When you become a parent for the first time, estate planning takes on a heightened importance. Not only is their an increased need to leave assets behind to provide for your child if something were to happen to you, but care must also be taken in the manner in which those assets are left for your child. Even if you wanted to leave assets to your child directly, as a minor your child cannot legally inherit directly from your estate. For many parents, the answer is to leave a child’s inheritance in a trust. The Lincolnshire trust administration attorneys at Hedeker Law, Ltd. help you decide who should administer your child’s inheritance trust.
Understanding Trust Basics
A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also called a Maker or a Grantor, who transfers property to a Trustee. The Trustee holds that property for the trust beneficiaries. The beneficiary of a trust can be an individual, an entity (such as a charity or political organization), or even the family pet. A trust must have at least one beneficiary but may have an unlimited number of beneficiaries. A trust may have both current and future beneficiaries.
All trusts fit into one of two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason once active.
What Is Involved in Trust Administration?
When you create your trust, you will appoint a Trustee. The two primary functions of the Trustee are to manage trust assets and to administer the trust using the trust terms created by you. Some of the specific duties and responsibilities of the Trustee include:
- Managing and protecting trust assets
- Abiding by the trust terms unless they are impossible, illegal, or unconscionable
- Investing trust funds using the “Prudent Investor Standard”
- Monitoring trust investments
- Communicating with trust beneficiaries
- Resolving conflicts among beneficiaries
- Making discretionary decisions
- Distributing trust funds to beneficiaries
- Approving or denying distributions if given discretionary authority
- Keeping detailed trust records
- Preparing and paying trust taxes
Things to Consider When Appointing Your Trustee
Deciding who to appoint as the Trustee of your child’s inheritance trust may be the most important decision you make within your entire estate plan. After all, the Trustee will largely be responsible for your child’s financial security in your absence. Sometimes a child’s other parent is a wise choice, but not always. Some questions you may want to ask yourself when evaluating a possible Trustee include:
- Does he/she have the financial knowledge and experience to manage and invest the trust assets?
- Does he/she have the ability to understand the legalities involved in trust administration?
- Are there any conflicts of interest?
- Will he/she have my child’s best interests at heart?
- Is he/she financially stable (to decrease the possibility of self-dealing)
- Is his/her job likely to require travel or even relocation?
- Does your child have an established relationship with him/her?
- Where do you see him/her in five years? In ten years? Does that life fit with administering your trust?
Because there is so much at stake, and no much can change in someone’s personal life, you may wish to consider appointing a professional Trustee. With a professional Trustee, many of the concerns you may have with a family member or friend are not relevant. A professional Trustee has the financial and legal experience needed to successfully administer your trust. Furthermore, with a professional Trustee, there is no risk that a career, marriage, or personal problems will interfere with administering your child’s trust.
Contact Lincolnshire Trust Administration Attorneys
For additional information, please download our FREE estate planning worksheet. If you have additional questions or concerns regarding trust administration in the State of Illinois, contact the experienced trust administration lawyers at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.