Can My Child Serve as Trustee of Their Trust Share and Still Have Protections?
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Learn whether your child can serve as trustee of their own trust share while maintaining safeguards for inherited trust assets.
Child as Trustee for Their Own Trust Share
Your child can serve as trustee of their own trust share. Our estate planning attorneys highly recommend familiarizing yourself with the details involved, though.
Clients often include one or more trusts in their estate plans to ensure that, if they pass prematurely, their assets are set aside to pay for their children’s health and education. A typical “minor’s trust” places the assets in a trustee’s care and gives the trustee sole discretion to distribute the assets for a child’s health, education, maintenance, and support until the child reaches certain specified ages, such as 25 or 30.
During the estate planning phase, clients are asked whom they want to name as trustee of these trusts. Young parents often provide a quick response along the lines of “my brother,” “my husband’s sister,” or even “my parents.” For many couples in their twenties and early thirties, the thought of passing away before their children are grown is unthinkable. Therefore, they may not give sufficient consideration to choosing a trustee.
However, clients may want to give greater consideration to whom they appoint to this important role. If the issue is not fully considered initially, it should at least be revisited periodically as family or financial circumstances change.
Concerns About Creditors If My Child Serves as Trustee
One concern is that a creditor or “predator” may be able to “step into the shoes” of a child to enforce a judgment or claim. Once in the child’s position, the creditor or “predator” may attempt to exercise any rights held by the child over the trust assets.
For example, if the trust permits the trustee to make distributions of trust income or principal to the trust beneficiary in the trustee’s “sole and absolute discretion,” and the child is the sole trustee and sole beneficiary, such broad language might make those assets available to the child’s creditors in some states.
More protective provisions would limit distributions to certain purposes, such as health, education, support, or maintenance. Even this seemingly restrictive language can be broad because “maintenance” may include a distribution needed to maintain your child’s standard of living. Distributions for a house, car, or travel could be included as distributions for your child’s maintenance.
If your child is named as the sole trustee of their trust and the trust allows the trustee to distribute income and principal for your child’s support, a creditor who furnished goods or services classified as support may be able to “step into the shoes” of your child and seek a distribution to satisfy the judgment or claim. Generally, if a beneficiary has a right under state law to compel the trustee to make a distribution, a creditor may be able to enforce that right.
Consider a Co-Trustee
To keep this from happening, you may want to name an independent party as co-trustee of your child’s trust. In a serious situation, your child could even resign as trustee, leaving management in the hands of the co-trustee.
Because the independent trustee has no connection to the creditor or predator, the creditor or predator is generally unable to “step into the shoes” of the independent trustee and exercise the trustee’s right to make a distribution. A properly drafted spendthrift clause may prevent others from interfering with the independent trustee’s discretion in making distributions of trust property.
You can give your child indirect control over their trust by allowing them to remove and replace the co-trustee. However, the trust may need to limit replacements to people or institutions that meet specified independence requirements.
Other Ways to Balance Control and Safeguards
A co-trustee arrangement is one way to give your child a role in managing inherited assets. The trust can divide responsibilities according to the type of decision involved. For example, your child might manage investments and routine administrative matters while an independent trustee retains authority over distributions made for your child’s benefit.
Another option is to delay your child’s appointment as trustee until a specified age or until certain conditions are met. It can name successor trustees who will serve if your child resigns, becomes incapacitated, or is otherwise unable to perform the required duties. Clear succession provisions can reduce the risk of management delays or the need for court involvement.
The appropriate arrangement may depend on your child’s age, financial experience, profession, marriage, business interests, and ability to maintain accurate trust records. Different terms may be appropriate for each child, even when children receive trust shares of equal value.
Why the Distribution Standard Matters
The distribution standard determines when trust income or principal may be used for your child. A narrow standard can limit your child’s authority, while broader discretionary language may give the trustee greater flexibility to respond to changing circumstances.
Consider whether the trust is intended primarily to cover essential needs, preserve inherited assets over your child’s lifetime, or provide substantial access after your child reaches adulthood. The distribution standard should reflect that purpose and work together with the trustee appointment and spendthrift provisions.
The document should also address whether your child may request distributions, whether supporting documentation is required, and who has final authority to approve a request. Clear instructions can reduce uncertainty and help the trustees administer the trust consistently.
Review Your Child’s Trustee Provisions
The degree of protection available to a child’s trust share depends on the trustee’s distribution authority, the identity of the trustee, the spendthrift language, and the governing law. Naming your child as trustee does not automatically eliminate every safeguard, but the appointment must be coordinated carefully with the rest of the trust.
Anthony J. Madonia & Associates can review your existing trust documents and help determine whether the trustee provisions reflect your intentions. If you have questions about who should manage your child’s trust share, contact us to schedule a consultation.
Frequently Asked Questions
Can My Child Be Both Trustee and Beneficiary?
Yes. A child may be permitted to serve as trustee and beneficiary of the same trust. Whether the arrangement is appropriate depends on the authority granted to the child, the distribution standard, the purpose of the trust, and the law governing it.
Does Naming a Co-Trustee Prevent My Child From Participating?
Not necessarily. The trust can divide responsibilities between your child and the independent co-trustee. Your child may handle investments or administrative matters while the co-trustee decides whether to approve distributions made for your child’s benefit.
Can My Child Replace an Independent Co-Trustee?
The trust may give your child authority to remove and replace an independent co-trustee. Requiring the replacement to meet defined independence requirements can preserve flexibility without giving your child unrestricted authority over trust distributions.
Does a Spendthrift Clause Block Every Creditor Claim?
No. A spendthrift provision may restrict certain creditors from reaching trust assets before distribution, but exceptions can apply. The trust language, beneficiary’s authority, type of creditor, and governing law may all affect the result.
Review Your Child’s Trustee Arrangement
Your child may serve as trustee of their own trust share, but the trust must place suitable limits on that authority. Distribution standards, spendthrift language, and the possible appointment of an independent co-trustee can help balance personal control with the intended safeguards.
The right arrangement depends on the trust assets, your child’s circumstances, and the law governing the document. Anthony J. Madonia & Associates can review these factors and determine whether the current trustee provisions support your estate planning goals. To discuss an existing trust or prepare terms for a new one, contact us to schedule a consultation.