Four Things to Consider When Using a Continuing Trust
Not all children are responsible enough to handle a large lump sum inheritance at age eighteen
without some guidance. Most children would be tempted to spend it all on fast cars, designer
clothes, lavish vacations, or maybe even to quit their job. It is important to educate yourself on
the options available in the event you die prior to your children reaching the age of majority.
1. How a Continuing Trust Works
A continuing trust is a great option to ensure that the money you worked so hard for lasts to
provide your children with the future you envision. A continuing trust holds money for a specific
period of time and does not distribute it outright. This type of trust can allow for small
distributions when a child reaches certain ages, and then distribute the remainder at a specified
age, or continue indefinitely. You decide the appropriate ages and amounts for disbursements
to your children. The specifics will largely depend on what you hope your children will utilize the
funds for and whether you need to plan for special circumstances that affect your children.
2. Protecting Minor Children
Continuing trusts can be particularly beneficial for situations in which a child may inherit funds or
property while they are a minor. Minor children are unable to own property or inherit an amount
over $15,000 in many jurisdictions. If children are set to receive more than $15,000, most states
require that a conservatorship or guardianship be put in place until the child reaches the age of
majority (eighteen or twenty-one depending on the state). This court process requires additional
fees and court filings for the duration of the guardianship or conservatorship. And ultimately, the
child would still receive a large lump sum when they turn eighteen or twenty-one (when they
may still be immature). Establishing a continuing trust prevents the need for a conservatorship
or court-monitored guardianship.
3. Other Ways a Continuing Trust Can Help
Continuing trusts can also be beneficial in other circumstances. They can help preserve money
for children who are financially irresponsible and tend to exercise poor judgment when it comes
to spending. They can also protect children who suffer from addiction from having a lump sum
given to them that could be used to fuel their addiction. In addition, this type of trust may protect
money and property from lawsuits if a child works in a high-risk occupation.
4. Potential Issues with a Continuing Trust
Continuing trusts provide a lot of benefits, but they can be problematic if not properly drafted.
There may be a circumstance in which a child may need a large sum of money and the trust
does not give the trustee the ability to distribute money for that need. Additionally, if a child
requires government aid, this type of trust may disqualify the child if it does not contain specific
language to preserve the benefits.
While we have already discussed several of the benefits of establishing a continuing trust, there
are other important considerations when deciding if a continuing trust is the right fit. In most
cases, managing a trust costs money. The amount that it will cost can be quite substantial
depending on how long the trust exists (and continuing trusts typically last a long time). The
most common expenses associated with continuing trusts are trustee fees and income taxes.
Both should be considered when determining how long you would like the trust to exist. There
can be provisions that can give the trustee authority to dissolve the trust if it becomes financially
impractical to maintain or if the original purpose is the trust is no longer applicable.
Another important consideration of continuing trusts is that managing a trust takes time. These
types of trusts are created to last for a long time and require a trustee who has the time to
dedicate to the proper management of the trust. One of the more difficult decisions you will need
to make is choosing who should serve as trustee. There are many considerations that go into
trustee selection, and the following questions should be asked: How old is the successor
trustee? Do they have the time and capacity to manage a trust? Will selecting this person put
them in a position where it could strain their relationship with the beneficiary? You may feel it
would be better to select an entity rather than a family member; if so, you should ask the
following questions: How accessible is this institution? Will they be in business long enough? Is
there a minimum trust value requirement? What fees do they charge for management?
There are a lot of considerations in determining whether a continuing trust is the right fit for your
family. Contact a qualified estate planning professional who can ask you the right questions to
make a proper determination of whether this form of trust is appropriate or if there may be a
better option for your circumstances.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional Counselors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
