One Trust for All Kids? Or Separate Trusts for Each Kid?

dan • Jan 18, 2023

Transcript

 

Hey everyone. I'm Dan McKenzie here with the McKenzie law firm. We are an estate planning, estate administration, and small business law firm in the Denver, Colorado area. And I thought I'd make a video today answering the question that we get a lot. When people come to us for estate planning, they are usually focused on a couple of things. One of those is, "Who's getting my stuff if I pass away?" That's usually a primary area of focus. And then, "How am I getting stuff to kids?" And I thought I'd kind of focus on that second point in this video.

And a lot of times people want to leave stuff to kids in trust. There are a number of circumstances where that's almost required. Obviously, if we're leaving stuff to little kids or kids who haven't gotten to adulthood yet, you really can't leave money directly to kids who are under the age of 21 in Colorado. There's got to be an adult appointed to handle that money for them, and that's a trust. If you don't set up a trust, and money somehow is going to people under that age, a court will appoint a conservator for them.

So you would much rather set up a trust and, you know, set the terms and identify the person who's going to do that, handle that responsibility for your kids.

Obviously, even with adult kids, anybody with, you know, spending issues, substance abuse problems, in a marriage that seems maybe like it's headed for an end. Any situation where a kid just has some risk of like, you know, people coming after them for money. And frankly you know that all of us have that risk. You know, all of us can, you know, get in a situation where we could be the targets of a lawsuit at any point.

So sometimes even with very responsible. Kids who are well into adulthood have good careers, are financially stable. We still set up trusts. So at any rate, as far as structuring a trust goes, a question that we get a lot is, is it supposed to be one trust for all my kids, or is it supposed to be a separate trust for each kid? And that usually depends on the age of the kids. Actually, when we're dealing with people who have little kids, and again, that could be kids as old as high school, frankly, we usually recommend the the first option. We usually recommend setting up one trust for all the kids and the reason for that is you want your trustee to be able to handle things for your kids just like you probably do.

One trust for minor kids

Usually when people have kids who are still in grade school or high school, they're not keeping track of which kid is costing the most money. They're not running spreadsheets and trying to equalize. You know, as kids need things, they just pay for them. So I have 4 kids myself. They all have very different interests. Some of those interests are more expensive than others. They have different medical bills. They have different needs for school or for support. They eat different amounts of food. I am not keeping track of any of that.

I'm just paying for things. When a bill arrives, I pay it and I'm not really keeping track. And I think that's how most people are. So setting up one trust for all your kids gives your trustee the ability to replicate that. And our when we set up that kind of trust, you might see the term "common trust" or you might see the term "pot trust." Those are those are both terms for this kind of trust. And when we set those up we specifically tell the trustees and our documents.

Your goal at this point is not to equalize, it's just to get the kids through childhood and into adulthood.

Separate trusts for adults

When kids reach adulthood, that usually does change, actually. So you kind of get, you know, one of the benefits of setting up a trust is you get to define what adulthood means. And our kind of default definition is either the kid, your youngest kid, has reached 25 or has graduated from college. That's the point where we feel like OK, now they're not kids anymore.

As they get into adulthood, they're doing different things. They might be doing things that are very expensive. And you really do feel like if you're going to do something to help a kid out who's in adulthood, you might say, "Look, I'll do this, I got to do the same thing for your siblings." Or, you know, I am going to help, but there is going to be an accommodation for this in my will or my trust or whatever else. Like this is coming out of your part of my estate. Because again, those things can become very expensive, right? If you've got a kid who's going to graduate school, starting a business, or getting married.

Then buy a house. With all those things, sually people are feeling like, "Yeah, OK, gotta do the same thing for everyone else." So what we will typically say is once they have reached adulthood, then we do split it into separate trusts. And if one of the kids wants to do one of those things and use their trust for that purpose, and the trustee agrees and it fits in with your instructions, and they spend their money and they run out of money from their section before their siblings do, that's adulthood, right? That's how that works.

You used your trust funds on that house, or you use your trust funds to go to that Graduate School, or start that business, or whatever else. Your siblings have not and they still have money and, you know, that is how it works. So usually when we're talking about adult kids, we are talking now about separate trusts that could have different outcomes. When they're little kids, we really don't want that.

Ensuring similar treatment for kids of different ages

And the other thing about the common trust I didn't mention is it also just gives your trustee the ability to make sure that your youngest kid gets the same benefits and, you know, money for the same purposes as the older kids. So again my kids span quite a wide spectrum. My oldest kid as I'm making this video is 19 years old. My youngest kid is 9. So right now the oldest kid is in college and we are spending money on that. We want to make sure we don't spend all our money getting him through college and then his younger brother comes up and we have to tell him, like well, you know sorry. We know your older brother did receive money and his college paid for. We spent it all on him and we don't have enough money to do that for you.

So again that's another instruction of the trustee. Just make sure we're not blowing all the funds on the oldest kid and the youngest kid doesn't get the same advantages. So these, you know, these are pretty sophisticated concepts and hard to build into a willif you haven't been trained on how to do this and all that, it's not usually what we see. We don't usually see this level of nuance in like, you know, simpler online packages and stuff like that so.

If you want to have this discussion with us, we'd be happy to do it again. We're in Colorado. Our phone number is 303-578-2745, and our website is themckenziefirm.com. Thanks for watching. I hope this is helpful.

What next?

If you think it might be time to think through your estate plan, you can: 
  1. Give us a call at 720-821-7604 to schedule a "Discovery Session" at which we can determine whether our firm would be a good fit for your needs. Or fill out our contact form to have us call you.
  2. Visit our estate planning page to learn more about how proactively thinking through your estate plan can protect you and your family, minimize hassle, lower the chance of family discord, and minimize or eliminate taxes.
  3. Learn more by reading our blog or watching our videos .

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