Drafting a Trust for Minor Children

Mar 10

When it comes to estate planning, one of the most important steps you can take as a parent is making sure your children are financially protected—especially if they are still minors or not yet financially mature. Without a plan in place, the courts will decide what happens with your estate and your children’s inheritance outside of your control. For example, if you have young children, they might receive a large sum of money upon turning eighteen with no plan in place to help them manage their inheritance. Even if you, as parents, intend to pay for college or help purchase property for your children in the future, if there is no trust or documentation in place, those wishes would not be documented and likely wouldn’t be carried out. A trust allows you to decide how and when your children receive your estate, rather than leaving that decision to the courts.

A trust also allows you to name a successor trustee, someone who will step into your shoes after you’re gone and manage the money for your child until they reach an age you believe is appropriate for full control.

Which Distribution Option is Best for My Family?.

There are two common approaches for how and when your child receives the funds:

1. Lump Sum Distribution
In this structure, your child receives the entire trust balance at a certain age, for example, 25. It allows your child to have immediate access to the full amount, but assumes your child will be ready to manage the full amount by that age. This usually incurs more taxes on the sum, and has the added disadvantage of the money no longer growing in the trust.

2. Staggered Distributions
This option spreads out the inheritance over time. Instead of your child receiving their entire inheritance, you can structure the trust to release funds in stages, so that your children receive assets when they are ready to manage them. For example:

One-third at age 25
Half of the remaining balance at age 30
The rest at age 35

The trustee can also authorize the use of trust funds for specific purposes, such as education, medical necessities, or real estate. Staggered distributions are popular among parents who want to give their children time to mature financially and avoid the risk of mismanaging a large sum all at once. A staggered distribution can also reduce the amount that is taxed. This approach ensures that your child will benefit from their inheritance gradually rather than overwhelming them.

What Happens in the Meantime?

Until your child reaches the designated age for receiving their inheritance, the trustee will manage the funds and use them for your child’s health, education, maintenance, and support. This is known as the HEMS standard. This standard provides a framework for the trustee to support the beneficiary without jeopardizing the trust until the beneficiary is able to receive the inheritance.

That means your child can still benefit from the trust assets while they are held in trust, but the trustee—not the child—decides when and how the money is spent.

Why This Matters:

Establishing a trust for your minor children ensures that:

Someone you trust is in charge of managing the funds
Your child has financial support growing up
Your child receives their inheritance at an age and pace that promotes financial responsibility

Learn More:

To learn 80% of what you need to know about estate planning in less than 30 minutes, check out myfull-length video. It’s a quick and comprehensive guide to help you understand the basics and start taking steps to secure your future.

If you’re thinking about creating or updating a trust for your children, I can help you design a plan that fits your family’s needs and goals. Or, if you would like me to review or create a trust for you, then click the link below to schedule a call with me today - I’m always happy to help!

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