Children are a big part of Trust planning, and a big part of Trust litigation (lawsuits) when the planning falls apart (or is not done properly to begin with). There are many factors that affect planning for children, including age, marital status, health, legal or creditor issues, and level of responsibility (or rather perceived level of responsibility by the parent).
Age is easy to plan for in that a child’s trust can be created to hold assets until a certain age. Choosing the “certain age” is a highly personal question to answer. As a starting point, a child must be a legal adult to receive assets, which is at age 18 in California. And most people agree that ages 19, 20, and even 21 are too young for a child to receive anything substantial. In fact, research has shown that the Prefrontal Cortex-the part of the brain that controls reasoning and impulses-does not fully mature until age 25. So a scientific argument can be made that age 25 is a good minimum age to work with, but does it apply to every case? Sure, why not. If nothing else, age 25 is a good starting point. What about an age other than 25, like 30, 35, or 40? That’s where personal preference comes into the mix. Of course, it’s not an all or nothing proposition because a Trust could allow a portion of the assets to be distributed at age 25 (say ½ or 1/3), and then use other ages for the remaining distributions. You can be as creative as you like in setting the “certain age” for distributions.
Marital and Creditor Protection Issues:
Age is only one part of the equation because keeping assets in trust for a child also impacts marital property issues and creditor protection. By placing a child’s assets in trust it can (i) protect those assets from creditors, and (ii) help the assets retain their character as the child’s separate property (this applies in California, which is a community property state, but inherited assets are, by definition, separate property). So as long as the assets are in trust, they have some protection in case of creditors or divorce. This may be helpful if the child is in a high-risk profession, such as a doctor, lawyer, stuntman, dare devil, motor cross, etc. But the protection only lasts for as long as the Trust is in existence. If the trust provides for distribution at a certain age, such as 25, then the creditor protection ends at age 25. The trust could continue for the child’s entire lifetime if this is a concern. But you have to balance the inconveniences of the trust with the protection being provided.
Children with health issues can face substantial costs for medical care in the future. A child’s trust can be created so that the child will qualify for government assistance, but have trust assets available for extraordinary expenses that add to the child’s comfort. Known as “protective”, “Medicaid”, or “Special Needs” trusts, these devices can be helpful for children in need. In this case, the trust would remain in existence for the child’s lifetime, so the age question is no longer a concern.
Level of responsibility:
This is the real issue parents grapple with in determining a proper age for distribution. How responsible are your children? Perhaps the more important question is: how do you perceive your child’s level of responsibility?
Before I had children I had a hard time understanding why continuing trusts for children were such a big deal—let the children have their cake, I thought. Not anymore. As the father of two boys I now understand just how perplexing the question of responsibility can be. I also know that every child is different and my perception of each of my children may vary from their actual level of responsibility. And it is my perception of responsibility that matters because that is what will drive my decisions in planning for my children.
So take a good look at your individual situation and ask yourself, what do you think is best for your family? There are many variables and options to choose from to help your children. But your opinion is the only one that counts when creating your own trust.