When parents of any age sit down to discuss their goals for their estate plan with a legal professional, they almost always indicate that their primary motivation is ensuring the wellbeing of their children.
While this means appointing a guardian, it also means protecting and preserving the assets that they have worked so hard to accumulate and will continue to accumulate over the years.
For some of these parents, the estate planning vehicle of choice proves to be a trust. This makes sense when you consider that a trust can help minimize taxes, ensure privacy, and avoid otherwise costly and time-consuming probate proceedings.
Interestingly enough, however, experts indicate that it's very important for parents to take a few key issues into consideration before going ahead with this estate planning decision.
- Think carefully about the trustee: Just like appointing a guardian for their children, experts advise parents to give the decision of appointing a trustee (i.e., the one who manages/oversees the trust and its distribution of assets) the utmost consideration. For instance, they may want to consider whether they would like a financial institution to serve as trustee or a trusted individual. Furthermore, they may also want to consider co-trustees as a way of ensuring checks and balances.
- Don't overlook beneficiary designations: Experts encourage parents not to forget taking the critical step of changing beneficiary designations (i.e., life insurance) such that the funds held in these accounts, policies, etc. will go directly into the trust.
- Establish expectations for the trust: Before executing the trust, experts advise parents to think carefully about their goals for the trust. Specifically, the conditions under which they want funds to be distributed to their children. Rather than having them given to their children in a lump sum, experts urge parents to consider all of their options, including basing distributions on age, date or even income levels.
Those with questions about trusts or any other estate planning tools should consider speaking with an experienced legal professional who can answer their questions, outline their options and help them secure peace of mind about the future.
Source: The Wall Street Journal, "Three common mistakes parents make with trusts," Ted Jenkin, June 16, 2014