A Trust is a written document that directs where your assets go when you die. However, unlike a will, a trust is a private instrument that does not require court intervention. If you have a trust you will avoid the court directed probate process and your estate can be administered privately and promptly.
Traditionally, trusts are used as probate avoidance techniques. However, Trusts are also beneficial for individuals wanting to have more control in the distribution of assets. Assets are distributed outright when they are distributed through probate, beneficiary designation or pay-on-death. A trust can instead provide that assets remain in trust until a beneficiary reaches a certain age, accomplishes some goal or indefinitely.
Trusts are especially helpful, yet overlooked, in the case of parents with young children. Many parents with minor children may still be establishing a career and may not be as financially secure as other adults. They may believe they do not have assets that warrant establishing a trust. However, they usually have substantial life insurance policies. Naively, the beneficiary designations on these policies generally lists the spouse first and then the children. The problem with this beneficiary designation is what happens when both parents die while the children are still minors? In this scenario, the life insurance policy will retain the proceeds until the children reach the age of 18. During the child’s minority, his or her guardian will not have access to these funds to care for the child. Additionally, the child will get the entire proceeds of the policy upon his or her 18th birthday. To avoid designating your minor children as the life insurance beneficiary, you can name your trust as the beneficiary after your spouse. This allows the trust provisions to designate when, where and how the proceeds are distributed.