Parenthood, especially when a first child is on the way, is a busy time. Long before your child is born or adopted, you’ll be worrying about choosing names, decorating the nursery, and much more. But planning for your child’s financial future should start early, which means considering a trust. New families in Massachusetts can benefit from comprehensive estate planning services.
When thinking about an estate plan for your young family, a last will and testament likely comes to mind. And while this is a critical component of any estate plan, a will is merely the beginning. Trusts are more dynamic and, when structured correctly, allow parents to continue contributing assets while providing tax savings. These instruments can provide critical support for children, regardless of what life stage they are in.
Although wills distribute inheritances all at once, trusts can be structured to dole out portions of an inheritance over time or for specific purposes. In this way, a trust can function like an allowance. Some parents choose this option because they don’t want their children to suddenly inherit large sums of money. The children may be unwise with money and require limitations to ensure careful budgeting.
An alternative is to distribute trust funds to a child once he or she reaches a certain age or milestone, such as graduating from college or securing employment. Other parents choose to design trusts so that their children must accumulate a specified amount of savings or an asset, like a house. This is known as a conditional trust and it can be used to ensure that children don’t receive an inheritance until they demonstrate financial or personal responsibility.
Some new parents learn early that their child will have mental or physical disabilities. For them, a special needs trust can ensure not only that the child will have financial support but that he or she will be able to qualify for government aid programs. A special needs trust can prevent assets and income from being counted against the child for purposes of public assistance eligibility. It can also provide resources to cover expenses that are not covered by government aid programs. Considering the high cost of medical care and educational resources, a special needs trust could prove invaluable.
One particular advantage of a trust is that it does not require court supervision. This is unlike a last will and testament, which must be probated and is therefore subject to scrutiny by the public (not to mention members of your extended family). A trust can protect your family’s privacy and ensures more efficiency and control over assets outside of judges and courts.
Another advantage of a trust comes into play if the parents die before the children reach the age of 18. If this happens without a trust, it complicates your estate and requires the appointment of a conservator to manage the assets. Although you can designate someone to serve as conservator for your minor child in your will, a trust allows you to create more structure and control over the assets.
In addition to designating when the child can receive all or a portion of the estate, the trust can provide other instructions for how funds should be dispersed. The trustee is generally given broad authority to spend trust assets as he or she sees fit, provided it is for the child’s benefit. But as grantors, the parents get to establish the terms and limitations of this authority. For example, you can specify that assets are restricted to being used for the health, education, maintenance and support of the child. A young adult child may be able to partially support themselves with part-time work but need the trust to fund college or vocational education expenses. Establishing a trust allows you to specify the conditions under which the funds may be used after your death.
Contrary to popular belief, trusts are not just for the wealthy. They’re an essential tool in ensuring your child is prepared for life’s financial challenges.