Placing Conditions on a Trust for Children
A will usually comes to mind when people think of estate planning; however, you may want to consider a trust if you plan for your children to inherit any of your assets. You can establish specific stipulations or certain conditions for your children through the implementation of a trust.
What is trust and what is its purpose?
You may have particular connotations or assumptions associated with the words “trust” and “trust fund.” Many people are surprised to learn how many trusts and trust funds are established for children. There is also much misinformation about the purposes of setting up a trust for your children. Trusts very often get associated with supplying a child with an excessive amount of cash to purchase and do whatever they want. The reality is that trust funds are established for various reasons. But one of the more common reasons is to help ensure a child is provided for if the parents are no longer around or are in some way incapacitated. This way, your child has access to resources to be able to live.
There is no minimum value required when it comes to starting a trust. A trust is not only for the children of multi-millionaires. One may establish a trust to ensure their children each get an equal share of a family home, funds for college, or funds for living expenses and other needs (e.g., a first car).
What is the difference between a living trust (or revocable trust) and an irrevocable trust?
A living trust (or, revocable trust, or revocable living trust) is a trust established for your own benefit during your lifetime that passes trust property to named beneficiaries upon your death. While a will can accomplish a similar purpose, a will needs to be probated. Probate is a court process by which your property is administered and transferred to your beneficiaries after your death.
A revocable living trust is a common estate planning tool. It can be modified at any time and revoked (canceled) by you during your lifetime. As the grantor (the person creating the trust), you will name yourself as the “trustee,” i.e., the person who retains control over the trust and its property. Your trust document also identifies successor trustees who will take over and manage the trust should you pass away; this person will distribute the trust’s assets to your beneficiaries. If you are married and create a joint living trust, your successor trustee will take over only after both spouses pass away.
In contrast to a revocable living trust, an irrevocable trust cannot be terminated, canceled, or modified by you after it is created. Trusts with unalterable provisions can serve specific goals, such as reducing estate taxes; however, they require the loss of control and ownership of trust property.
Setting trust conditions to benefit your children
The trust is established by a trust agreement that specifies the trust’s terms. The creation of a trust is subject to specific legal requirements, but within those requirements, a trust can be tailored to meet the trust creator’s intentions. Among the provisions of the trust document are the identification of beneficiaries, and the circumstances under which distributions from the trust are to be made. In your trust, you can set milestones: graduation from college, marriage, and homeownership, which would then trigger distributions to the beneficiaries. Distributions of assets can also be set for disbursement at particular ages or at the trustee’s discretion.
For example, perhaps you have a child at the age of young adulthood who is going through a difficult time, such as struggling with substance abuse. You can customize the trust to include a drug screen, completion of an intensive outpatient or inpatient rehab program, or for the child to have attended a certain number of NA (narcotics anonymous) or AA (Alcoholics Anonymous) meetings. Another example might be a provision to authorize the distribution of money for a child who is in financial need.
The key to designing and executing an effective trust
There are so many possibilities when it comes to customizing a trust’s terms to address certain purposes, timelines, or other special situations pertaining to your desired beneficiaries. Every trust is unique. Therefore, it is vital that all trusts be drafted and executed with the guidance and knowledge of a professional and skilled estate planning attorney. If you have questions about setting up a trust for your children, or any other estate planning related questions, we encourage you to contact our experienced Nevada trust and estate attorneys. You are welcome to set up a free and confidential consultation.
Attorney Kennedy Lee practices in all aspects of trust and estate law. He views all legal issues from multiple angles (e.g. from litigation to administration point of view) to provide a higher quality of service to our client.