There are three primary methods for distributing an inheritance:
- Outright. The simplest approach is to give the heir full control of the inheritance, without restrictions. For heirs with sufficient financial maturity and investment savvy, this may be appropriate.
- General needs trust. Trust planning comes immediately to mind when planning for a surviving spouse or an heir who is a minor. With a trust one gets professional investment management guided by fiduciary principles. For young beneficiaries, a trust can provide for education funding, and for getting a good financial start in life.
But what about when the children are fully grown, established in their careers and financially mature, in their 30s or even 40s? Even then, trust-based planning will be an excellent idea for many affluent families. With a thoughtfully planned trust, wealth may be conserved and deployed on a long-term basis for the benefit of heirs.
- Special needs or supplemental needs trust. This type of trust may be considered for an heir who has disabilities resulting in qualification for government benefits. The trust must be carefully crafted to meet legal requirements so as to not impair or replace that government support.
Trusts for children
Trusts are individually tailored to meet the specific needs of each family. Trusts for children generally fall into one of three categories.
- Support trust. This is a trust setup to safeguard trust assets for a beneficiary and provides the trustee with the ability to utilize those assets to provide for the beneficiary’s needs, typically focused on their support and maintenance. This type of trust is often used to ensure that the beneficiary has access to financial assistance.
- Discretionary trust. This is a type of trust that is set up for the benefit of one or more beneficiaries. In this particular type of trust, the trustee is given full discretionary authority to decide when and what funds – such as principal or income – are given to which beneficiaries according to the terms the trust.
- Gift-to-minors trust. For young children, contributions of up to $19,000 per year to this sort of trust will avoid gift taxes. Assets may be used for any purpose, including education funding, and will be counted as the child’s assets for financial aid purposes. The assets of a gifts-to-minors trust must be made fully available to the child when he or she reaches a certain age. However, the child may be given the option of leaving the assets in further trust.
Our invitation to you
Garden State Trust Company specializes in serving as trustee and estate settlement. We are advocates for trust-based wealth management planning. If you would like a “second opinion” about your estate planning, if you have questions about how trusts work and whether a trust might be right for you, we are the ones you should turn to. We will be happy to tell you more.
