In the same way that guardians are put in place to provide for the care and raising of minor children, trusts are put into place to provide for the financial needs of minors, as administered by a trustee. Until minors turn 18, they can’t hold assets, so you will need to appoint a trustee to oversee the allocation of your assets. Here are some frequently asked questions about trusts:
Q: What is a trust?
A trust holds an estate’s financial assets (such as property, money and investments) until the age at which you determine that your heirs will receive their inheritance, known as the “age of termination”. An appointed trustee is the money manager for those assets, which are used to pay for the care of the trust’s beneficiaries.
Q: Is my appointed guardian also the trustee?
Not necessarily. The guardian is the person best suited to care for your children. The trustee is the person best suited to manage the finances. This can be the same person, but it doesn’t have to be. If two different persons are named, you can have checks and balances in place for the care of the children.
Q: How does the trustee decide how to spend the money?
The trustee has some discretion on how the money will be spent and it’s best that they be left a letter with guidance and information about your priorities. For example, what are your educational priorities for your children? Would you like them to continue your tradition of an annual beach vacation? Do you want your children to receive a car on their 16th birthday? This type of information is of immense value to the trustee. In addition, the HEMS standard is in place to guide trustees. This dictates that trust money is to be spend on Health, Education, Maintenance and Support of the heirs.
Q: At what age should the trust be terminated?
When the trust is terminated, the heir receives their inheritance with no strings attached. Common termination ages include 21, 25 and 30. Some choose to terminate the trust in stages, with heirs receiving 10 percent at age 21, 10 percent at age 25 and the remainder of the trust at age 30, for example. Your estate planner can help you come up with an appropriate plan for your will.