Many parents creating their estate plan may look for ways to adequately provide for their minor children if they pass away. One strategy is to create a common pot trust which allows you to pool certain assets that can be used for the benefit of multiple beneficiaries.
Like other trusts, you name a trustee and give the trustee discretion to use the assets funding the common pot trust to provide as needed for all the listed beneficiaries. Flexibility is key when using these types of trust. Assets are distributed based on needs not according to previously set out terms in the trust. For a common pot trust to be useful, you should have at least two children, and at least one of them is a minor.
The trust is designed to provide for the needs of the beneficiaries as those needs arise, and that does not mean that all assets will end up being distributed equally among beneficiaries. That is one of the main drawbacks of using this type of trust. Many parents are inclined to look for ways to divide assets equally and this is not one of those. One child may need private school tuition, while another needs more medical care and yet another needs money for sports training. Each child is unique with different financial requirements. A common pot trust allows for spending as needed to meet those needs without requiring any equality of payments. Depending on how you look at it, this feature is either a pro or a con depending on your parenting methods and the needs of your children.
The other drawback to consider about common pot trusts is that it places an extremely high burden on the trustee. Most trustees of trusts follow specific terms in the trust document as to when to make distributions to beneficiaries. In the case of a common pot trust, the trustee essentially acts as a parent and makes distributions using a wide discretionary range based on the needs of each beneficiary and the assets available. If you have faith in the trustee you select to make sound decisions for your beneficiaries then this may not be a drawback for you. Some trustees may become overwhelmed by this level of responsibility so it is important to choose your trustee wisely.
The last drawback to consider about using a common pot trust is that the trust stays in place until the youngest beneficiary reaches the age of eighteen. At that time, the common pot trust can dissolve and the remaining assets can be distributed equally among the beneficiaries. This can be frustrating for older beneficiaries who are waiting on the younger one(s) to turn eighteen. It can also be upsetting to see the final trust accounting and note that certain beneficiaries received more as needed distributions over the years and still walk away in the end with a distribution check in the same amount as those who did not receive as many previous distributions.
If you are looking for ways to ensure your minor children are properly cared for in the event of your death or incapacity, contact the experienced estate planning attorneys at Stouffer Legal in the Greater Baltimore area to set up a consultation. They can further explain how a common pot trust would work as well as other strategies to accomplish these goals. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
