Trusts for Young and Minor Children: The Basics

April 8, 2019

In Wisconsin, trusts can provide a powerful tool for parents eager to protect and pass their assets to their children. More specifically, trusts for children bring the power and flexibility of trusts to bear when parents die before their children.

This article sets out the basics of trusts for children, highlighting the importance and value of using a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. to transfer assets to children.

Assets Left to Minor Children without a Trust

Upon the parents’ death, young and minor children willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. receive their inheritance outright as owners if proper estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. is not completed in advance. If a child is under 18 years of age, a Wisconsin GuardianA person or company appointed by a court, after a court hearing, to make decisions and represent a person who is incompetent. The guardian of the person makes person decisions for the incompetent person such as living arrangements and health care needs. The guardian of the estate makes financial decisions for the incompetent person. A properly drafted and executed Durable Power of Attorney along with a Power of Attorney for Health Care can normally avoid the need for a guardian, if these documents are created and signed prior to the individual becoming incompetent. willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be appointed to be in charge the child’s funds until that child reaches the age of 18. Then, the funds willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be given to the child to do with as the child pleases.

Failure to leave assets in a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can result in a teenager gaining control of assets at a time that he or she may not be able to make sound long-term financial decisions.

Assets Left to Adult Children without a Trust

For a child that is 18 or older upon the parents’ deaths, the child willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. receive the inheritance outright. The child willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. have immediate control over the funds. The child willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be able to do as he or she pleases with this new wealth.

If an 18-year old or older child has a substance abuse problem or other major problems, this approach may cause the child significant challenges that could be avoided with a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries..

As estate planning lawyers, we often counsel our clients against leaving assets directly to minor or younger children. In our experience, we’ve found that very few younger children  are responsible enough to make wise lifelong financial decisions. That’s to be expected – they are children. They should not be required to make major financial decisions if that can be avoided.

Do Not Leave Assets to Anyone Other Than Your Child

Sometimes parents leave their assets to their own parent, brother, or sister, for their children. The expectation is that the family member receiving these assets willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. use them for the deceased children’s expenses. Unfortunately, our experience is that such an approach seldom turns out as planned.

Generally speaking, there are a number of issues with this approach.

1. First, the person who receives these assets then owns these assets. They are the assets of that relative – and not the assets of the deceased’s child. If that relative dies without an estate plan that passes those inherited assets back to the children, those assets willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. go to that relative’s spouse or children.
2. Second, if that relative decides to use the funds for their own needs, this is perfectly legal as they are not your children’s assets.
3. Third, if that relative ends up in a nursing home, the relative may lose these assets to the nursing home as they are the parents assets.
4. Fourth, if that relative divorces or has financial problems, they are likely to lose these assets.

In short, there are many risks and reasons not to leave assets meant for your children to others. It may sound good in theory, but in reality, it rarely works out well. In fact, it often results in lost assets or family feuds.

Advantages of a Trust for Young or Minor Children

When the parents pass away, a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. estate plan willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. place your younger or minor children’s share into a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. for the child’s benefit. The trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. assets are owned by the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. – and not by anyone or anything else.

While trusts require a trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity., a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. does not allow the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. to access the assets in the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. for the trustee’s own financial needs. As such, should a trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. run into financial problems, divorce, or addiction issues, the assets in the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. are not assets owned by the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity..

To be clear, the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. of the parents’ choice oversees the assets in that trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. for the child, but the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. does not personally own the assets. Your child’s trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. owns the assets. This is a crucial legal distinction that has a lot of real-world implications.

Trusts for Children: Flexible Options

As an estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. vehicle, a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. is both flexible and versatile. Our estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. attorneys can help ensure that your trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. is crafted in a way that best protects your children. For example, the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. could pool your money into a single pot for all of the children. Alternatively, the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. could create separate trusts for each child. The ages and needs of the children, in consideration with other family characteristics, willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. help guide the decision on how to proceed.

A Trust to Help Guide the Trustee

The trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. of the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. into which your assets pass to your children willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be responsible for spending your money in a way that’s in keeping with your wishes. They willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. to carry out your wishes by using the assets in the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries., for example, to pay for your child’s schooling. Your trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. can try to use the funds as you would have used them if you were alive.

