Creating a trust is a critical component of estate planning, especially when you have children or significant assets. Trusts help manage and protect your assets, ensuring they are used according to your wishes. When establishing a trust, several key decisions need to be made about trustees, guardians, and how to divide assets among your children. This article will guide you through these important considerations.
Choosing Trustees vs. Guardians
Trustees and guardians play distinct roles in the management and care of your estate and children. Understanding the difference between these roles is crucial:
Trustees: They manage the financial aspects of your trust. This includes investing assets, making distributions, and ensuring funds are used according to your wishes. They handle the financial logistics and have significant decision-making power over how and when assets are distributed to your beneficiaries.
Guardians: They take physical custody of your children and make decisions about their day-to-day care and well-being. Guardians ensure your children are raised in a loving and supportive environment.
Should Trustees and Guardians Be the Same People?
Many people grapple with whether to appoint the same individuals as both trustees and guardians. Here are some factors to consider:
Pros of Having the Same Person as Trustee and Guardian:
Simplified Decision-Making: Having one person manage both the financial and personal aspects can streamline decision-making and reduce potential conflicts.
Consistency in Care: A single person overseeing both roles may provide more consistent care and support for your children.
Cons of Having the Same Person as Trustee and Guardian:
Overburdening: Managing both the financial and personal responsibilities can be overwhelming for one person, especially during a difficult time.
Lack of Expertise: While someone may be an excellent guardian, they might lack the financial acumen required to manage the trust effectively.
Dividing Assets Among Children
How you choose to divide your assets among your children is a crucial decision in estate planning. There are two main approaches:
Separate Shares: Immediately divide the estate into equal shares for each child. This approach ensures each child receives an equal portion but may not account for individual needs.
Pros: Simple and straightforward.
Cons: May result in unfair outcomes if one child has greater needs (e.g., due to age or special requirements).
Family Pot: Keep the estate in a single “family pot” to support all children according to their needs. The trustee manages the funds and distributes them as necessary, dividing the remainder equally later.
Pros: Allows for flexible support tailored to each child's needs.
Cons: Requires a high level of trust in the trustee’s judgment and may lead to perceived inequities among children.
Establishing Rules for Your Trust
If you opt for a family pot, you need to decide when and how the remaining assets will be divided. Common approaches include:
Age-Based Distribution: Specify an age at which the remaining assets will be divided equally among your children. A common choice is when the youngest child reaches age 25.
Milestone-Based Distribution: Distribute assets based on significant life events, such as completing higher education, purchasing a home, or starting a business.
Important Considerations for Trustees
When choosing trustees, consider the following:
Trustworthiness and Responsibility: Select someone who is reliable, honest, and capable of handling financial matters.
Willingness to Seek Help: Ensure the trustee is willing to hire professional advisors (financial, legal, or accounting) when needed.
Compatibility with Guardians: If your trustee and guardian are different people, they must be able to work well together to ensure your children's best interests.
Conclusion
Deciding on trustees, guardians, and how to divide assets among your children are among the most critical decisions in estate planning. By carefully considering these factors, you can create a trust that ensures your children are cared for and your assets are managed according to your wishes. Whether you choose the same person for both roles or separate individuals, the key is to select trustworthy, capable, and compassionate people who will honor your intentions.
Disclaimer: The information provided on this blog is for general informational purposes only and is not intended as legal advice. Readers should not act upon this information without seeking professional counsel from an attorney licensed in their jurisdiction. Ari Weisbard is a member of the DC and NY bars and is not licensed to practice law in any other state. Consult with a qualified attorney to obtain advice tailored to your specific legal situation.