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Tuesday, March 9, 2010

Using trusts to protect your children

Today I talked with a client whose child has Cerebral Palsy and will one day inherit a significant amount of money. We talked about how to protect the child if his condition should worsen to the point where he cannot work to support himself. We also discussed the fact that one day the child, theoretically, might not be able to handle his own money.

This kind of discussion is not unusual. Families have an endless number of variations. In many of these, the parents want to know if there is anything to do to protect their children. Sometimes the child needs protection from himself, for example if he has a gambling addiction or has spendthrift habits. Sometimes the parents want to protect the child from others such a divorcing spouses. Most of the time, the parents just want to make sure that the child doesn't inherit a lot of money while he is too young to handle the responsibility.

When you see your estate planning lawyer, you may not know what the answers to your questions are, but that's the whole point of the consultation. Go in knowing what you want to achieve (e.g to protect your daughter by making sure she doesn't inherit money while she is too young) and ask for ideas about how to achieve that.

The answer is often a trust. When a trust is set up in a Will, it's called a testamentary trust and setting them up is as simple as including proper instructions in your Will. Of course each case is unique, but many Wills contain trusts like this so experienced Wills lawyers will defintely be able to craft a trust that suits your goals and wishes.

A trust always involves one or more people (the trustee) who is responsible for holding money or property on behalf of someone else (the beneficiaries). You will be able to decide at what age your children will inherit, who will be the trustee, who will get the money if your child should predecease you, etc. In other words, trusts are definitely not all the same and yours will be tailored to meet your needs and reflect your choices and instructions.

I don't recommend that people try to draft their own trusts or their own Wills that contain trusts. It's really easy to make mistakes that will land your estate in court, not because it's in dispute but because the terms of the trust need to be clarified. You may even end up with a trust that is so poorly drafted that the court says it isn't a trust at all. This is something that is better left to experienced drafters.

I notice that when I give seminars, I get plenty of questions about trusts. If you have a question, please feel free to post it here for me to reply.

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