As the parent of minor children, you have the most powerful of all incentives to create a comprehensive estate plan. Like all parents, you undoubtedly worry about what would happen to your children if something were to happen to you. Who would care for your children if you suddenly became incapacitated tomorrow? What would happen if you and your spouse were both killed in a car accident? How would your spouse, or a Guardian, fare financially without you? Can a trust attorney help me protect my kids? The answer is “yes.” In fact, trusts are one of the most common additions to any comprehensive estate plan, particularly when protecting children is a goal of the plan.
What Is a Trust?
At its most basic, a trust is a legal relationship, or agreement, whereby property is held by one party for the benefit of another. A trust is created by a “Settlor”, also referred to a “Maker,” “Grantor,” or “Trustor,” who transfers property to a Trustee. The trustee holds that property for the beneficiaries named in the trust. Although you may not realize it, you enter into small trust agreements all the time. Imagine, for example, that you are going out of town and you ask your neighbor to hold onto a package until your sister can get by to pick it up. In that case, you are the Settlor, your neighbor is the Trustee and your sister the beneficiary of the trust agreement.
Testamentary vs. Living Trusts
All trusts are first divided into two types — testamentary and living (formally referred to as an “inter vivos” trust) trusts. A testamentary trust is one that does not activate until the death of the Settlor and is usually triggered by a Last Will and Testament. A living trust, on the other hand, activates as soon as all the formalities of creation are complete.
Revocable vs. Irrevocable
Trusts are also further divided into revocable and irrevocable trusts. A revocable trust can be modified, amended, or revoked by the Settlor at any time and for any reason. An irrevocable living trust cannot be modified, amended, or revoked by the Settlor for any reason. As a general rule, an irrevocable living trust can only be modified or revoked by a judge after petitioning the court. A living trust can be revocable or irrevocable. A testamentary trust is always revocable until the death of the Settlor at which time it becomes an irrevocable trust.
Which Type of Trust Can Help Me Protect My Kids?
Parents of minor children with smaller estates often create testamentary trusts to hold their children’s inheritance if they die prior to the children reaching adulthood because minors cannot inherit directly from the estate. A testamentary trust works well because the trust does not actually activate unless it is needed. Administering a trust, from the standpoint of the Trustee, takes time and attention. In addition, there are expenses involved in administering a trust as well as taxes that are often due from a trust. Therefore, it doesn’t always make sense to create a living trust when, in fact, the trust may not be necessary until you die.
How Can a Testamentary Trust Protect My Kids?
A testamentary trust can go a long way toward protecting, and providing for, your children when you are gone. When you create the trust you will appoint a Trustee who will be responsible for administering the trust. You will also create trust terms that determine things such as how the trust assets are invested, when assets are distributed to beneficiaries, and how much discretion the Trustee will have with the disbursement of assets. As the Settlor, you can set up the trust to pay out a set amount every month to the Trustee for the care and maintenance of your children until they reach the age of majority. You can also make allowances for emergencies, medical bills, or extra expenses, such as to purchase a car. The assets that are left when your children become adults can then be distributed to them n staggered amounts so that they do not receive a large lump sum before they are prepared to handle it.
For additional information, please join us for one of our upcoming free seminars. If you have questions or concerns for a trust attorney, contact the experienced Illinois trust attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.