A trust can be an excellent vehicle for passing your assets onto future generations. There are various reasons that a person might wish to create a trust. For instance, the person might have a disabled child, a minor child, or a child who has a problem with drugs or alcohol. All of these situations call out for the creation of a trust for the benefit of the family member/beneficiary.
Yet, it is equally true that not all estate plans call out for a trust, and in fact, a trust can be a rather cumbersome tool for passing an individual’s assets onto beneficiaries. Care must be taken in the consideration of whether or not a trust is needed in a given situation, and if so, how that trust is drafted.
In my law practice, I am frequently asked questions about trusts. To most people, a trust is a thing of mystery. People tend to confuse the concept of a “trust” with whom or what is serving as the “trustee” of the trust. Then they tend to think that a trustee must be a big bank that charges big fees.
The fact of the matter is, a trust is simple an agreement. It is an agreement amongst the parties to the trust—the grantor, the trustee, and the beneficiary. The “grantor” is the person who establishes the trust. The grantor contacts the attorney to draft the trust. The grantor places his money or other assets into the trust.
The “trustee” is the person who manages the assets of the trust and makes distributions of the assets of the trust to the beneficiary. The “beneficiary” is the person whom the trust was designed to benefit.
For instance, mom establishes a trust in her last will and testament for her minor child, naming her brother as the trustee of the trust. Mom is the grantor, the brother is the trustee, and the child is the beneficiary.
A couple with minor children is a common circumstance for the creation of a trust. If you have a child who is four years old and you are planning for your death, you aren’t going to leave the money directly to the minor child. A minor cannot manage money because any contract that a minor enters is voidable. Plus, the vast majority of minors do not have the skill set to manage money. Let’s face it, many adults don’t have the skill set to manage money.
At dinner the other night, my family was discussing the estate of a friend who had died. The friend was very wealthy, and at the time of his death, he had two children who were minors.
In his Will, the friend had created trusts for the minor children and specified that the children would not receive any of the assets of the trust unless the attended and graduated from college. The child received a specified amount of money upon graduating from college and additional money if the child attained a post-graduate degree.
My wife thought this was a great idea. At first blush, I thought it sounded good too, but being a lawyer, I began to contemplate the ramifications.
Apparently one of the friend’s children is attending college, but the other child is not. So, under the terms of his Will, as I understand those terms, the one child may receive her entire share of the estate (assuming she continues with her education) and the other child may receive nothing. Obviously, this puts the one child at an economic disadvantage. It also could serve as a wedge between the children. Rightly or wrongly, how do you think the child who did not receive any money will view the child who did receive money?
Furthermore, attending college is not a guarantee of success. Steve Jobs and Bill Gates did not graduate from college. Steve Jobs dropped out in his first semester and, I believe, Bill Gates only completed one semester.
My point is, when you draft a trust, you must think through the possibilities and the complications. Not giving money to a minor child is a good thing. Never giving money to a child could be a very bad thing.