For individuals with minor children or grandchildren, long-term planning can be daunting. But, with the help of a trust, parents and grandparents can ensure that their legacy is managed wisely while benefitting their children or grandchildren for years to come.
Trusts establish a controlled safety net, which benefits both the grantor (the person who created the trust) and the beneficiaries (the persons who will inherit from the trust). If a trust is not established and a child is a minor, a guardian or custodian would have control over the minor’s finances, including any inheritance. But, with a trust, a grantor can directly appoint a trustee who will manage and distribute the trust assets according to the grantor’s wishes, which are memorialized in the trust.
Grantors, often parents and grandparents, can provide care for minors through a trust with the comfort of knowing that their assets and money will be directed for the benefit of a minor in an explicitly designated manner. In Ohio, grantors have the flexibility to customize a trust according to their individual family needs and goals by tailoring the terms and structure of the trust.
Routine provisions, like specifying how much and how often the beneficiary receives trust funds, are often paired with creative provisions to ensure that the trust funds and wishes of the grantor are protected. Notably, a grantor can create different terms for different children. One size does not always fit all, so by creating a trust with specific provisions, a grantor can account for the intricacies of caring for each individual child.
Here are some examples of creative trust provisions to consider:
- Delayed Distributions – When dealing with beneficiaries who are minors, delayed distribution provisions are often included to ensure that funds are not distributed prematurely. Delayed distributions may allow for more responsible financial management by preventing children, who may have limited financial management knowledge or experience, from obtaining assets outright or in a way that may do more harm than good. For example, a grantor may require a trustee to hold a child’s inheritance until they reach a specific age (e.g. 25, 30, or 35). Similarly, the delayed distribution provision could be staggered, providing a set proportion of the trust funds at specific ages (e.g. one-third at 25, one-third at 30, and one-third at 35). Alternatively, a grantor can require a trustee to hold a child’s inheritance until the beneficiary achieves certain accomplishments (e.g. graduating high school). Likewise, the delayed distribution provision can allow a grantor to set aside funds for certain milestone purchases (e.g. first car, first house, wedding, new business venture). Finally, a grantor can provide the trustee with the authority to determine whether to distribute trust funds to a beneficiary, which may be useful for beneficiaries who struggle with substance abuse issues, mental health issues, or are prone to undue influence. Overall, delayed distribution provisions allow grantors to control assets, beyond their lifetime, by placing conditions on distributions.
- Incentives for Responsible Behavior – A grantor who wishes to influence a beneficiary’s behavior might consider including trust provisions that establish rewards for beneficiaries who engage in specific behavior. For example, like the delayed distribution provision, a grantor may specify reward funds for a beneficiary who engages in community service or charitable involvement, maintains gainful employment, pursues a specific career path, or completes a certain level of education.
- Educational Trusts – Frequently, grantors wish to utilize a trust to set aside funds that will be designated to support a child’s educational journey. By creating an educational trust, a grantor can ensure that the trustee will only distribute funds for the benefit of the beneficiary’s education. Educational trusts often designate funds for a beneficiary’s college tuition, vocational training, or specialized training.
- Special Needs Trusts – If a grantor cares for a minor with special needs, they might consider establishing a special needs trust. Through a special needs trust, a grantor can ensure that a minor receives government benefits (such as Medicaid or Supplemental Security Income) while also providing supplemental support beyond those benefits. By creating a special needs trust, a grantor can explicitly ensure that the unique medical needs of the minor are met, even after the grantor has passed away.
- Protection from Creditors and Divorce – Trusts may also be structured in a proactive, forward-looking manner. For instance, a grantor may create a “spendthrift” trust to ensure that the trust assets are shielded from potential creditors or divorce proceedings. A “spendthrift” trust prevents a beneficiary’s spouse from accessing the trust assets in case of divorce or legal claims.
- Guidance on Asset Management – If a grantor wishes to provide specific guidance for the management of the trust assets, a provision can be included in the trust that dictates how trust funds should be invested or managed. Additionally, the grantor can appoint a professional trustee, investment advisor, or trust protector, or provide guidelines for investment decisions.
Trusts are designed to directly account for the unpredictability of the future. Grantors can ensure a controlled and customized future for their family and minor beneficiaries by creating a trust that addresses the distribution of their money and assets for the minor’s benefit in a meaningful way.