A pot trust can be helpful for families with multiple children.
Parenting is challenging.
Navigating how to care for each child as an individual, while also supporting the family unit, is no small task.
It can be hard to know what each child will need in the future and how choices today will impact them tomorrow.
According to a recent Yahoo Finance article titled “How Does a Pot Trust Work?,” this concern is especially apparent in estate planning.
Many people want to know their estates will be used for the benefit of their children, but are afraid to make a choice with unanticipated negative consequences.
Sometime this leads to inaction.
Inaction, in turn, leads to procrastination.
And procrastination leads to nowhere good.
Unfortunately, this causes many more problems than simple creating an imperfect plan.
Rather, parents should create a last will and testament-based or a trust-based plan.
For families with multiple children and at least one minor child, a “pot trust” is a strong option if all assets are to be left to the children.
What makes a pot trust appealing?
They are relatively flexible in nature.
When this type of trust is created, children are named as the beneficiaries and the trustee is granted authority to exercise broad discretion when using funds.
Consider this scenario.
You have passed away and one of your three children was taken to the hospital for a medical emergency.
The bill was unexpected and also quite costly.
The trustee could utilize the funds from the trust to pay for the care of this child.
Rather than distributing assets in equal portions to each child, the estate in a pot trust is divided based on need not noses.
Pot trusts are typically time-limited and set to end when the youngest of the children reaches a specific age.
While the pot trust exists, the trustee uses discretion to cover the needs of each child as unanticipated situations arise.
Because the trustee has the ability to exercise discretion, this can be overwhelming for someone who anticipated simply having to follow outlined directions.
You should have a conversation with the trustee prior to naming the individual for the role.
If fairness is your highest value, a pot trust may not be the best option, depending on whether you define “fair” as “equal”.
Some children may benefit more than others before the trust is terminated and the remaining assets are equally distributed.
Consequently, to be fair and equal, working with an experienced estate planning attorney is essential.
He or she will discuss your goals and unique circumstances to determine if a pot trust is right for your and your family.
Reference: Yahoo Finance (Aug. 30, 2021) “How Does a Pot Trust Work?”