We’ve moved! We didn’t go far and look forward to seeing you in our new space located at 1255 Crescent Green Drive, Suite 200, Cary, NC 27518

The Biggest Mistake Parents Make When Setting Up a Trust Fund

As parents, securing our children’s future is an enormous responsibility. We want to set them up for success, not squander their potential through our own mistakes.

So, when it comes to creating a trust fund, it’s natural to feel anxious. Trusts involve many complex decisions – appointing trustees, setting distribution rules, and planning for contingencies. It’s easy to hand over hard-earned assets without fully thinking through the implications.

But you don’t have to figure it all out alone. The key is working closely with an experienced estate planning attorney so no detail is left to chance. They can guide you through each step so the trust honors your values and vision.

As you embark on setting up a trust, you are likely wondering, what is the biggest mistake parents make when setting up a trust fund? One common mistake parents make is giving the trustee too much power and too little direction. On the one hand, you want the trustee to have flexibility to make investment decisions. However, unclear or overly broad provisions can lead to problems down the road.

With this article, we hope to transform your worry into peace of mind, knowing your children’s best interests are secured.

The #1 Mistake: Giving the Trustee Too Much Power and Too Little Direction

When you establish a trust, you are entrusting control of the assets to a trustee to manage and distribute responsibly. Without proper guidelines from you, the trustee may have too much leeway over hard-earned funds meant to support your beneficiaries.

While most trustees have good intentions, vagueness can lead to misalignments with your goals. We’ve seen trustees make overly risky investments, give out funds too freely without accountability, and incur high fees needlessly.

The solution is straightforward – provide clear instructions upfront so trustees understand and honor your priorities. A North Carolina estate planning attorney can help craft customized guidelines addressing how you want funds invested, distributed, recorded, and reported.

Though handing over control seems daunting, setting explicit expectations and boundaries gives trustees a framework for acting in your children’s best interests. With the right trustee direction, you can feel at ease knowing your legacy is in good hands.

Following these 4 key steps can help ensure the trustee has an appropriate level of discretion – not so much that the trust becomes ineffective or puts your assets at risk, but enough to make sound decisions on your beneficiaries’ behalf. With forethought and care, you can design a trust that truly serves your family across generations.

1. Set Clear Goals and Parameters Upfront

Take time early on to define exactly how you intend trust funds to be used – for college? A first home? Medical needs? Be as specific as possible about what costs will be covered.

Then, establish age-based distribution schedules that make sense for your child’s growing responsibility. For example, 10% of the principal at 21, 30% at 30, and the remainder by 40. Work with an estate planning attorney to set milestones aligned with your priorities.

Also, provide guidelines on allowable investments, protocols for requesting disbursements, and dividing remaining assets. The more detailed direction you give now, the more the trust will reflect your values rather than the trustee’s.

By outlining clear intentions upfront, you can feel confident the trust will provide support responsibly in line with your child’s evolving maturity and needs.

2. Build In Flexibility for Life’s Uncertainties

As parents, we naturally hope only the best for our children. But it’s prudent when structuring a trust to also plan for unpredictable scenarios. What if your child passes away early or becomes disabled? A divorce or lawsuit arises?

Building in flexibility to modify the trust under certain circumstances provides stability amidst life’s uncertainties. Options like survivorship clauses, which dictate asset distribution if your child passes away prematurely, and spendthrift clauses that shield from creditors are wise protections.

An estate planning attorney can help devise contingency plans tailored to your priorities. The future is impossible to predict – but incorporating flexibility into trust terms allows your child to withstand life’s ups and downs with security. Though we don’t know what lies ahead, thoughtful preparation now can give you peace of mind.

3. Choose a Trustee Carefully

Selecting a trustee to manage the trust assets and distributions is an incredibly important decision. A family member or trusted friend may share your values but lack financial acumen. A corporate trustee has expertise but charges higher fees.

Think carefully about the traits that will best honor your intentions for the trust: investment skill, impartiality, integrity, and business stability. Meet with candidates to assess if they understand your goals and will carry them forward responsibly.

A trust lawyer can provide invaluable guidance on vetting options and structuring oversight to ensure the trustee acts in your beneficiaries’ best interests at all times. With the right steward, you can feel at ease knowing your legacy is in good hands.

4. Plan Ahead for Major Milestones

As you determine trust funding, aim to cover significant future expenses your child may incur – college, weddings, first home. Work with a financial advisor to project costs decades down the road, accounting for inflation.

It’s wiser to allocate extra upfront rather than risk leaving your child short of achieving the major life goals you want to support. If possible, build in a buffer for unforeseen costs or emergencies.

With prudent planning, the trust can provide the stepping stones for your child’s success into adulthood and beyond. An experienced estate planning attorney can tailor guidance to set your child up for the future you envision.

Frequently Asked Questions

What obligations does a trustee have?

A trustee has strict legal and ethical duties, including closely managing assets, making wise investments, following trust distribution rules, maintaining detailed records, and reporting regularly to beneficiaries. They are legally obligated to serve the best interests of trust beneficiaries.

If I become dissatisfied, can I change trustees?

Yes, the trust documents should outline your ability to remove and replace a trustee who fails to properly fulfill their duties or acts against your wishes.

Can I name a backup trustee?

Absolutely. Naming at least one successor trustee provides a contingency plan in case your first choice can no longer serve due to death, disability, resignation, or removal. This ensures continuous, uninterrupted trust management and distribution.

Secure Your Family’s Future With Cary Estate Planning

As a parent, few responsibilities are more important than securing your children’s financial future. A trust fund allows you to ensure their security and values are upheld long after you’re gone.

However, setting up a trust is complex. Without experienced guidance, it’s easy to make decisions you’ll regret. Vague goals, uncontrolled trustees, a lack of contingencies – we’ve seen it jeopardize families’ hard-earned legacies.

With decades of combined experience helping North Carolina parents create effective trusts, Cary Estate Planning knows how to avoid pitfalls. Whether you’re in Cary, Raleigh, or Wake Forest, we make the process smooth and make sure your vision is honored.

Our team can help you determine whether a revocable or irrevocable trust is the best fit for your family’s needs. Then, we will guide you through each step – clearly defining goals, setting wise distribution schedules, selecting a trustee you can trust, and planning for the unknown – so you gain total peace of mind knowing your children will be secure.

Don’t leave your family’s future to chance. Contact us today for a free consultation to discuss how we can help thoughtfully establish the trust your loved ones deserve.

Author Bio

Paul Yokabitus

Paul Yokabitus is the CEO and Managing Partner of Cary Estate Planning, a Cary, NC, estate planning law firm. With years of experience in estate and elder law, he has zealously represented clients in various legal matters, including estate planning, guardianship, Medicaid planning, estate administration, and other cases.

Paul received his Juris Doctor from the Campbell University School of Law and is a North Carolina Bar Association member. He has received numerous accolades for his work, including being named among the “Best Attorney in Cary” in 2016 and 2017 by Cary News and Rising Star in 2020-2023 by Super Lawyers.

LinkedIn | State Bar Association | Avvo | Google