- Ensures Fairness to All Heirs
- December 28, 2012 | Authors: Amanda R. Gerstnecker; John W. Powell
- Law Firm: Meyer, Unkovic & Scott LLP - Pittsburgh Office
Successful parents know that treating children equally is not a matter of giving them all the same things or supporting them with the same exact funding. The summer trek across Europe on a bicycle that one teen yearns to take might cost more than the outdoor camp another craves to attend. It would be foolish to set the same college savings goals for a daughter who won the science fair and a son who gets average grades. A child with mental challenges may require more support than one without any disabilities.
In short, parents should learn to equate fairness with filling needs rather than dividing chips.
Estate planning requires the same approach, even for those whose estates fall below the taxable minimum. Even though it may seem much easier just to split things equally to avoid being seen as unfair, an even split may not be the way to act in the best interests of the heirs.
It’s almost impossible to predict what the individual needs of each child could be, especially when the children are younger when the estate planning is taking place. The way out of this dilemma is to create a pot trust. Rather than establish a separate trust for each minor child, the parent(s) creates one common “pot” from which a trustee draws to cover all the stipulated expenses of the children up to a certain age. The trustee is not required to spend the same amount on each child. Once the youngest child is of the age stipulated in the trust, the remainder of the pot trust is divided, usually equally, among all the beneficiaries it covers.
Another advantage of a pot trust is that the property placed in trust does not have to be divided. A separate trust for each child might require the trustee to sell a business, investment accounts or real estate, which might not be in the best interests of the family.
A pot trust makes most sense when children are young and fairly close in age. The older the children are, the more of the costs covered by the typical pot trust will have already been incurred.
The key decision to make for the pot trust is who will be the independent trustee. The trustee has the final say on whether and how the money is to be distributed throughout the duration of the trust, so the trustee must be both scrupulous and knowledgeable of the family dynamics. The trustee’s decisions are not predetermined, and can’t be automated.
When discussing the creation or updating of an estate plan, it is imperative that you share with your attorney not just your goals, but also your fears of what may happen after your passing. Once the attorney knows what you want and don’t want to happen with your estate, he or she will be in a much better position to help you reach the goals.