How to Set Up a Trust for a Minor Child in New York

Creating a trust for your child is one of the most important steps you can take to protect their financial future. A trust is a legal arrangement that holds and manages money or property for someone else's benefit. While setting up a trust might seem complicated, this guide will break down the process into simple, manageable steps. We'll cover everything you need to know: why you might want a trust, the different types available, key decisions you'll need to make, and common mistakes to avoid.

Why Set Up a Trust for a Child?

Setting up a trust offers several important protections for your child's inheritance. Since children under 18 in New York cannot legally own or manage property on their own, without a trust, the court would need to appoint someone to manage your child's inheritance - a process that can be expensive and time-consuming. A trust also gives you control over when and how your child receives their inheritance. Instead of getting full access to all assets at age 18, which might be too early for large sums of money, you can set up a schedule that matches your child's growing maturity. Additionally, the way you structure your trust can affect whether your child qualifies for college financial aid, making it an important part of educational planning.

Important Decisions When Creating a Trust

When Should Your Child Get the Money?

Instead of giving all the money at once, you can spread it out over time. Many parents choose to distribute the money in stages. For example, you might give one-third at age 25, another third at age 30, and the rest at age 35. This approach helps ensure your child learns to manage money responsibly over time.

What Can the Money Be Used For?

You can specify exactly what the trust money can pay for. Common expenses include school costs like tuition, books, and housing. The money can also cover healthcare costs, basic living expenses, business startups, or major purchases like a car. You can be as specific or general as you want about allowed expenses.

Rules for Getting Money

You can set conditions for your child to receive money from the trust. These might include maintaining good grades, attending college, having a job, staying away from illegal activities, or making responsible financial choices. Think carefully about these conditions to ensure they encourage positive behavior without being overly restrictive.

Choosing Someone to Manage the Trust

The person who manages the trust is called a "trustee." A good trustee needs several qualities: they should be good with money, trustworthy, understanding of your wishes, and willing to help your child. You can choose from several options for this role: a family member, a close friend, a professional like a lawyer or financial advisor, or a bank or trust company. Each option has its advantages, and the right choice depends on your situation.

Steps to Create a Trust

1. Decide Why You Want the Trust

   First, think about your goals. Do you want to pay for education? Cover living expenses? Protect money from being spent too quickly? Your purpose will guide how you set up the trust.

2. Choose the Type of Trust

   Decide between a revocable trust (which can be changed) or an irrevocable trust (which is permanent). Each has different benefits and drawbacks, so consider your needs carefully.

3. Pick a Trustee

   Select someone reliable to manage the trust. Consider their financial knowledge and make sure to pick a backup person too. This decision is crucial for your child's financial future.

4. Decide What to Put in the Trust

   You can put different types of assets in the trust: money and bank accounts, property, business ownership, or life insurance. Think about what will best serve your child's future needs.

5. Work with a Lawyer

   Trusts are complex legal documents. Don't try to create one without professional help. A lawyer will make sure everything is legal and works as you intend.

Common Mistakes to Avoid

Creating a Trust Without Professional Help

Trust laws are complicated, and mistakes can be expensive to fix. Always work with a qualified lawyer who can guide you through the process correctly.

Making Rules Too Strict

Overly restrictive rules can cause problems later. Your child might resent rules that are too controlling, and strict limitations might not account for unexpected life changes. Balance protection with flexibility.

Choosing the Wrong Manager

The trustee needs to be someone you trust. They also needs to be good with money and able to make fair decisions. Consider potential conflicts of interest, and always have a backup person ready to take over if needed.

Giving Access to Money Too Early

Large sums of money can overwhelm young people. Early access might discourage personal growth and development. Consider spreading out payments over time to help your child learn financial responsibility gradually.

Types of Trusts You Can Create

Trusts can be categorized in two different ways. First, by when they take effect: living trusts or will-based trusts. Second, by whether they can be changed: revocable or irrevocable trusts. A single trust will be one of each type - for example, you might create a revocable living trust, or an irrevocable will-based trust.

When Does the Trust Take Effect?

Living Trusts (Also Called "Inter Vivos Trusts")

A living trust starts working while you're still alive. You create it by signing legal papers, and it begins working right away. These trusts don't need court approval to work. Many people choose this option to avoid court involvement.

Will-Based Trusts (Also Called "Testamentary Trusts")

A will-based trust is different because it's created as part of your will. It only starts working after you pass away, and the court must approve it through a process called probate. You won't be able to see how it works during your lifetime. These trusts are harder to change because you need to update your will to make any modifications.

Can the Trust Be Changed?

Revocable Trusts

A revocable trust can be changed or cancelled at any time during your lifetime. This gives you flexibility to adapt the trust as circumstances change. However, these trusts typically don't provide tax advantages or protection from creditors.

Irrevocable Trusts

An irrevocable trust cannot be changed or cancelled once it's created. While this means less flexibility, it can offer significant advantages. These trusts might help reduce taxes and can protect assets from creditors. Because of their permanent nature, they require careful planning before creation.

Getting Help

Setting up a trust for your child is an important decision that requires careful thought and professional guidance. If you need help in New York, contact a qualified trust attorney. They can guide you through the process and make sure everything is done correctly to protect your child's financial future. You can call us, the Law Offices of Albert Goodwin, PLLC at 212-233-1233 and speak with an attorney.