Secure the Well-being of Our Children

Raising our children continues after the first 18 years! We want to ensure our values are instilled in them for their entire lives. Establishing an estate plan becomes of paramount importance when minor children or grandchildren are involved. While finding the time during our busy lives may be challenging, having a well-thought-out and carefully drafted plan is essential! Trusts offer a unique opportunity to leave a lasting impact on our children’s lives. Here are three types of trusts designed to address different goals and priorities for safeguarding the future of minor children and grandchildren.

1. Education and Health Exclusion Trust:

Education is a crucial stepping stone to our children’s success, and some funds stored away in a trust can make a significant difference. Grandparents can set aside funds specifically designated for their grandchildren’s educational and healthcare needs. 

According to the US Treasury Regulations, a trust can pay for tuition costs for a formal educational institution. Grandparents can avoid quite a bit of tax liability on funds transferred to the trust. Further, gift tax liability can be avoided on funds disbursed as qualified transfers directly to the educational institution or medical provider. 

As a parent to two young adults, I can attest that a “529 Plan” also has distinct advantages for a parent to help with educational costs.  A 529 plan is a tax-advantaged savings plan and comes in two types: prepaid tuition plans and education savings plans.

2. Incentive Trusts:

How likely are children to do the dishes, walk the dog, clean their room, or offer to cook dinner? How much does the likelihood increase when they are offered money to complete these tasks? Most parents would agree that incentivizing young children works like magic. How surprised would you be to learn that even if you are not around, you can continue to guide and motivate your children by incentivizing them from beyond the grave?

Incentive trusts provide parents with the flexibility to set goals and appropriate rewards through distributions once a child reaches the goal. Parents can set multiple and separate goals for each child.

There are a variety of goals that can be addressed with incentive trusts, such as higher education, receiving good grades, starting a business, and maintaining a paying job. As you can imagine, these goals are best defined by you; who knows your children’s abilities and limitations.

3. Beneficiary-Controlled Trust:

A beneficiary-controlled trust offers an appealing option for those who believe their children are financially responsible and exercise good judgment. This trust structure minimizes the risks associated with outside control while allowing your children to have some influence over their inheritance. 

The advantage of a beneficiary-controlled trust is that it grants the beneficiary significant control over their inheritance while still imposing certain restrictions on its usage with distributions based on a standard, such as health, education, maintenance, and support (HEMS). This safeguard prevents most creditors from reaching the beneficiary’s interest in the trust. However, once a distribution is made, it becomes susceptible to the beneficiary’s creditors.

 When planning for the future of your family, it is essential to work with a qualified estate planning professional. They can analyze your unique situation, discuss your goals thoroughly, and craft a comprehensive plan that safeguards the future of both you and your loved ones.

Read more articles in my monthly Legally Speaking column