In legal terms, the word “trust” is generally defined as a legal relationship between three parties:
- The person who creates the trust and is known as the “settlor”;
- An individual whom the settlor designates to become the manager of the trust and is referred to as the “trustee”; and
- Finally, the person or persons for whom the assets in the trust are being held for, namely, the entitled “beneficiaries”.
A “young adult” trust operates in much of the same way as the arrangement described above for standard trusts. However, there is one major difference with a young adult trust, which is that the settlor can name their child both the beneficiary and co-trustee of the trust.
This means that the child will not only have a legal and fiduciary duty to manage the trust responsibly, but also that they will eventually become the owners of the property being held in the trust.
Young adult trusts are primarily created for older adolescents who normally fall between the ages of 18 to 25 years old. Similar to a revocable living trust, the settlor uses a trust document that contains instructions. These tell how the trustee should manage the trust as well as conditions that lay out the contents of how a young adult trust should be distributed to its beneficiaries. The settlor in this scenario is usually a parent or guardian of the beneficiaries.
Although a parent is traditionally the person who is the settlor of the trust, there are some instances where a young adult may create this type of trust for themselves. This means that the young adult can be named as either the settlor or as a co-trustee and beneficiary of the trust. The latter is the more common arrangement that is used out of the two.
The following is a list of some of the typical features that are associated with young adult trusts:
- The settlor (e.g., either the parent or the young adult) will determine and appoint one or more individuals to become the trustees of the young adult trust. In most cases, a parent and one or all of their children will be assigned as co-trustees to the trust.
- Healthcare documents like advance or medical care directives, also known as a living will, may be included in the terms of the trust document to designate an agent to make medical decisions in the event that a beneficiary becomes disabled or incapacitated.
- Pour-over will provisions, which can be used to protect certain assets and to ensure that they are transferred to the trust upon the settlor’s death.
- The parties may also decide to add provisions regarding who has power of attorney in case there is a need for one to make financial decisions for the trust.
- Last, but not least, a designation of the beneficiaries of the young adult trust. A charity may also be designated as a named beneficiary to the trust if the parties so desire.
In addition, the settlor or co-settlors may incorporate other restrictions or instructions as they wish. In other words, a young adult trust can be created to fit the parties’ individual needs. The trust may also be used to distribute limited gifts to young adults that constitute part of the trust property and/or as a tool that allows parents to educate their children about finances and asset management.
Finally, one last thing to keep in mind about young adult trusts is that the terms of the trust can be revoked and amended, so long as the settlor is still alive. This can make it easier if circumstances change or if new provisions need to be added to the trust document.
What are the Advantages of Creating a Young Adult Trust?
As previously mentioned, one of the great advantages of creating a young adult trust is that it can be used as a tool to help teach young adult children about financial responsibility, asset management, and self-control. For instance, many parents and legal guardians may want to transfer their assets to young adult children as soon as they reach the age of majority. In most states the age of majority usually hovers around 18 years of age.
The problem is that many parents and legal guardians are hesitant to give over assets to someone who might be inexperienced to handle funds responsibly at such a young age. Forming a young adult trust is an excellent way to overcome this issue. While the young adults will have some control over the trust, most of it can still be managed by the adult party in accordance with the conditions set in the trust document.
Some other advantages that are often associated with young adult trusts include:
- This type of trust allows a young adult child to have some say over decisions on how to manage the finances and assets being held within the trust;
- The trust can be used as a teaching tool for young adult children regarding how to manage finances and spend money responsibly;
- The trust helps to keep valuable assets under family control;
- Another lesson that the trust can be used to educate young adult children about is how trust regulations apply to trust conditions and certain forms of legal or fiduciary guidance when it comes to trusts and finances;
- The trust also serves as a vehicle via which gifts can be transferred to young adult children, while at the same time, shield them from reckless use or irresponsible spending habits; and
- If the parties so desire, a young adult trust is able to function similarly to a prenuptial agreement. This means that a young adult can indicate which assets they want to keep separate in a marriage.
As is evident from the above discussion, young adult trusts can be a great learning experience for parents to use to teach their young adult children about responsibility and finances at an early age. The myriad of benefits that these types of trusts offer to families is just one of the many reasons that a person should consider forming a young adult trust.
Do I Need a Lawyer for Help With a Young Adult Trust?
Much like other trusts, forming a young adult trust can oftentimes be an extremely involved and complicated process. There are many requirements that the parties must follow to ensure that the trust is valid and legally enforceable, as well as specific ways for how to write the conditions of the trust.
The conditions are one of the most important things to focus on when creating young adult trusts. If they are not written properly, it could defeat the entire purpose of forming a trust. Therefore, if you wish to set up a young adult trust, then it may be in your best interest to hire a local trust lawyer for further guidance.
An experienced estate lawyer will be able to provide more detailed information regarding how a young adult trust operates in your jurisdiction and can determine whether a young adult trust is the right fit for your family.
Your lawyer can also help you to set up a young adult trust by drafting, reviewing, and finalizing the official trust document and making sure that it conforms to the trust laws in your area. In addition, if there is a dispute over the trust or its contents, your lawyer will be able to represent your interests before the court as well.