Yes, it’s still summer. But public school here in Worcester starts in less than a month (August 26). To ease the transition, I highly recommend the charming Netflix comedy series, Derry Girls, which explores the lives of four teenaged gals and one lad who attend a female Catholic school in Londonderry, Northern Ireland, during the 1990s. You must watch the show to understand why the boy in the group is allowed to attend an all-girls school.
Not only will it make you laugh—you’ll learn a bit about estate planning, even though the children and their families are not at all wealthy. When the kids hear of a school trip to Paris (Season 1, Episode 2), they quickly discover that their parents can’t afford to buy them the coveted tickets to the City of Lights at £375 each.
One classmate offers a solution: “Just dip into your trust fund. I do it all the time.” She explains further, “It’s like an account your parents set up for you to help pay for things, like university, your first car, educational trips.” In the next scene, busy with chores, the mother of Erin Quinn (Saoirse-Monica Jackson), sarcastically responds to Erin’s question about a trust fund: “Dip into your trust fund? Of course, no bother at all. Pass us then the phone. I just need to ring the bank.”
That sentiment reflects what many parents of modest means believe: Trusts are only for the wealthy. In truth, however, a trust for your child can help ease many of your concerns, especially in case of your premature death. Here’s how:
Trusts for Children Under 18
Many of my clients who have children under 18 (legally referred to as minors), share a common fear,: “What if we’re both on a plane without the kids, and we die in a crash?”
Under Massachusetts law, children become legal adults when they turn 18. If both parents die, leaving behind minors, the guardian and conservator that the parents named in their wills (you have one, right?) will be appointed to care for the children. At age 18, however, the guardianship terminates, and the guardian must give the child all of his or her inheritance.
The average American owns a life insurance policy, a home, and a retirement account. As I tell many of my clients, “that could be a lot of money for the prom.” They agree. One way to solve that problem is to set up a UTMA (Uniform Transfers to Minors Act) account. This is a bank account that will hold funds for the child until she or he reaches age 21. But that could still be a lot of money for Spring Break.
Parents’ next option is a trust. In a trust, parents can direct how the children receive their inheritance. If both parents die, their assets are automatically transferred into the trust and then distributed by the trustee from time to time, as and when the child needs resources for his or her health, education, or general support.
In addition to authorizing payments to children for their basic needs, parents sometimes direct that the trust pay out a lump sum to a child as follows: one-third of a child’s share at age 25, one-half of what’s left over after the initial distribution at age 30, and the rest at age 35. That way, the child will receive her or his inheritance over time at appropriate ages.
Trusts for Children Over 18
If your children are adults now, there are still good reasons to think about setting up a trust for their benefit.
If you think your child is or may be in a situation where he or she should not receive a large sum of money all at once, consider a trust to create staggered distributions. For example:
- A child may have special needs and receive government benefits, such as Medicare or Social Security Income (SSI). An outright inheritance may jeopardize eligibility to continue receiving those benefits. A trust can be set up to preserve those funds without interrupting receipt of benefits.
- A child may grow up to be a spendthrift or lack the skills necessary to manage finances.
- A child who is married may get a divorce, and parents who want to protect their child’s inheritance can create a type of trust that shelters those funds.
- A child may be suffering with addiction or other issues.
These are all problems that planning with a trust can help fix.
So, that classmate in Derry Girls was right. Why not have a fund for children that parents can use to pay for university, or educational trips, especially if the parents are not around? You need not be wealthy to think about creating a trust for your children—but you do need to consider whether Derry Girls will be your end-of-summer-back-to-school Netflix adventure!
If you’d like to discuss a trust for your family, please contact me at (508) 453-6276 or firstname.lastname@example.org. I look forward to helping you.