Making mistakes when creating trust for children can have long-term consequences, such as family conflicts, a lengthy probate or years of stress.
Thankfully, with a bit of responsible long-term planning, you can avoid these mistakes and keep your family’s future as smooth as possible.
Here are the top 10 mistakes made when creating a trust for children:
1. Not Appointing a Suitable Trustee
If you choose to create a trust, then you must pick a trustee carefully. A trustee is the individual selected to manage, oversee and distribute the earnings and assets of the trust to your kids.
If you were to select a trustee who isn’t responsible (both financially and in their manner) then you could leave your kids with stress and conflicts later down the line. Only pick someone who you believe is good in leadership roles and serious matters.
We also advise that you’re careful over the discretion you give a trustee, as too much or not enough power can have big consequences.
2. Disqualifying Your Child from Special Needs Benefits
A special needs trust can be used to ensure a disabled or chronically ill child can continue to receive financial inheritance, without disqualifying their access to government benefits such as Social Security, Supplemental Security Income (SSI) and Medicaid.
Don’t make this mistake when creating a trust for your children:
Don’t leave your assets directly to a child who receives government benefits, as they will likely be disqualified from the benefits. Instead, your child can continue to receive their benefits as their inheritance will be legally owned by a trust.
They can then receive the support of the trust as and when is needed.
Special needs trusts include:
- Third-party special needs trusts: (Funded with assets by someone other than the beneficiary).
- Self-settled trusts: Funded by the beneficiary’s assets
- Special needs trusts may also be referred to as ‘Supplemental Needs Trusts’.
If you have a child who receives government support, please contact our Florida Special Needs Trusts Attorneys to protect their eligibility.
3. Poorly Planned Trust Distributions
Another mistake when creating a trust for your children is poorly timed trust distributions. Trusts are best seen as safety nets, as help for your kids to live a full life.
If you allow your kids to get huge sums of money at once, they can become overwhelmed, greedy or lost. It’s often wise to consider creating a timeless for inheritance. This can allow your kids to learn how to manage money and access it when it’s needed.
- Funds are provided over several years.
- High-value assets are distributed upon marriage, or the birth of a child.
- Funds are provided in times of need.
- Funds are provided upon a certain age milestone, like a 21st birthday.
4. Failure to Update the Trust
Revocable living trusts allow you to update and edit them during your lifetime. Do not make the common mistake when creating a trust for your children of never updating it when changes happen in the family.
You should annual consider if you need to make updates to a living living trust, such as upon:
- The birth of a child or grandchild
- A death in the family
- A major asset purchase, such as a vehicle or house
- Any major asset sales
- Large changes in wealth
- Injuries or illnesses
5. Not Working with Professionals
Estate planning for parents is complex. And your family’s wealth is at the heart of it. Do not make the mistake of trying to complete complex estate planning matters alone. Use those with significant experience such as Florida estate planning lawyers and tax planners.
This is especially true for families with special needs children, Medicaid ambitions, complicated estates, high-value estates or blended families.
6. Not Creating a Power of Attorney or Advanced Medical Directives
A Power of Attorney (POA) in Florida is the legal authorization of someone to act on your behalf over important life decisions such as taxes, real estate, finances, investments and lawsuits.
This can be critical in ensuring your family’s wealth always operates smoothly. For example, if you become incapacitated through illness or injury then who would take care of these matters? The same can be asked if you were to be out of the country for extended periods.
You should carefully complete the POA documents with a Florida estate planning lawyer to avoid invalidity.
7. Not Planning Correctly After a Divorce
Please consider the impact of divorces when doing any estate planning for your children. If you don’t consider it, your ex-spouse could remain in your estate plan, potentially leaving them with access to your estate or even authority over financial decisions!
If you’re a parent who has gone through a divorce, always ensure that you:
- Update your Will
- Update your Healthcare Directives and Proxy
- Name new beneficiaries
- Name new Powers of Attorney
- Consider Setting Up a Trust
- Review the guardianship for any minor children
- Review your prenuptial agreement or postnuptial agreement
- Review Life Insurance Policies
8. Not Planning for Blended Families
Blended families are those from different marriages or parents. If you have any step-kids we urge you to not make the estate planning mistakes of not planning properly. This is critical!
Stepchildren who are not legally adopted do not automatically inherit their step-parent’s estate by law. It must be planned for in your estate plan. Do not leave vague language, always state their names and ‘Step-children’.
9. Not Taking Advantage of Asset Protection
If you find yourself in money problems, then remember – it is never too late to take advantage of asset protection.
Asset protection is the legal process where a debtor structures their assets to make it very difficult for creditors to collect upon them. It doesn’t hide them, but it gives you a lot of negotiating power. It can be used at any stage of debt.
When creating a trust for your children, it may be wise to use asset protection to protect your family’s wealth.
Please contact our Florida asset protection attorneys if you want to consider this strategy for your family’s wealth.
Read Related: Guide to Asset Protection in Florida
10. Failing to Fund The Trust
We’ll leave you with a surprisingly common and simple mistake – failing to fund the trust.
Don’t make the mistake of filing all the paperwork and creating the trust, to then forget to fund it with assets. This can happen because it’s a tedious task to change asset ownership or contact financial institutions. But failing to do so will leave your kids without any funds in the future, or with a lengthy probate process.
Contact a Pinellas County Family Estate Planning Lawyers
If you’re looking to avoid making errors when creating a trust for your children, then our Pinellas County estate planning lawyers can help. We regularly help Floridian families make water-tight and future-proofed estate plans.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced attorneys, they can help you start and complete the probate process or tackle any probate litigation issues.
Schedule a free assessment today to get started or to get any questions answered.