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When Fair Isn't Equal: Consider a Pot Trust for Kids

When Fair Isn't Equal: Consider a Pot Trust for Your Kids

A part of estate planning that's unpleasant to think about, but needs to be addressed, is how you would provide for your children if both you and your spouse were to pass away. If your children are still minors at the time, they'd be especially vulnerable, as they wouldn't yet have the ability to take care of themselves.

First, you may think to simply divide your money and assets equally between your children in separate trusts for each. But is that always the best solution? After all, your children may have greatly different needs. Even now, it's not as if you spend money on them exactly equally. Here's a relatively minor example: if you have a teenager who's getting braces, you're likely to spend more money on his/her dental work than you are on the dental visits of a younger child.

This doesn't mean you love one child more than the other; you're simply addressing their needs differently. Usually, these differences come out most sharply in areas of health and education, and even in hobbies; you may wind up spending more money on music classes for one kid, and less on the karate class your other kid loves.

If your children are still minors when you and your spouse pass away, instead of dividing your estate up into individual trusts for each, you can combine everything into a single "pot" - the pot trust. The trustee you designate manages it, and distributes money to the children as they need it, until they reach adulthood ('adulthood' doesn't necessarily need to be defined as age 18, but could be specified as an older age, such as when they're done with college). When all your children reach adulthood, they then each receive their individual share of the inheritance from what's left in the pot.

There are number of considerations to be made when spelling out the terms of a pot trust, including the following:

  • Defining adulthood.
  • Choosing the right trustee.
  • Anticipating and coming up with solutions to any situations where there might be unfairness to one of the children. For example, if one of your children is significantly older than the other, they may not want to wait until the youngest child reaches adulthood to receive their individual share from the pot trust; maybe they want some of that money now in order to invest in their business, pay for a graduate program, or help support their own child. You can set up the pot trust in such a way that they can get money from it; the amount they receive in advance will be taken out of the individual share they're meant to get later on.

To determine whether or not a pot trust is best suited for the interests of your children, don't hesitate to contact us. Our Torrance estate planning attorneys carefully go over all the nuances of the pot trust, including anticipating any problems that may arise and structuring the trust in such a way that it gives maximal benefits to your kids.