What Does a Pot Trust Accomplish?

Pot trust for minor children
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A pot trust can provide flexibility in estate planning.

You know you need an estate plan.

The problem you face is knowing what you should include in your estate plan.

Should you use a will-based plan or a revocable living trust-based plan?

According to a recent Wealth Advisor article titled “How Does a Pot Trust Work?,” you may consider a “pot trust” either way you go.

Pot trust may benefit minor children.
A pot trust allows for flexibility in providing for minor children.

What is a pot trust?

A pot trust is also known as a sprinkling or discretionary trust.

If you have minor children, a pot trust allows you to designate a trustee to oversee management of the assets and designate your minor children as beneficiaries.

The trustee has the authority to choose how funds are used to care for the beneficiaries.

The key to a pot trust is this: the assets are distributed based on needs rather than on specific percentages or distribution rules.

When might you consider a typical family pot trust?

The first factor is having at least two children.

The second is at least one of the children is a minor, although it can still work if all children are adults (especially if they are really “children” who are adults by age only)..

The purpose of the trust is to provide for children as needs arise rather than through equal distributions.

The trustee has flexibility in utilizing assets on behalf of the children.

This can include providing for basic living expenses and other costs for school and activities.

If or when the trust terminates, the children will receive distributions from what remains as you may specify.

What are potential pitfalls of a this trust?

If you desire your assets to be divided equally between your children, a pot trust does not guarantee this.

Instead, the trustee takes on the parental mantel of making financial decisions because specific instructions are not left by the you, the trustmaker.

If you want to ensure your older child does not have to wait for an inheritance, you can set up individual trusts for the benefit of each child with instructions regarding the management of the funds.

Work with an experienced estate planning attorney to determine whether a pot trust or individual trusts are best for your circumstances.

Reference: Wealth Advisor (Aug. 31, 2021) “How Does a Pot Trust Work?”

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