In The Wall Street Journal’s Financial Guidebook for New Parents, the book’s author, Stacey L Bradford, explains why parents should consider setting up a trust for the benefit of their minor children. She explains that setting up a trust is a good idea because:
- Guardianship proceedings are cumbersome and expensive. Direct bequests to your children of more than a nominal amount of money may require a probate court to appoint a guardian of the estate to oversee management of it. This is typically an expensive and cumbersome process that can be easily avoided with a trust.
- A trust allows you to choose who manages the property you leave behind. Without any guidance from you, a judge who may not understand your values about money will select someone for you.
- A trust allows you to have a say in how your children’s money is spent. For example, if it is important for your children to attend private schools, or you want some of the money to pay for college, you can provide for that in the trust document.
- A trust allows you to delay the age at which your children get control of the assets you leave behind. In fact, you could even stagger the distribution of the assets over a number of years. If a guardianship is established, the minor beneficiaries of your estate would be entitled to receive their share of the estate when they turn 18 years old.
- A trust gives your children legal recourse if their money in the trust fund is mismanaged. A trustee of a trust is a fiduciary that is required to act in a reasonably prudent manner. A beneficiary who believes a trustee has acted improperly with trust funds has legal recourse.
Trusts are not just for the wealthy. They can be created in a will and funded when you die. If you have minor children, they should be an essential part of your estate plan.