Parents – Avoid Making These Mistakes When Establishing a Trust for Your Children
Whether you are a new parent or the parent of adult children, you undoubtedly want to protect the inheritance you intend to leave for your children. Establishing a trust is the most popular way to accomplish this common goal. To ensure that the trust works as intended, you want to avoid making mistakes when setting up the trust. Toward that end, the Indianapolis estate planning attorneys at Frank & Kraft explain common mistakes parents make when establishing a trust for their children.
- Appointing the wrong Trustee. The Trustee of a trust is responsible for protecting and growing the trust assets as well as administering the trust using the terms in the trust agreement. The right Trustee adds to the success of a trust while the wrong Trustee can cause a trust to fail. Parents often appoint a family member or close friend to be the Trustee despite the individual’s lack of experience in financial and legal matters. To ensure that your trust operates as intended, consider appointing a professional Trustee.
- Not allowing enough discretion. It can be difficult to anticipate all the reasons your children might need access to trust funds, especially if they are very young when you establish the trust. Failing to give your Trustee enough discretion to approve disbursements for unanticipated needs may leave your children without access to funds when they truly need them. If you appoint a professional Trustee, it should be safe to give the Trustee the discretion to use his/her best judgment when unanticipated requests come up.
- Allowing too much discretion. Conversely, you also want to avoid giving the Trustee too much discretion, especially if you did not appoint a professional Trustee. This can put the Trustee in a difficult position if a beneficiary is asking for a disbursement, but the Trustee questions the need for the funds. You also risk creating conflict between a beneficiary and the Trustee if the Trustee is a family member or family friend. To avoid this problem, be sure to give the Trustee the ability to deny a questionable disbursement by tightening the Trustee’s discretion within the trust terms.
- Failing to stagger distributions. A trust can be extremely beneficial when your children are minors because they cannot yet inherit directly from your estate. That same trust can still be useful when they are young adults if you include trust terms that stagger the inheritance you leave them instead of handling a young adult a large lump sum inheritance. Give your kids time to learn how to manage money before distributing a large sum of money. Instead, stagger the distributions over several years.
- Forgetting to update the trust. Parents often make the mistake of creating a trust agreement when they first become parents – and then forgetting about the trust. While the trust you establish when your children are very young can still be beneficial when they become young adults, you will undoubtedly need to update the trust to reflect the fact that they can now inherit directly. As your children get older, and the value of the trust assets increases, you should revisit the trust agreement every few years to make any necessary revisions. This ensures that the trust terms reflect your current wishes and that it will continue to accomplish your objectives.
Contact Indianapolis Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns regarding a trust for your children, contact the experienced Indianapolis trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Paul Kraft is Co-Founder and the senior Principal of Frank & Kraft, one of the leading law firms in Indiana in the area of estate planning as well as business and tax planning.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
Latest posts by Paul A. Kraft, Estate Planning Attorney (see all)
