Why You Need a Children's Trust in Your Estate Plan

A Children’s Trust is a trust that you create in a will, by means of a “testamentary trust”, or in a revocable living trust, to manage a child’s inheritance if something were to happen to you.   In its most simple form, a Children’s Trust appoints a “Trustee” – a trusted adult picked by you – to manage your children’s assets until your children reach an age when they are mature enough to manage their assets on their own.

For example, a typical Children’s Trust structure I often recommend to my clients provides that a Trustee will manage the children’s assets until they reach the age of 23, at which point they will be able to request distribution of up to 25% of the principal of the trust.  At age 25, they’ll be able to request up to 50% of the principal, and, at age 28, they’ll be able to control all of the funds in their trust.

I like this structure because it allows children to “practice” managing their own money while a majority of their assets are kept safe under the watchful eye of the Trustee.  If they run through the first 25% in a matter of weeks, they’ll hopefully take note and do a better job the next time they receive a distribution.

In many cases, the amount of assets your children would inherit if you were to die is much greater than you might imagine.   A lot of our assets are tied up in our homes, our retirement accounts, and in life insurance policies.  None of these assets are “liquid” so you may not feel like you have a lot, but when everything is added up, you may end up with a much bigger number than you expected.  
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Imagine how you would have felt if you were given a substantial sum of money when you turned 21?  I don’t know about you, but I thought I was invincible at that age and, quite frankly, had a pretty limited understanding of how to manage money.  A Children’s Trust accounts for the exuberance and naivete of youth by protecting your children’s assets until they have the life experience to do so themselves.