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When should you consider a “pot trust?”

On Behalf of | Jul 25, 2022 | Estate Planning

If you have two or more children whom you need to provide for financially in case you pass away before they’re all grown, you can create what’s sometimes called a “pot trust.” It goes by other names, like common trust and pooled trust, as well.

You may want to name the same person you’ve designated to be your children’s guardian as the trustee. You may also prefer that a different person have control of the trust so that there are some checks and balances.

When these trusts are used for children, they typically terminate whenever the youngest beneficiary is no longer a minor. When the trust terminates, the remaining assets in it are distributed among those named as beneficiaries.

How are pot trust assets disbursed?

A pot trust isn’t meant to ensure that all beneficiaries get an equal amount or that each child gets a designated amount. The trustee is responsible for disbursing the assets as needed. 

If one of the children ends up having extensive medical bills or other needs, they may get the bulk of the assets. Further, if there’s an age difference of more than a few years between the youngest child and the others, the older ones may not benefit from the trust until they’re well into adulthood.

Pot trusts can be used to leave money to grandchildren

Pot trusts can be used for other purposes as well. For example, some people put all of the assets they want their grandchildren or other heirs to receive in a pot trust rather than setting up individual trusts for them. 

Whatever your goals are with a pot trust, it’s crucial to choose a trustee in whose judgment and fairness you have confidence. You may make your wishes known, but the trustee has the ultimate say in when assets are disbursed, for what purpose and how much. You’ll need to provide compensation for the trustee, as this can be a time-consuming job.

There are multiple types of trusts to choose from. Selecting the best one(s) for the unique needs of your family requires some thought as well as sound legal guidance.