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Tuesday, May 24, 2011

Trusts for minors are flexible enough to suit almost any purpose

Children who inherit under the wills of their parents or grandparents cannot legally receive the money until they reach the age of majority, so their funds are held in a trust until that time. In other cases, a trust may be established until a child reaches a higher age, or until some other contingency occurs.

In this post I'm not going to extol the virtues of trusts in general. That's a post for another day. Today I want to talk about how flexible trusts can be.

One area in which flexibility allows you to tailor your trust to your specific needs is defining when a beneficiary will receive the funds in trust. As mentioned already, any age, as long as it is at least the age of majority, may be chosen. The funds don't all have to be paid at the same time, and many parents like to stagger payments to their children over a number of years. For example, a trust in a parent's will might state that the child will receive 1/4 of her inheritance at age 18, a further 1/4 at age 21 and the balance at age 25. Or the parent might stipulate that the funds be paid out in equal annual instalments for, say, ten years.

Another area of flexibility is encroachment, or the taking of money on an as-needed basis in between the set payments mentioned already. For example, if the child in the previous paragraph needed money at age 20 to attend university in another country, perhaps she could have an advance on her inheritance. At the time the will is made, the parent can decide which kinds of things (e.g. medical, educational, emergencies) are important enough to allow for encroachment.

Other contingencies may be added. For example, I've written a number of trusts in which a child receives a greater sum of money each year if she is attending university or college full time than she would if she did not attend school. I've also written trusts in which children are given a large lump sum on their wedding day.

When a family has younger children, the funds in trust can be funnelled out to the guardian of the children on a monthly basis to provide for the child's share of household expenses. This helps to prevent the family who takes on the children on the parent's death and acts as guardians from experiencing a financial hit because of the children.

The parent also has the flexibility to name a trustee for the trust. It can be the same person as the executor, or someone completely different. If the trust is going to be a long one, such as holding funds to age 25 for a grandchild who is only 3 years old currently, the parent may choose a trust company for the job.

The benefit of the flexibile nature of trusts is that it allows parents to address specific situations. Trusts are not all the same because families are not all the same. The parent can use trusts to express his or her goals for the child, such as allowing for tuition fees to be paid. The trust can protect a child who has made a foolish marriage at a young age by holding the money in a trust that can't be touched by the spouse or lost in a divorce settlement. The parent can prevent a child from "blowing" her inheritance by receiving it before she is responsible enough to handle it.

A divorced parent can use a trust to ensure that any funds left to the child will not fall into the hands of the former spouse.

It's very easy to set up these trusts in your will. Any experienced wills lawyer can write a good trust that anticipates all realistic situations.

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