Giving Your Children Unequal Shares: The Pot Trust

pot trustIf something were to happen to you and your partner while your children were still minors, how would you divide your assets among them?

If you answered “equally,” you are like many parents who presume that giving each child an equal share of your estate is the fairest solution. But in some cases, uneven distributions may be a better — and surprisingly fairer — alternative.

The way you currently provide for your children is based on need rather than on equity. If Susie needs to see a doctor, it does not matter that she has gone to the doctor twice more than Bobbie this year; you take her to the doctor’s office anyway. Your financial decisions are based on needs as they arise, not a meticulous accounting to ensure that you spend exactly the same amount on each child. Your estate plan should match this.

What is a Pot Trust?
A pot trust, also called a common pot trust or a family pot trust, is a collected “pot” of joint funds accessible by all of your children. A typical estate plan might create a separate trust for each child, but a pot trust pools these assets together. The pot trust’s trustee — the person who administers the trust and handles the money — may spend funds from the pot trust based on your children’s needs, just as you would do if you were still alive.

Each child’s remaining share is distributed to him or her when all children reach adulthood. This makes pot trusts a bit more cumbersome for families with very differently aged children — an older child may have to wait a decade before the youngest sibling reaches adulthood. An experienced estate planning attorney can help you evaluate your current situation and future needs to determine if a pot trust is appropriate for you.