4.3 Trusts for Children

Trusts for Children.   Trusts are a very flexible way of providing for minor children.   Unlike UTMA accounts, trusts can extend well beyond a child’s 21st birthday.   Some children, particularly those with disabilities or other special needs, will need a trust to handle the finances for their lifetime.   Other trusts are designed to end at a point when the child is presumably mature enough to handle is or her own affairs.   Determining when that point may occur, of course, can be problematic.   A trust can be structured that brings the child in to management of the trust at a specified age, as a co-trustee, as a way of introducing the child to the financial responsibility.   Later, at another specified age, the child may become fully responsible for the assets.   Various provisions can be built into the trust that encourages the child to reach financial maturity.

The parent should decide what distribution standards the trustee is to follow.   These standards can be broad (“best interest”) or more restricted (“health, education, maintenance, and support”).   The distribution standard has important estate tax implications.

Trusts can be designed that protect the assets from the child’s creditors.   Generally, however, the degree of asset protection will depend on the rights the child may have in the trust assets and whether the child is the trustee.

Unlike UTMA accounts, trusts are extremely flexible and can be designed to fit the specific circumstance of the child and his or her family.