This is the worst case scenario that no one wants to think about, but if both you and your spouse should die before your children turn 18, a trust is a way to provide for your children.
Minors (children under the age of 18) who inherit assets, must have a guardian appointed to oversee the use of those assets, as explained by Trust Advisor in a recent article “Should You Create Trusts for Your Children?.”
In most instances, the guardians must be bonded and must file a formal accounting with the court each year with a petition for approval. All of these costs are taken from the child’s assets.
There is another option: instruct that a trust be created for each minor child in your will at the death of both parents. In the will, you can state that the trustee doesn’t need to post a bond or to file an accounting with the court every year.
Setting up a trust for a minor child is usually easier and less expensive than leaving the assets outright to a minor child and having a guardian appointed. Many estate planning attorneys recommend that even if you think your children will be over 18 when both spouses die, consider keeping the assets in a trust for the children to protect them from themselves. It is advised to wait until they reach a specific age, when they would be best ready to handle the assets. For some, this might be age 30 or 35, or older. Other parents set up the trust to continue for their entire lives to protect the assets in the trust from future claims of the child’s creditors, or in the event that he or she goes through a divorce. Assets that continue to be held in the trust, can’t be touched by a child’s current or future creditors.
Trusts can have a considerable flexibility. For instance, the trustee can be given the authority to make liberal distributions to the child for any reason the trust creator wants or for no reason at all. At a certain specific age, the child can also become a co-trustee of his or her own trust and be given the power to remove and replace the co-trustee making the distribution decisions. That can give the child significant control over his or her own trust.
A qualified estate planning attorney will be able to discuss what certain types of trusts can and cannot do, and whether or not a trust is appropriate for your family. It is important to note that a trust that works for your neighbors, may not be the right fit for you. Trusts are not “one size fits all” planning tools.
Reference: Trust Advisor (March 28, 2017) “Should You Create Trusts for Your Children?”