Use of Revocable Living Trusts for Single Parents

Many younger, single parents often ignore the benefits of having a trust in their estate plan. That is due, I think, in large part, to a perception that maybe a younger person has little that needs protecting by using a trust. The considerations of having a trust if you are a single parent with minor children are significantly different than the considerations of your own parents. Your parents generally consider trusts for the purpose of eliminating probate court costs and related headaches. Another concern may be privacy, estate tax issues or a variety of other considerations.

The most common reason for anyone to set up a trust is to provide those that will care for your children and their finances a way of conveniently handling your children's continuing financial needs should you die prematurely.

Q.: What is a trust?
A.: A trust is an artificial legal entity akin to a corporation or partnership. A legal document creates the trust entity which is then funded with assets at the death of the creator of the trust (called a testamentary trust) or funded during the creator's lifetime (a living trust). A trust can be amended and revoked by the person creating the trust (the "grantor"). In the case of a living trust, the grantor keeps all the benefits of the property placed into the trust. The terms of the trust are established in a written agreement signed by the grantor and the trustee (sometimes analogous to the president of a corporation), and spell out what happens to the trust property both during the grantor's life and following his or her death. Frequently, the grantor serves as his or her own trustee during the grantor's lifetime.

Q.: What are the advantages of a trust for single parents?
A.: A trust, living or testamentary, enables the single parent to make it easier for the guardian of minor children to handle the financial affairs of those children. Many times a single parent would like to have a relative, rather than the non-custodial or divorced parent, handle the financial affairs of the children. These wishes can be handled by traditional probate court estate and guardianship proceedings or by creating a trust which will be administered by the trusted relative whether it is a grandparent, aunt or uncle or trusted friend. A probate court will generally appoint the surviving parent as a guardian of the estate (financial affairs) of a minor child. However, with a trust, the deceased parent will have been able to name whoever they wanted to handle the child's finances until a time spelled out by the grantor.

Q.: What are the benefits of a trust for minor children?
A.: Normally, a child has the right to receive assets or an inheritance upon the age of eighteen. This can be a bad time for a young adult to receive a large sum of money, especially if the parents had desired further education or if there are special needs. Also, a trust eliminates the need of a relative to file requests in probate court to expend funds for the children's needs which can ensure quicker results.

Q.: What kinds of things should I be thinking about for my trust?
A.: First and foremost is who will be the successor trustee. This is the person that will administer the trust should you become incompetent or pass away and should be someone you trust to follow your wishes. Also, name a guardian of the person (physical care and control) and the estate (finances) of your children in your accompanying will. Having said that, it is common practice for judges to appoint the surviving parent as guardian of the person, no matter how much you think that parent should be boiled in oil, and unless the surviving parent is clearly unsuitable, this is the best practice. If you have a trust, however, you will have the say as to who will handle finances if something happens to you.

Q.: What protections are there to make sure my trustee follows my wishes?
A.:A trustee is like any other fiduciary or trusted person. They have a legal responsibility to follow your orders and manage the trust property in a reasonable and prudent manner, and as stated in your trust document. Any breach or lapse would be subject to civil liability and possible payment of damages.

Q.: Are there other practical financial considerations of which I should be aware?
A.: Yes, both parents of minor children should make sure there is sufficient insurance on the lives of both the residential and non residential parent to ensure the security of the minor children. A competent, independent insurance agent can generally run the calculations to determine how much will be needed to care for your children, provide shelter and education and other necessities. A proviso, it might make sense for someone other that the parent to own any insurance policies to at least make it possible to prevent a lapse of the policy for non payment. Finally, if you have a trust, make sure it is the beneficiary of the policy and not the individual children. Your children will be the beneficiaries of anything in the trust, but with your control factors. If you name the children, the funds would go into a guardianship account.

Q.: Who should prepare my estate plan whether it is a trust or a will?
A.: For the unique considerations presented by planning for the single parent you should use an attorney that is knowledgeable in estate planning, family law issues, and insurance.

This article was prepared by Robert W. LaForce, Solo practitioner, and member of the estate planning committee of the OSBA (Ohio State Bar Association).

This article is intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.