Hey parents – let’s talk trust funds.
You want the best for your kids – obviously. And setting up a trust is one of the best ways to set them up for success down the road. Not only does it give you total control over how your assets get handed down, it also saves your family time, money, and headaches dealing with the courts later. Pretty sweet deal.
But we get it – trusts can seem complicated at first. All the legal jargon makes your head spin. That’s where we come in…
At Legal Norcal, we’ve helped many California parents like you create the perfect trusts for their kids. We know all the ins and outs to make the process simple and painless. In this guide, we’ll walk you through everything in a clear, step-by-step way. No advanced law degree required.
Why Consider a Trust Fund for Your Child
As a parent, you work hard to provide for your kids. You may have visions of helping them buy their first home, start a business, or have financial security.
When we meet parents, they’re often worried about:
- Losing control once their child is legally an adult. In California, your child gains control of any inheritance at age 18. Without a trust, you can’t control when and how funds are distributed.
- Exposing assets to creditors and ex-spouses. Inherited assets may become marital property (The State of California is a Community Property state) through transmutation or targeted by creditors or bad actors. Trusts can provide protection.
- Losing assets to taxes. The US estate tax exemption will be $13.61 million per person in 2024. This number will likely become lower in the future. Trusts can help minimize federal estate taxes if applicable. California does not have a state estate tax.
- The delays and costs of probate. If assets are not in a trust, they may go through lengthy court probate procedures after your death.
Setting up a trust while you’re still living gives you maximum flexibility and control. It lets you distribute assets on your own terms, not the court’s. This saves time, money, and stress for your loved ones in the future.
How an Experienced Trust Lawyer Can Help
Some parents may try to set up a DIY trust to save money. We strongly advise working with an estate planning attorney who specializes in trusts. Here’s how we can help:
- Ensure it aligns with California laws. Trust and tax laws can be complex. We stay up-to-date on the latest regulations so that your trust is fully compliant.
- Create customized terms. Your vision for your child is unique. We can draft the trust terms to support their needs and goals.
- Modify it flexibly over time. Circumstances and laws change. We build flexibility into trusts so they can adapt in the future.
- Handle the administration. We work with trustees, accountants, and financial advisors to ensure smooth ongoing trust administration.
Investing in specialized legal expertise gives you confidence everything is set up correctly from day one.
Step 1: Choose the Right Type of Trust
One of your first decisions is whether you need a revocable or irrevocable trust.
Revocable trusts can be changed or revoked at any time if your circumstances or wishes change. Many parents start with a revocable living trust.
Irrevocable trusts can’t be altered once created. These are often used to minimize estate taxes. Be aware that transfers to irrevocable trusts may trigger gift taxes if they are over the annual exclusion amount ($18,000 beginning in 2024).
Within each category, there are further options. Common choices include:
- Discretionary trusts provide flexibility for trustees to distribute funds. They decide when and how much money beneficiaries receive.
- Support trusts provide for needs like medical bills and education. They ensure support without enabling poor money management.
- Incentive trusts tie distributions to goals like graduating college or holding a steady job. These help motivate positive behavior.
Your trust attorney will explain these options so you can select the right approach for your child.
Step 2: Choose a Trustworthy Trustee
Naming a trustee is one of the most important decisions you’ll make. The trustee manages the trust assets and distributes them according to your instructions.
Look for someone who is:
- Responsible and financially savvy
- Willing to take on duties like record-keeping, tax filings, and communicating with beneficiaries
- Able to make difficult decisions impartially
Often, parents initially name a relative or family friend, then a professional or corporate trustee later on.
We also help you name successor trustees in case your first choice resigns or passes away. Reviewing your trustee selection regularly allows you to adapt to changing circumstances.
Step 3: Fund the Trust
Now, it’s time to decide what assets to transfer into the trust. Common choices include:
- Cash, stocks, bonds, and other investments
- Proceeds from life insurance policies
- Business interests
- Real estate
It’s wise to fund the trust over time versus all at once. This allows you to stay below gift tax exclusion limits. Paying life insurance premiums from your own accounts also keeps the proceeds out of your taxable estate.
Trusts can be funded during your life and at death with your will or living trust. The best assets to transfer and timing depend on your financial and tax situation.
Step 4: Draft the Trust Document
The trust document lays out your wishes legally. Here are the key elements it will cover:
- Naming beneficiaries. This states who receives benefit from the trust, like your children and grandchildren.
- Successor beneficiaries. If one beneficiary passes away, these are secondary beneficiaries who would receive their share.
- Terms for distributions. As discussed above, you decide when/how beneficiaries can access funds.
- Trustee powers. The powers your trustee has to manage assets, make investments, distribute funds, etc.
- Instructions for dividing assets. Upon your death, how exactly are assets to be divided if you have multiple beneficiaries?
An experienced trust lawyer knows how to draft agreements that are ironclad yet flexible. We can incorporate trust provisions so it can evolve as laws and family structures change.
Step 5: Maintain the Trust Properly
After your living trust is created, maintenance is required to keep it valid. With our assistance, your trustees will:
- File necessary tax returns
- Communicate regularly with beneficiaries
- Review investments and performance regularly
- Re-title assets that are transferred into the trust
- Maintain thorough records and documentation
- Handle any legal or tax issues that arise
The trustee should provide beneficiaries with accountings at least annually. This is especially important if a corporate trustee is involved. We help ensure everything is done by the book.
Providing for Your Child’s Future With a Custom Trust Fund
While the process may seem complicated, setting up a trust fund puts you in control of your legacy. It reflects your priorities and values onto your children in a way that probate simply can’t.
We know you want your children to feel secure, pursue their passions, and build independent lives. But ultimately, you can’t always be there. Thoughtfully designed trusts allow you to provide guidance and support for years to come.
If you’re ready to discuss your family’s unique needs and goals, our team is here to help. Contact us today to schedule an evaluation.
Take Control of Your Child’s Future With Legal Norcal
Setting up a trust fund for your child is one of the most important investments you can make as a parent. While the process may seem complex, our law firm is here to guide you every step of the way. We’ll ensure your trust reflects your vision for your children.
At Legal Norcal, we have extensive experience helping California parents protect their families through estate planning. We offer customized solutions, flexible approaches, and ongoing support so you can have peace of mind.
The best time to take control of your legacy is now. Contact us today to schedule a meeting to discuss your family’s unique needs and goals. Together, we can design an ironclad trust fund that secures your child’s financial future for years to come.