Do I Need to Set Up a Separate Trust for Each of My Minor Children?

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Do I need a Separate Trust for Each of My Children?

When creating trusts, parents are faced with tough decisions about how to leave their assets to their children. Do I need one big trust or a separate trust for each of my children. While each person needs to consider their own situation and unique child or children, there are a few general issues that everyone should consider. Assets of minor children should always be held in trust but what are my options for separate trusts or one common one. You do not want children under 18 inheriting assets. While they are under 18, their guardian or conservator will control the money for them. If you’ve already decided that your sister Sally will be a wonderful guardian for your children because she has a great relationship with your kids and a cozy home, think carefully about if she will also be a strong guardian of their money. If her afternoons are spent shopping and her finances are in disarray, it is best to leave the kids’ inheritance in the hands of a more qualified trustee.

Many clients set up individual trusts for their adult children to maximize protections. But for minor children, a useful tool is the Common Trust. A common trust is a trust that benefits all the minor children together, as their needs dictate. Each of the children is treated fairly, but not necessarily equally.

For example, imagine a common trust set up for three minors: Sally (age 12), Billy (age 10), and Mary (age 4). Sally may need braces this year at a cost of $3,000, but the trustee does not have to give $3,000 to Bill and Mary to keep things equal. Billy may be constantly outgrowing his clothes and requiring new ones, but Sally and Mary do not need to receive a dollar for dollar payout to match Billy’s. Money is spent from the trust the same way you would spend it if you were still alive and taking care of your children’s individual needs.

Consider a lifetime trust

Another important issue is whether you should distribute the monies to the children outright when they reach a certain age. First, if you give your children the right to withdraw trust money, it becomes their own money and is subject to their creditors as well as their divorcing spouse. Keeping the monies in trust for the child’s lifetime will provide better liability protection. The trustee would have discretion to distribute money, but the child would never have a right to demand chunks of cash. This is the best approach if you are concerned that a child has creditors or may divorce in the future. For example, if your child receives a $5 million inheritance and has no prenuptial agreement, that money will be a marital asset subject to division.