Trusts for Children

Comparison: Experience WITH Protective Trusts for Children versus WITHOUT Protective Trusts for Children
WITH Trusts for Children WITHOUT Trusts for Children
Asset distribution after administration of parent’s estate Assets are placed directly into “Trusts for Children.” One trust is created per child. Assets are distributed directly to the children.
Income taxes Trust must file income tax return. Income taxes could be higher. Business as usual.
Control of Assets during child’s life Trustee controls assets. Child can be Trustee, and often is. If child is Trustee, child usually has the ability to distribute assets to the child for “health, education, maintenance or support.” Those “magic” words provide creditor protection for the child, but allow the child flexibility to make distributions to the child or (if provided) the child’s children. Child has total control.
Control of Assets upon child’s death Assets can be directed by child freely, or you could force assets to go to your issue. Child’s spouse has right to a share of child’s assets unless child has a pre-nuptial agreement. Assets are subject to child’s debts and expenses.
Identity of Trustee As stated, child can be Trustee. If child cannot be Trustee (child is poor manager or disabled) other trustees can be selected. Child should NOT be Trustee if child is actively being pursued by creditors. Not applicable.
Investment of Assets Assets can be managed as easily as if in a brokerage account. Business as usual.
Divorce of a child. Assets are generally not divided in any divorce proceeding, and alimony cannot be recovered from trust. Inherited assets are usually not a part of divorce. However, if child uses assets to pay for joint debt (mortgage, credit cards, etc.), assets can become marital property.
Child loses lawsuit Assets are not attachable. Assets can be attached.
Estate Tax Can avoid estate tax in child’s estate. Subject to child’s estate taxes.
Child becomes/is disabled. Trust assets are not included as a “resource” for Medicaid and SSI purposes. Trust should be carefully drafted in this situation. Assets will keep child from receiving assistance.