If you have accrued some wealth in your lifetime, have a significant life insurance policy, or simply want to look out for the best interests of your children the idea of incorporating a trust into your estate plan may have been suggested. A trust fund places assets into trust, run by an appointed trustee who makes decisions about the investment and distribution of trust assets to its beneficiaries. However, smaller mistakes can be made in the creation of a trust for your children that can cause major problems after you are gone.
Carefully Consider the Trustee
Naming a trustee for a trust fund for your children is different than naming a custodian for their physical care. Consider appointing someone who has financial knowledge and can make wise decisions regarding the trust assets. Also consider naming co-trustees to the fund, thereby creating a set of checks and balances that can preemptively avoid any type of trust abuse.
Be Clear about the Goals of the Trust
When thinking about the smaller details of a trust it is important to be very clear in your wishes. How often do you want trust assets distributed? Yearly, every five years, or at the trustee’s discretion? Do you want your children to reach a certain age first or reach some other type of goal? Do you want the distributions to be tied to future earnings so that the children that need more of the funds get more? By covering each issue clearly in your estate plan you can avoid issues arising later down the road.
Check Your Beneficiaries
This means more than checking to see that all of your children are named as beneficiaries to the trust. Most parents assume that their life insurance and retirement accounts are automatically going to their children, but very few parents double check to make sure that their children are listed as the beneficiaries on those accounts. Also, consider listing every single beneficiary of the trust as beneficiaries for the other accounts to ensure that everyone is legally entitled to the proceeds. This can eliminate any issues or ambiguity if only one child is listed as a beneficiary of those accounts but was just expected to make distributions to remaining children. You can also consider naming the trust as the beneficiary to your other accounts, thereby ensuring that the money will be distributed properly through the trust channels.
Keep Up to Date on All Other Estate Planning Documents
In order to ensure that everyone is accounted for in the trust fund and other estate plans, occasionally check all of your estate planning documents. This is especially important after any major life events such as a marriage, divorce, or the inclusion of other children. By keeping all documents up to date you can take care of any problems in the estate plan before they happen. Make plans to regularly update the will, check beneficiaries, and ensure that everyone listed in your estate plan is still alive and able to take part in the trust that you have created.