When should a trust for a child vest?

There are some decisions in estate planning that almost all parents agree on. For example, “Do you want most of your estate to benefit your children after both parents die?” Most parents will answer that question with a yes. “For your younger children, do you want their share of the estate held in a protective trust?” That’s another yes.

The next question is a more challenging one. “At what age do you want the child’s share held in trust be paid out to him or her without restrictions?”

In my experience, parents’ responses to this question are wide ranging. Some parents want the full share paid to the child at age 25, for example, on the assumption that if the child is not responsible enough by then, they never will be. On the other end of the spectrum are the parents who would prefer the trust to continue not only for the child’s lifetime, but for several generations longer, if that were possible (it’s not). Another popular idea is to set out a staggered distribution requiring a fraction of the trust property to be paid out at different ages, for example, ¼ at age 21, a further ¼ at age 25, and the balance at age 30.

The truth is, there is no “one size fits all” answer to these questions. However, some of the factors that might be considered in coming to an answer are as follows:

  • Weigh the expected administrative burden and costs of the trust against its benefits.
  • Consider the size of the trust. A $10 million trust for a child should carry on for longer than a $100,000 trust.
  • The longer the term being considered, the more important it will be to consider naming successor trustees or building in a mechanism to appoint successor trustees.
  • If a set distribution at a particular age or ages is desired, consider setting out the proposed distribution scheme in a non-binding letter of wishes rather than in the trust. If the trust directs the trustee to pay ½ of the capital to a child at age 25, trustee will be bound to do so even if the 25-year old child is in the midst of a messy marital breakdown, or has a substance abuse or gambling problem. If the same instruction is set out in a letter of wishes, the trustee will be entitled to take into account the circumstances and delay the distribution if that is in the child’s best interests.
  • If the tax benefits of a testamentary trust are a motivating factor, consider making the child the trustee of their own trust at a particular age and allowing them the flexibility to continue administering their own trust.

Only after carefully taking into account these and other relevant considerations can the trust terms be tailored to suit the particular family situation.

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