What is the best way to provide for my children upon my death?

child's-trust-family-protection-trust

If you're like most couples, you want to leave all or most of your assets to your children upon the death of both spouses. Your property can be transferred to your children through your will or through probate (if you don't have a will). However, where children are of an age where they would not be able to handle money or may be subject to influence by others, we suggest that their interests be placed into a trust for their benefit until each child reaches a certain age.

A trust is simply a vehicle in which the assets are held, managed and distributed by an independent person or entity known as the “trustee”. The property held in the trust is available for the child to assist in needs associated with health, education and general support. The property is generally not available to the child “on demand”, although he or she can make a request for funds which would be considered by the trustee and an analysis made to assure that the funds are used for prudent purposes and not recklessly wasted.       

There are two commonly used types of trust for children: a simple child's trust and a family protection trust.

Child's Trust

An example of a simple child's trust would be assets held in a single trust until the child reaches a certain age, and then those assets are partially distributed out based on certain ages. Two common sets of age distributions for this type of simple trust would be: half at age 25 and the balance at age 30; or one-third at age 25, one-third of the balance at age 30 and the remaining balance at age 35.

Family Protection Trust

An example of a family protection trust would be assets held in a single trust until the child reaches a certain age, but then instead of making distributions to the child, the child may elect to be appointed trustee or co-trustee, and may manage the trust property according to the trust instructions.

This protects the assets in each child's separate trust from claims made by his or her spouse (including claims from a divorce), from bankruptcy, and from any other creditors. This trust would ensure that any assets remaining at the child's death would pass free of probate, state inheritance taxes, and federal estate taxes.

The protection from creditors and taxes is the major benefit of this type of trust. However, it is more expensive and time consuming to manage a lifetime family protection trust, e.g, tax returns would need to be filed each year for each child's separate trust. 

If the benefits of a family protection trust are outweighed by the management costs, or if you'd simply prefer to give your property outright to your children, then a simple child's trust is a good choice for you. 

Either way, it helps to sit down with an experienced estate planning attorney to determine what is the best way to provide for you children; whether by a child's trust, a family protection trust, or one of the many other types of estate planning instruments.