Creative Trust Provisions for Your Children

Your estate plan doesn’t have to say, “Divide everything equally among my kids and good luck.” It’s your money, and a Revocable Living Trust gives you an incredible amount of flexibility over how and when your children receive their inheritance.

Want them to reach a certain age before receiving it? Graduate from college? Match what they earn? Present a legitimate business plan before getting money to start a company? You can get creative. For all you control freaks who want to keep a little influence from beyond the grave, you’re going to love this.

A Revocable Living Trust Is Key

A Revocable Living Trust is a unique document and the backbone of an overall estate plan. It’s a private document that can accomplish a number of objectives, including unique provisions for your minor children, or even adult children who sometimes act like minors.

The trust is administered by you during your life and by a Successor Trustee that you choose upon your passing. This person, or company, will handle and distribute your assets according to the instructions you decided on in advance.

The trust is also designed to allow your Successor Trustee to handle assets held in the trust privately and without putting those assets through probate. And while you’re alive, you can change your trust at any time. It’s a Revocable Living Trust! If you get remarried, have more kids or gain stepchildren, or you decide to completely restructure your entire estate, you can change your trust however you want.

When it comes to your beneficiaries, the trust gives you tremendous flexibility to design an inheritance around your wishes and your family’s circumstances. You control the creative trust provisions for your children, rather than leaving those decisions for a court to sort out after your passing.

The “Carrot” and The “Stick”

Many parents take a two-pronged approach with their masterfully crafted estate plan: the “carrot” and the “stick.” Most importantly, you write the rules when it comes to your trust. Within the limits of applicable law and public policy, you can create provisions designed around your wishes and, hopefully, what will actually benefit your children.

First, parents may want to provide a carrot for children or grandchildren who are willing to work, get an education, start a business, or accomplish certain goals. Creating incentives for children to become responsible, productive adults can also be a more justifiable reason for maintaining some control over an inheritance after you’re gone.

Second, they often want a stick, or terms designed to prevent beneficiaries from blowing through their inheritance through reckless decisions, addiction, or poor money management. What’s wrong with that? If a child isn’t prepared to manage a large inheritance, or simply can’t, a properly drafted trust can provide protections and a structure tailored to their needs.

Trust Provisions for Your Children to Consider

Here are just a few creative trust provisions we discuss with clients when designing a well-drafted estate plan:

1. Hold a child’s inheritance in the trust until a certain age. You could hold the inheritance until age 25, 30, or 35, or distribute it in stages. For example, a third at age 25, a third at age 30, and the final third at age 35.
2. Use a joint Trust for minor children and divide it later. The trustee could manage the funds together while the children are young and later divide the assets into separate trusts. As different children pursue education, business, marriage, travel, or other opportunities, their inheritance can then be managed separately.
3. Provide funds for the Guardian of your minor children. Consider having the trustee provide a specific amount for room, board, clothing, school supplies, activities, and other living expenses. You can establish guidelines for how and when those funds should be distributed.
4. Place restrictions on inheritance when there is drug or alcohol abuse. Your trust can include provisions limiting or delaying distributions when a beneficiary is struggling with substance abuse and allowing the trustee to hold and manage those assets until appropriate conditions are met.
5. Use matching funds. Want to encourage your kids to work? You could provide $1 from the trust for every $1 the child earns, subject to whatever rules you establish.
6. Create incentives for education. You could provide a bonus for graduating from college, completing vocational training, earning a professional certification, or reaching another educational milestone. You could even tie certain education distributions to academic progress if that fits your goals.
7. Pay for education directly. The trust can provide funds for tuition, books, training programs, or other educational expenses rather than simply handing the beneficiary unrestricted cash.
8. Provide money for a wedding. You can authorize a certain amount to help pay for a beneficiary’s wedding.
9. Help a child start a business. The trust could provide funds after the beneficiary presents an acceptable business plan to the trustee. You could even name advisors to help review a proposed business or investment before Trust funds are committed.

These are just examples. The point is that you have options. You don’t necessarily have to hand your child a giant check at 18, 21, or any other arbitrary age and hope for the best.

Children With Special Needs

I’ve learned from some incredible parents of children with special needs that one of their greatest concerns is, “What happens to my child when I’m no longer here to take care of them?” I can’t imagine carrying that question around every day.

The good news is that proper estate planning can provide a tremendous amount of structure and peace of mind. A properly drafted plan can name the people you want involved in your child’s care, establish a trustee to manage assets for their benefit, provide instructions for how those funds should be used, and incorporate a Special Needs Trust when appropriate to help preserve eligibility for certain means-tested government benefits.

You can also build in backup plans. Who steps in if the first guardian can’t serve? Who manages the money if your original trustee is unavailable? What resources should be available for housing, education, medical needs, transportation, or quality of life?

These are decisions you want to make while you’re here, not decisions you want to leave for somebody else.

If You Don’t Make a Plan, the State Has One

Millions of Americans die without an estate plan in place. When that happens, state intestacy laws determine who receives assets that don't otherwise pass through a beneficiary designation, joint ownership, trust, or another transfer mechanism. Probate may also be required. In other words, if you don't make a plan, the law has one waiting for you.

And when you have children, there’s a lot more to plan for than who gets the house or the bank account. Who should care for your minor children? Who should manage their inheritance? At what age should they receive it? What protections should be in place if they're struggling with addiction, money problems, creditors, or a bad marriage? What if you have a child with special needs? These aren't decisions to leave until “someday.”

The Bottom Line

Your kids don't necessarily need a check. They need a plan. A properly drafted trust gives you the ability to protect an inheritance, create incentives, prepare for difficult circumstances, and decide how the wealth you've spent your life building will actually benefit the next generation.

Schedule a Comprehensive Estate Planning Consultation with my team at KKOS Lawyers. We'll review your family, assets, beneficiaries, guardians, trustees, and the unique circumstances surrounding your children, then help you design an estate plan around what you actually want to happen. You worked too hard to build it to let the state, a court, or a boilerplate document decide what happens to it. Put your wishes in writing and take control of your family's future while the decisions are still yours to make.