor's degree. Parents may decide to give each child the same amount, regardless of the cost of their education, or provide varying amounts depending on each child's educational costs.
Parents can appoint an adult, or executor, to carry out the parents' wishes and place conditions on the inheritance distributions; however, not all conditions are legal. Conditions that include marriage, divorce, or the change of the beneficiary's religion will not be enforced by the court. Parents can put other types of conditions on gifts that encourage someone to do or not do something. For instance, you could make the condition, "to Sarah, if and when she graduates from college." Or you could say, "to Bob, as long as he uses the property for charitable purposes." Unfortunately, putting conditions on inheritances may complicate things. In order to actually enforce these conditions, you may have to pay an executor's fee for the executor to carry out your wishes.
As you can see, these trusts are complex and must be prepared by a lawyer who has experience with trusts, investments, and estate tax rules.
Call one of our experienced estate planning attorneys today for a free consultation.