Parents strive to make their children feel equally valued. As such, parents typically divide their accounts and property equally among their children when setting up an estate plan. But while parents strive for equality, they simultaneously acknowledge that children have different needs at different times. And these needs do not always correlate with perfectly equal dollar amounts. Consider adding a common trust to your estate plan to achieve your goals. As an estate planning attorney in Austin, I help clients work through the best tools for achieving their life and legacy goals.
Consider that should something happen to you. Would you necessarily want your accounts and property passed to your minor children in equal shares? In this case, there may not be enough money for each child’s expenses. Almost certainly, one child will require more funds than another. Instead of simply dividing your assets equally, you could place assets into a pot trust or common trust. You can direct your trustee on how to spend the money and property on behalf of all the beneficiaries.
You probably do not keep a ledger of how much each child costs you. You spend as much money as each child requires. Inevitably, there are spending imbalances. Although not perfectly equal in terms of dollar amounts, one could consider such an approach fair because you allocate funds based on need instead of an arbitrary measure such as age.
Fairness involves accounting for the differences among your children. You want to be fair to them in life—and in death. When setting up an estate plan, you acknowledge the unpleasant possibility—no matter how remote—that you may not be around to care for your minor children while they are growing up.
If you want your post-death spending arrangement to mirror the one you currently use to provide for your children, consider a common trust. To ensure that your trustee will use the same considerations, you should include instructions that outline criteria similar to what you would typically use for spending money to meet your children’s needs and expenses. Dividing accounts and property into equal shares may not be the best way to achieve this goal. In particular, older children may benefit more from an equal distribution because you have already invested more money in their education and other costs. In comparison, younger children would need to use their share of the inheritance to pay for such things.
The basic mechanisms of a common trust are as follows:
You can also leave instructions to the trustee that older children can receive an advancement from the common trust to pay for expenses such as buying a home or starting a business. The trustee would then subtract those funds from the share beneficiary ultimately inherits when the common trust terminates. This choice allows older children to have access to their share if they need it. They can move forward financially, without waiting for their younger siblings to come of age.
Note that you are not required to specify a particular age at which the trust terminates. You can choose an event, such as the youngest child’s graduation from an accredited college or university. Just keep in mind that such events might not come to pass. Or they may take longer than anticipated to complete (e.g., the youngest child could fail to graduate, decide to take a five-year break between graduating from high school and starting college, or stay enrolled in college for seven years taking a variety of courses without completing a degree). So including age milestones can be a more reliable marker. For example, you might direct a disbursement when the youngest child graduates from an accredited college or university or reaches the age of twenty-three.
The key benefit of a common trust is flexibility. You are giving the trustee the same spending discretion that you currently exercise. They have the authority to manage money for the family in the same way you would. This is a heavy burden for the trustee. And, it is a big decision for you because the trustee will need to manage family dynamics, objectives, and interests. Choose wisely.
Of course, your children may have a different outlook. Older children could resent waiting until the youngest child reaches adulthood to receive their share of the funds. And by then, depending on the size of your estate, the funds might have been depleted by the younger children. From your point of view, a common trust might be the fairest way to handle leaving accounts and property to your minor children, even though it is not 100 percent equal.
A common trust might not be the best option if there is a significant age gap between your oldest and youngest children. But if you have minor children who are close in age and want to give a trustee discretion to care for their needs in a parental manner, a common trust is a wise option. However, it is not the only option. For children with diverse ages or requirements, you could choose to divide funds equally into an individual trust for each minor child or explore additional options.
To learn more about common trusts and how they can protect your children and other essential estate planning tools, please schedule an appointment with our law office.
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