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A pot trust is a special type of trust that parents create for their children in case something happens to them before their children finish college. The trust allows the trustee to give money to the children based on their needs, like medical bills or college tuition. This means that one child might get more money than another child from the trust. However, it's important to choose the right trustee and make sure the parents' intentions are clear. The trust usually doesn't end until the youngest child turns 18 or another age set by the trust, so older children might not be able to access the money until later in life unless the trust allows for it.
Pot Trust
A pot trust is a type of trust created by parents for their children, usually in case something were to happen to them before the children make it through college. The trustee is allowed to give funds to the beneficiaries according to their relative needs. Unlike many trusts where the trustee must follow strict instructions from the creator of the trust, pot trusts allow parents to grant almost unlimited flexibility for the trustee to give funds to their children as needed, sometimes only to one beneficiary. Pot trusts have great advantages for flexibly allocating trust assets, but they come with the disadvantage of possibly allowing a trustee to manage the trust against the interests of the trust creator. Given the level of discretion given to the trustee, it is extremely important to choose the right trustee and define the intentions of the parents. Also, the trust typically does not end until the youngest child reaches the age of 18 or another age set by the trust. So, older children who might need the money in the trust might not be able to access it until late in life unless the trust specifically allows for older children to receive a portion of their share for expenses like buying a home.
Parents may want their children to receive different amounts from the trust as expenses arise such as medical bills or college tuition. For example, if one child is attending an expensive private university, they may need more money from the trust than a sibling attending a less expensive public university. Pot trusts allow the trustee to allocate funds accordingly.
Another example is if one child has a medical emergency and requires expensive treatment, the trustee can use funds from the trust to pay for the medical bills without having to follow strict instructions from the trust creator.
These examples illustrate how pot trusts allow for flexibility in allocating trust assets based on the needs of the beneficiaries, rather than following strict instructions from the trust creator. This can be especially helpful in situations where unexpected expenses arise, such as medical emergencies or changes in educational plans.