Providing for children through trusts means that your legacy will be living on for future generations.
Stephen Trefts, President
Trusts for children come in many different forms and can be crafted to meet the needs of each individual child. Following are examples of the possibilities available to provide for children through proper trust planning.
Educational Trusts
Educational trusts can be very creative, both in the way they are established and in the actual trust provisions. For instance, educational trusts can be funded by annual gifts from the parents to a trust. There is no tax on the gift to the trust and the assets are removed from the estate for estate tax purposes. Under current law, a husband and a wife can deposit $22,000.00 a year to this type of trust for each of their children and avoid gift tax. Educational trusts may also be established through a will or with lump sum payments.
The terms of these trusts can vary greatly depending upon the desires of the person who creates the trust. The trust can define and limit allowable payments and might require, for instance, that the student maintain a specific grade point average or attend a certain type of institution. An educational trust could provide for distribution after graduation or other milestones, such as attaining a certain age.
Revocable Living Trusts for the Family
A Revocable Trust, which may be amended or revoked by the person establishing it, can be used creatively for the support and education of family members. As an example, an elderly woman put her home and all her assets into her trust. We sold the home and used the trust funds to pay for medical expenses and her retirement home in Arizona for the remainder of her lifetime. The net income is now distributed to her son and will eventually provide for her great granddaughter’s college education.
Litigation Settlement Trusts
When a child is injured, compensation for the injury could either be a lump sum payment or payments over a period of time. The courts have frequently named us as trustee to manage settlement funds and/or receive annuity payments for a minor.
In one such case, a teenager was injured while helping his father on the job. Recognizing his inability to manage money, the teenager, through his attorney, extended the trust so that it would distribute at age 29. For over a decade, we managed the trust and paid for the beneficiary’s basic and supplemental needs and provided extras such as counseling and Christmas gifts. As trustee, we were able to preserve the trust until he gained a greater level of maturity.
Special Needs Trusts
When a child receives funds as a result of litigation, the award is often insufficient to meet the child’s needs. Further, the settlement funds can jeopardize state and federal funding sources available to the child unless the litigation proceeds are placed into a “special needs” trust. This type of trust allows the trustee to pay for supplemental care of the child over and above the basic needs of food, clothing, and shelter which are provided by the state. After the child’s lifetime, the balance of the trust is used to reimburse the state for payments made on his or her behalf.
We serve as trustee for many of these highly specialized types of trusts which require annual court reporting and accounting. In doing so, we work with the family and the court system to ensure that the funds are properly managed. Supplemental items provided for special needs trust beneficiaries have included: customized vans, motorized wheelchairs, hospital beds, additional caregiving services, medical supplies and extensive remodeling to make the home handicapped accessible.
Trusts for minors are varied in form and varied in purpose, but they all share the common goal of protecting the child’s assets and providing security for his or her future. We count it as a privilege to be a part of the endeavor.
Print Date: Fall 2004