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Thursday, June 17, 2010

Trusts: Not Just for Millionaires Anymore

We have all heard of Trust Fund Babies. Maybe we even know one or two. When I was in school, Trustifarians were the most common variety: kids with trust funds who spent it all on their extra-curricular activities. Some people consider these young adults as warnings against setting up trusts for their families, but Trusts can actually be a powerful planning tool both for your money and for the transition of your children and grandchildren to adulthood.

Every family is different, every family member is different, and every trust should be different. If your grandchild is 16 and headed to Harvard next year with a sophomore status, maybe she will be able to handle a large inheritance all at once when she turns 21. Or maybe not: you never know. With a trust fund, you can give the trustee the power to give her money for the specific activities you name, whether they be educational expenses, medical expenses, or travel expenses. Whatever you want.

You can also use a trust to give incentives. Perhaps you really want your child or grandchild to attend graduate school, or travel to Europe, or live in your hometown: you can draft a trust that rewards the behaviors you deem appropriate. Obviously, you need to give the trustee the power to make decisions in grey areas. One possible grey area is an education that does not involve a traditional four-year college. If your child wants to be a chef, do you want her educational trust to provide for that? It can. You can define education (or any other word) yourself, that is part of the beauty of a trust.

A trust enables you to decide that a child gets X amount at age 18, Y amount at age 21, and Z amount after after completing their first marathon. It is your trust, you can make the rules.

A trust can be set up to provide for care of your pets after your death. A trust can provide an education for your neighbor's child. A trust can do almost anything, which is why they are not just for Millionaires any more.