Using Trusts to Provide for Young Children

All parents and grandparents universally want to ensure that no matter what circumstances arise, food, clothing, shelter, and education will be provided for their children and that special opportunities or problems can be adequately addressed. But it doesn't take a great deal of professional training to recognize that from such provision can often arise difficult situations: the average parent is quite aware that it's generally unwise to give most young people unregulated access to large sums of money – for example, the proceeds of a life insurance policy. By placing funds earmarked for child rearing into a trust, there can be rules and strings attached to the use of those funds. To increase the chances for success in such an endeavor, the parents can also include in the trust document personalized guidance for the successor trustee in administering the funds. (It's assumed in an instance like this that the parents need a third-party successor trustee because both of them have died.)

If more than one child is involved, there are at least two broad options for handling trust assets: there can be a division into totally separate trust shares for each child, or the trust can continue as one fund for the benefit of all of the family children. In either case, at specified ages (such as twenty-one, twenty-five, thirty-five or whatever age is chosen by the parents), a total or partial distribution of trust assets can be administered. By the time the children reach that age, it's of course hoped that they'll be mature enough to spend or invest the money wisely.

The "single fund" approach offers the advantage of more flexibility in dealing with emergencies, special needs, or opportunities wherein one child might require more than the others. This is generally the philosophy that most parents adopt while both are alive. The drawback of this approach, however, is that it puts an extra burden on the successor trustee. He or she could be called upon to face financial decisions that even parents often find among the most difficult to make in raising a family.

The "one share per child" trust option sidesteps problems such as those. In this approach, the trustee's hands are effectively tied. He or she cannot give more to one child than to another. Unfortunately, whether that actually works out to be a good thing or not cannot be predicted. There are really no 'cookie-cutter' answers. Each family's situation and members must be evaluated individually. For this reason, the client – not the attorney – should decide matters such as these.

Trust provisions for minors and young adults deserve careful thought by parents and grandparents. When establishing the trust, practical issues that may arise must be addressed in order to avoid confusion in the event that the parents are no longer there. Of course, it's hoped that at least one – if not both – of the parents are around throughout their youngsters' childhood, rendering this issue irrelevant. However, it's wise to plan for the worst while hoping for the best. A trust can ensure that the children receive funds in a responsible manner should anything happen to the parents.