Myth: Trusts are only for the rich
If someone had given you $100,000 on your 18th birthday, no strings attached, what would you have done with it? Would you have spent part on your college education, then saved the rest for a down payment on a house?
More likely you would have thought, “I’m rich!” Then spent the money on a new fully loaded car or a vacation.
One common misconception is that trusts are only for the wealthy. But, not only can a properly executed and funded trust make the administration of an estate easier, it can ensure that children are provided for until they are adults.
In Ohio, a financial custodian or guardian must manage money left to a minor child in trust until he or she turns 18. At that time, a financial custodian or guardian has no power over the inheritance if the child demands control of the money. However, if you set up a trust to hold assets that pass to your children when you die, you can arrange to have the trustee control 100 percent of the inheritance until the time that you wish. The trust can call for distributions of portions of the trust on certain birthdays or milestones, such as graduations or weddings. When a trust is in place, your child does not have a right to the money unless the request complies with what you have designated.
Maybe you don’t think you have enough money to make setting up a trust worthwhile. Let’s say that you and your spouse each make $45,000 a year, and you have two small children. You and your spouse made wills when your kids were born designating a guardian to make sure they inherited whatever assets you had.
You never considered setting up a trust for their benefit. Let’s say that each of you has a modest life insurance policy that has a death benefit of five times your salary ($225,000 each). If both of you passed away at the same time, your children would each inherit $225,000 on their 18th birthdays—less what the guardian spent on their care while they were minors. This could be a substantial amount of money that, if used wisely, could provide for them for a long time.
Rebecca Price is a mother of a 10-month old daughter, a Cleveland Heights resident and a member of the law firm of Gallup & Burns. She may be reached at firstname.lastname@example.org or 216-621-4636.