Kids can be crazy at times. Younger kids that are left large sums of money or large estates will often mismanage their finances or the estate, and be left with nothing shortly after. Parents that have irresponsible kids can protect them with a trust.
A trust works to:
- Control Your Wealth: A trust will allow you, the current estate owner, to distribute parts of the estate when certain criteria are met.
- Protection: Estates are protected by a trust, ensuring that an heir’s creditors cannot take the estate and that beneficiaries do not spend the money inappropriately.
- Privacy: Through a trust, an estate is divided privately instead of publically in the event of probate.
Trusts and Protecting Crazy Kids
There are several types of trusts, and discussing your particular needs will require a consultation with a lawyer. The three most common ways to protect your kids with a trust are:
1. Appoint a Trustee
A trustee is someone that is appointed by you to help your child manage the trust appropriately. This person will be responsible for investing estate assets, providing detailed accounting information and making vital decisions on how the trust can be utilized to help your children.
You will have the right to provide guidance about spending in the trust, but the trustee has the right to say “yes” or “no” to a child’s request.
Trustees can be family or friends, or a trustee can be a professional that is paid throughout the duration of the trust. Legal professionals that become trustees are paid out of the estate’s income and are mostly appointed to trusts that have substantial wealth.
A trust can go on as long as the trustee deems appropriate, or you can specify when the trust should be abolished. For example, a trust may end when a child is 25, with all of the remaining assets being transferred to the child.
2. Trickle Instead of Lump Sum
Trusts can be setup so that the money is distributed over time. Instead of leaving a child $100,000 in one lump sum, you can choose to disperse one-third at the age of 25, one-third at 30 and one-third at 35 – or however you choose.
Yearly payments can also be made until the trust is depleted.
A trustee will still be appointed, but their responsibilities will be far less with this type of trust. Instead of determining how money is spent, the goal of a trustee in this case would be to distribute the money in accordance to your wishes.
The use of incentives allows you to have some control over your child’s life. An example of an incentive would be:
- 20% of the trust is distributed when the child graduates college.
- 30% of the trust is distributed when the child reaches 25 years of age.
- 20% of the trust is distributed when the child buys a home.
- The remainder of the trust is provided upon age 35 if all of the above criteria are met.
The incentives you choose will depend on your personal preference.
The Micklin Law Group, LLC is a New Jersey law firm focusing exclusively on family law for men and fathers. Attorney Brad Micklin was recently named to The National Advocates list of Top 100 attorneys from each state. To set up a consultation, call 973-562-0100.