Ask Tom: What are the advantages and disadvantages of a pot trust?

Mar 15, 2018 | Estate Planning, Trusts

What is a pot trust?

A pot trust is a trust for children, who are still depending on their parents who passed away before the children reach adulthood. The purpose of a pot trust is so the trustee can determine the financial needs of the children who still haven’t made it to adulthood. Essentially the trustee decides who gets specific amounts of money and what they need it for. Say one of the children breaks their arm and he/she does not have the money to go to the doctor. The trustee is able to acknowledge the need of this specific child and take money out of the pot trust to take care of this child’s need. Generally the pot trust gets divided up equally between all of the children after the youngest child has made it to adulthood, but that age can also be older, say when the youngest is 25. A pot trust is used to keep the fairness throughout all of the children. It approximates as nearly as possible what the parents would do if they were still living.

Why would I want a pot trust?

Some advantages of a pot trust are that it takes care of a child’s need that was not planned for like getting an injury while playing a sport and needing money for medical bills. The trustee then can give funds to the specific child’s needs when they see fit. The trustee may spend more funds for one child than another. Equality does not necessarily mean fairness; some of your children may have already reached adulthood, and are already financially stable. While you still might have a minor who needs additional financial assistance to make it to adulthood. The point is parents don’t intend to die early, but sometimes they do.

What are some disadvantages of a pot trust?

When using a pot trust the trustee might have to make difficult decisions. One disadvantage is deciding what is actually fair when spending money for a specific child’s needs. Another is that the older children who are already past say the age of 18 (or at the point in which they are considered adults) cannot cash out on the trust until the youngest child has reached adulthood. This might be after almost all the money has been drained from the pot trust. The pot trust is still divided up into equal parts for the children when the youngest child attains a specified age. It’s what parents do. They keep taking care of young children after the older ones are out of the nest.

JensenBayles, LLP provides a broad spectrum of legal services. Thomas J. Bayles has been actively providing advice in the areas of trusts, wills, probate and tax planning in the St. George market for over 18 years. Please visit our web site or call 435-674-9718 and ask for Thomas J. Bayles. The information in this article is for educational purposes only and is not intended to be construed as legal advice.

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