When you are a parent, protecting your child’s future is always a top priority which often includes safeguarding their inheritance until they are mature enough to manage it wisely. For many parents, a trust is the best estate planning tool for this purpose. To help ensure that your trust works as anticipated, the Port St. Lucie attorneys at Kulas Crawford & Smith share five tips for protecting your child’s inheritance using a trust.
- Choose the Right Type of Trust. The first decision you must make when creating a trust is which type of trust to use. Trusts are broadly divided into testamentary and living trusts. A testamentary trust activates through a provision in your Last Will and Testament and is only administered after your death. A living trust is created and administered during the lifetime of the Grantor (the creator of the trust). If you create a living trust, you must also decide whether to make the trust revocable or irrevocable. A revocable living trust allows you to retain control over the assets during your lifetime and can be modified or revoked as needed whereas an irrevocable trust cannot be modified or revoked once established. Another important consideration is that because assets transferred into an irrevocable trust are no longer accessible to the Grantor an irrevocable trust offers protection from creditors and can help reduce estate taxes while a revocable trust does not offer the same benefits.
- Select a Reliable Trustee. The Trustee you appoint will be responsible for managing the trust assets and distributing them according to the terms you establish. You may be tempted to appoint a close friend or family member; however, given the significance of the duties and responsibilities involved in administering a trust it is best to choose someone who is financially savvy, trustworthy, and reliable. A friend or family member may lack these crucial qualities. Moreover, appointing a friend of family member as your Trustee increases the likelihood of a conflict of interest arising during the administration of the trust. Often, a professional Trustee, such as a bank, law firm, or trust company, is the best option.
- Create Clear Trust Terms. A trust allows you to set specific conditions for how and when the trust assets will be distributed to your child. While your child is a minor, you may want the trust terms to clarify what the trust funds may be used for, such as education or medical expenses. Once your child(ren) reaches adulthood, you may want the trust terms to call for a staggered distribution of the remaining trust assets at specific ages instead of distributing a lump sum to help prevent reckless spending and ensure that the inheritance provides long-term benefits.
- Consider Adding a Spendthrift Clause. If you have concerns about your child’s ability to manage money, a spendthrift clause can provide an additional layer of protection. A spendthrift clause prevents your child from accessing the trust assets directly and limits their ability to use the trust as collateral for loans. Essentially, it shields the trust from creditors and ensures that the assets are used according to your wishes.
- Review and Revise the Trust. Both your circumstances and your child’s will likely change over time. To ensure that your trust continues to reflect your needs and your current circumstances, be sure to conduct regular reviews and make necessary revisions. In addition, life events such as the birth of additional children, changes in your financial situation, or significant shifts in tax laws may call for an immediate update to your trust agreement.
Can We Help You Protect a Child’s Inheritance with a Trust?
To learn more, please join us for an upcoming FREE seminar. If you are a parent who needs help creating a trust to protect your child’s inheritance, contact an experienced Port St. Lucie estate planning attorney at Kulas Crawford & Smith by calling (772) 398-0720 to schedule a consultation.
Joshua K. Crawford (Josh) is the Managing Partner at Kulas Crawford & Smith, where he helps families navigate Estate Planning and Elder Law with clarity and care. A proud graduate of the Florida State University College of Law, where he finished in the top 8% of his class, Josh has guided thousands of families in protecting what matters most. He’s passionate about making the estate planning process simple, personal, and stress-free for every client... Read More!
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