When your family is young, comprehensive estate planning is crucial to protect what you are building. Your estate plan should be uniquely tailored to what you and your family need; however, there are some estate planning tools commonly used by young families. A trust is one of those tools. An Essex Junction estate planning attorney at Unsworth LaPlante, PLLC explains why you might need a trust to protect your young family.
You Need More Than Just a Last Will and Testament
Your Last Will and Testament will probably be the first estate planning document you create and may continue to serve as the foundation of your plan for years to come; however, a Will has limitations. For example, you cannot legally gift assets directly to a minor child in your Will. If you leave your minor child gifts in your Will, without making any additional provisions, a court may be forced to decide who will take control of those assets until your child reaches the age of majority. You also need to plan for the possibility of incapacity, not just death, when you start a family. A trust can help resolve both of these common issues faced by young families.
A trust is a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s (trust creator) Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Using a Trust to Provide for Young Children
Knowing that your minor children cannot inherit directly from your estate, you may decide to use a revocable living trust or a testamentary trust to protect your children’s inheritance. A trust allows you to appoint a Trustee to manage and protect the assets you leave behind for your children. The trust terms can be used to decide how those assets are used while your children are minors and how and when the remaining assets are disbursed to them when they reach the age of majority. While the law considers a child to be an adult at the age of 18, handing someone that young a lump sum inheritance may not be the best idea. Fortunately, you can also use the trust terms to stagger the distribution of the remaining assets in the trust even after your child(ren) reach legal adulthood. You can also direct the proceeds of a life insurance policy into the trust at the time of your death. This is important because both life insurance proceeds and trust assets are non-probate assets, meaning they will be available to provide for your children immediately after your death instead of at the end of the probate process.
Using a Trust for Incapacity Planning
When you have a young family, you also need to consider the possibility that a serious illness or accident could leave you incapacitated. If that happens, someone will need access to your assets and be able to control your finances to ensure that your spouse and/or children are financially secure. One easy way to do that is to use a living trust. You appoint yourself as the Trustee and transfer in your important assets. You also appoint someone as the successor Trustee (usually your spouse) who will automatically take over as the Trustee if you become incapacitated. You control the trust and trust assets unless something happens to you that causes your incapacity. If you do become incapacitated, your successor Trustee takes over control automatically without the need for court action or intervention.
Contact Essex Junction Estate Planning Attorneys
For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about using a trust to protect your young family, contact the experienced Essex Junction estate planning attorneys at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.