Including details about your wishes and aims in your trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can help make the task of the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. easier, by sharing insights into how you feel about spending money on this need or that need.

Choosing the right trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. is a very important decision. We have previously shared our thoughts on choosing an individual trustee.

What Happens When a Child Grows Up?

Most trusts state that when a child reaches a certain age, such as 25 or 30, the remaining funds not spent on the child willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. then be distributed to the child.

As experienced estate planningPlanning in advance of disability, incapacity, or death to make sure that key life issues have been addressed while the person is still of sound mind and able to understand and sign key documents such as Power of Attorneys, Power of Attorneys for Health Care, Wills, and Trusts to form a strategy and provide for the administration and disposition of his or her assets upon death or upon incapacity. attorneys, we typically include provisions that allow the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. to continue past the stated age if the child has a drug, alcohol, gambling, or other legal capacity issueA person’s children and/or lineal descendants such a grandchildren and great-grandchildren. It refers to a direct blood line in Wisconsin along with legally adopted persons. In Wisconsin the term “issue by right of representation” is commonly used to indicate that a share of beneficiary, if predeceased, shall be distributed to his or her children or lineal descendants. Although slightly different this is often also referred to as Per Stirpes distribution.. We also provide for creditor protection and divorce protection through a spend thrift clause that allows the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. to hold funds back and use the funds for the child, if the child has financial or other issues. Asset protection for a child can be a nice bonus for most trusts set up for children.

Some parents provide that funds can be used for a child’s education, support and health care, but can then provide that lump sums willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be disbursed to the child at certain ages.

For example, lump sums might be disbursed as follows:

• One-third of the funds at age 25,
• One half of the remaining funds at age 30, and
• the remainder at age 35.

Some parents willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. provide higher ages or even a lifetime trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. where the funds are only disbursed upon the child reaching retirement age.

Finally, some parents provide for incentive trusts to direct certain behaviors, such as distributing a lump sum upon graduation from college or other specified life events.

Supporting a Child with Challenges

For a child with known problems, trusts willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. typically not provide for a lump sum disbursement. Rather, the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. continue for the child’s lifetime or continue until the trusteeThe person or company named in a trust to manage property and assets of a trust. Usually a trust will name an initial trustee or co-trustees and successor trustees. A trustee has the duty to act in the best interest of the person for whom they are managing the funds and is considered a Fiduciary. Most people that set up Revocable Trusts to avoid probate, name themselves as Trustee and also name successor trustees to take over upon death or upon incapacity. is fully satisfied that the child is on the right path, and can handle the funds.

What If the Child Passes Away?

Normally the parents’ trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. would direct who willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. receive assets if a child predeceases the parent. Yet where a child passes away after a parent, the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. can allow the child to direct who willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. receive the assets if there are funds in the trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. upon the child’s death. For example, this might be to the child’s children or the child’s spouse. This inheritance redirection is accomplished through a “power of appointment”. The power of appointment recognizes that while these funds are held in trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. for your child, your child is entitled to decide what happens to these trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. funds if he or she should pass away.

Another option is that the parent directs what willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. happen to a child’s funds if a child passes away while the child’s trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. has funds remaining. For example, a parent could direct that it willA written document that sets forth and names the personal representative who will be in charge of overseeing the probate process and names the specific bequest and residual beneficiaries of property who are to receive and inherit assets and property through probate. A Will does not avoid probate, and must be properly drafted and executed to be legal. A Will can also avoid the use of a surety bond in many instances and can help utilize an “informal” Wisconsin probate process if it has the proper clauses and attestation clause. be distributed to the parents other children.

We Are Your Trusted Estate Planners

Trusts are an important and necessary part of a quality estate plan for minor or younger children. At Wokwicz Law Offices, we have been helping parents take care of their children for generations. We invite you to contact us to today to talk about how we can craft a trustThe arrangement creating the legal ownership of assets by a trustee for the benefit of the Settlor and/or other beneficiaries. to pass your assets along to your children in a way that best provides for them.