Oddly enough, my prime candidate for a trust is a young, married family with one or two minor children.
And a lot of times people in that situation, they think, “Well, I don’t need a trust, you know, we’re just starting out in life. We don’t have much income, and… we can barely make the bills each month.”
And if you can barely make the bills then, you know, you might not want to be looking at a trust just then, but once you’re sort of in that groove and now you’re moving along and you do have young children, a trust can be very important. And here’s the reason I say that:
If you have a couple, and if unfortunately both of them were killed in an automobile or a plane crash or something like that, and they have good life insurance, you’re now going to have a situation that in most instances , they’ve set one another up to be the primary beneficiary of their life insurance policy, and in some instances then set up then another family member (maybe one of their parents), or actually in a really sort of bad situation, they’ve set up their child to be the secondary beneficiary of the policy.
Now if you have a joint disaster, you either get a situation where if the child is named (and let’s say it’s a $500 thousand policy and it’s a 4-year-old child) nobody’s going to write a check for $500 thousand to a 4-year-old child. You’re going into guardianship.
And so for the next 14 years, until the child becomes 18, you’re going to have to deal with the guardianship court and every year going and make reports about what’s happening with the money. Sometimes the courts won’t even let you invest it, and so you’re not having a good chance to make the money grow. And when the child turns 18, they get all the money.
What does an 18-year-old do with a lot of money? Blows it. OK?
So if you have a trust, you set it up and you can still have your spouse as the primary beneficiary of your life insurance policy, but if both of you do go in a joint disaster, you have the trust as the secondary beneficiary. Now you’ve got a situation where in the trust it talks about the fact that you have children. You have named a trustee. Somebody that you know, love, and /or trust, who can now manage those assets for the benefit of those children. They can do whatever the trust says that they can do. They do have to be careful about things and you want to make sure that you pick a good trustee, but there’s no court involvement. And will the child get the money when they’re 18?
Probably not. I always tell people that the minimum age at which a child should receive any income, or any “principle,” I should say, is 25 years old. Your brain changes around 25; that’s why your insurance rates go down. And in many instances we’ll have it stair-stepped out: they get some when they’re 25, a little bit more when they’re 30, the rest when they’re 35… And those aren’t hard-cut numbers, it’s just something that I often suggest to people. But when you have those minor children, that’s a great thing that the trust can do for you, because it gives you some piece of mind that if there is something that happens to both you and your spouse, the children are taken care of.
Now a trust can also be great for older couples. They have adult children, but if they’re in a situation that they don’t necessarily want those adult children to get all the assets all at once, they can even say, “OK, when my kids hit 50 then they get some, and then they get more when they’re 55.”
At a certain point, they have to grow up and take care of themselves. But I know that there are many people who want to make sure that they’re taking care of things and stair-stepping things out so that there’s not sudden wealth, because a lot of people don’t do good with sudden wealth.
If you have any special needs individuals in your family, you have somebody who has any sort of a disability, then we can do what’s called a “special needs trust” for them. And there can be a great quantity of money in the trust, but it doesn’t count against them in terms of public benefits.
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…[I]f you can barely make the bills then, you know, you might not want to be looking at a trust just then, but once you’re sort of in that groove and now you’re moving along and you do have young children, a trust can be very important.
They can still qualify for Medicaid benefits. They can still get government-provided assistance and a number of things. And the trust can be there to provide other quality of life things for them. It can be something even like cable TV. But it can also be medical equipment that the government won’t cover, and they need. It could be a number of different things but it has to be in a properly worded trust, otherwise the trust itself would disqualify them from ever receiving the benefits, and that could be a great disadvantage to them.
So whether or not you need a trust depends on your particular situation, and we’ll only know that at the end of our conversation.
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– David Pilcher is an experienced estate planning and probate attorney with Bogin, Munns, & Munns, a full service law firm with offices in Orlando, Clermont, Kissimmee, St. Cloud, The Villages, Orange City, Titusville, Daytona Beach, Ocala, Melbourne, Gainesville, and Leesburg, Florida. Mr. Pilcher welcomes questions and comments regarding the above and can be reached at dpilcher@boginmunns.com.
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