Do I Need A Trust?

by Sheryll Bonilla, Esq.

If you have young children, a trust is helpful.

Children cannot legally own property, so a trust allows the parents to name a successor trustee who can hold and manage the assets to support the children, then transfer the assets when the children are old enough to receive them.

Parents can specify an age at which they want the children to receive their inheritance. Parents can also set out contingency plans, such as who inherits a child’s share if a child dies before inheriting, such as the grandchildren or living siblings to receive it.

It helps if the trust is named as the beneficiary of life insurance policies if the children or grandchildren beneficiaries are under age 18.

Without a trust named as beneficiary, the parent has to go to court to be appointed as conservator so the parent can receive the policy benefits for the children.

A separate conservatorship case has to be brought for each child, so legal fees can add up.

If the trust is the policy beneficiary, the successor trustee can collect the policy benefits without any court orders and manage the funds for the children or grandchildren.

A trust also helps if real estate is involved. If a parent adds the children to the deed, this creates multiple owners. Do they own as joint tenants or as tenants in common?

The parents might have intended that their grandchildren get their deceased mom or dad’s (the adult child) share, but that doesn’t happen in a joint tenancy.

In a joint tenancy, whoever dies last owns the entire property. Did the parent owner add their children as tenants in common?

If the adult child dies before the parent owner, that child’s share has to go through probate to pass it to their children. The living siblings can’t do much with the property until the probate court appoints a personal representative for the dead sibling’s estate.

With a trust, the successor trustee has the flexibility to manage the property and distribute the rental income or sales proceeds from the real estate to the beneficiaries.

In a trust agreement, parents can set restrictions so that an adult child cannot receive any cash distributions if the child has problems like excessive debt, gambling, alcoholism, or drugs, or is not gainfully employed.

Or parents can direct the Trustee to pay college expenses while the adult child is a student, or set an amount for down payment to be given if the child wants to buy a home.

If the home is going to be used as a rental, the trust can say how the rental income will be divided among the children, until the house is sold.

Trusts are also helpful because it can state that children who are born after the trust is created, can also inherit, so parents can prepare in advance for later-born children. This can also be written to include as beneficiaries any grandchildren who are born after the trust is established.

If you don’t have children and are contemplating creating a trust, you may be thinking of setting out percentages of assets to your friends.

You may want to use fractions instead, just to make the math easier if a friend beneficiary dies before you do.

Trusts can be helpful estate planning vehicles. Give it some thought before you create one.