Children’s Trusts Benefits in Pennsylvania: Safeguarding your Children’s Future

by | Mar 29, 2023 | Estate Planning

An inheritance gained in a hurry at the beginning; Will not be blessed in the end. – Proverbs 21:20 (NASB)

A few Sundays ago, the Gospel in my Church was reading was The Prodigal Son. If you are not familiar with the parable, in it a son asks his father for his inheritance early. The son then takes his inheritance and travels to another country, where “he squandered his estate in wild living.” It is not long before the son finds himself eating pig slop because he cannot afford to purchase any food. The story continues, but this principal is already clear – young people just aren’t very good at handling money.

Your children depend on you, and if something happens to you, you need to be sure that they will still be taken care of.  One crucial part of Estate Planning when you have young children is making sure that the money is there for their care, while protecting them from receiving too much before they can responsibly handle it. After all, you don’t want them to blow it all on ‘wild living.’ The best way to provide for your children, while also protecting them, is to create a Children’s Trust.

What Is a Trust?

To oversimplify, a Trust is an agreement between the Settlor/Grantor (you), the Trustee (responsible for managing the Trust), and the beneficiaries who the trust is created for. The Settlor designates a Trustee and transfers money to the Trustee to be held on behalf of the beneficiary. The assets must be held in their own accounts, not mingled with the Settlor or the Trustee’s personal accounts. The Trustee must follow the terms of the Trust in handling the assets, and cannot use their position to benefit themselves. (They are held to a ‘fiduciary’ standard.)

Trusts can be created for a variety of reasons. Perhaps the most common use of trusts is to avoid probate by creating a Living Trust. They can also be used for Tax Planning purposes in order to minimize tax burdens (like the Pennsylvania Inheritance Tax) and maximize inheritance. They can be used to set aside money for a certain purpose and make sure it gets used appropriately. (For example, Pet Trusts.)

Other times they are used to support someone without giving complete control of the assets over to the beneficiary. (A Spousal Lifetime Access Trust, or SLAT, is used to provide for the surviving spouse but still decide where the remaining money goes at their death.) They can also be used to support an individual while not disqualifying them from receiving governmental benefits. (Special Needs Trusts and Medicaid Trusts fall under this category.) And they can provide for an individual while protecting the assets from any creditors. (Spendthrift Trusts.)

 A Children’s Trust makes use of most of these benefits, which is part of what makes them so useful.

What Is a Children’s Trust?

A Children’s Trust (also called a Minor’s Trust) is a way of safely holding money to support your children if both parents have passed, or if you are estranged from the other parent. You set the terms of the Trust (what can the money be spent on, the responsibilities of the Trustee, when the Trust terminates, etc.), and the Trustee must follow those directions.

While the money is held in Trust, it will be used to provide for your children (food, clothing, medical bills, private schooling, wedding expenses, a car – whatever you decide). The assets are also safe from the Children’s or the Trustee’s creditors in a properly drafted and administered trust. The money in the trust won’t disqualify you children from receiving governmental benefits, such as Federal Student Aid.

Finally, when your child reaches the age you have set, the trust terminates and they receive their remaining inheritance outright.

How Do You Create a Children’s Trust?

Testamentary Trusts

There are different ways of creating a trust, but Children’s Trusts are usually ‘testamentary’ trusts, which means they are created within your will, and only come into existence at your death. For a Children’s Trust, the trust is only created if you have any Children who are still below the age you set (often twenty-five).

Because Children’s trusts are usually testamentary, an estate planning attorney should be discussing them with you when you are ready to create your will. If you have – or expect to have – minor children, your will should include appropriate provisions for creating the trust.

If, at your passing, your Children are older than the age you set, they would receive their money outright, rather than having it go into a Trust. However, if they are still young, the money would instead be transferred to a Trustee to be held for your Children’s support. Testamentary Trusts are useful tools because they allow you to set up a mechanism to protect a Child (or any other beneficiary) without having to actually fund and maintain the Trust ahead of time.

Trusts Created During Your Lifetime

Alternatively, you can create a Children’s Trust during your lifetime, fund it, and continue to add assets to it over time. However, any assets placed in the Trust would no longer be yours, and you will not be able to claw them back after the fact. In certain situations, creating a Trust ahead of time makes sense, and can have beneficial tax consequences. However, in the majority of cases a testamentary trust is the best option.

Be Careful When Creating a Trust!

Regardless of your choice in how to create the trust, it is very important that you receive adequate counsel from an attorney rather than trying to draft it yourself. An improperly drafted or administered trust can create a myriad of problems for you and your family – including the loss of creditor protections, use of assets for purposes you didn’t intend, loss of control of assets, and even complete failure of the trust if it wasn’t properly funded. A Minor’s Trust can be easily created as part of your estate plan, and an attorney can make sure that all the different pieces of your estate plan work together properly.

When Do My Children Receive Their Inheritance?

Like any Trust, you have the freedom to set the terms – you can select any age you are comfortable with. Some client’s only want the Trust to hold the money until the Children are adults, which means eighteen in Pennsylvania. The danger, however, is that most 18-year-olds aren’t yet ready to responsibly handle large sums of money. You may want your Child to buy a car; you probably don’t want them to buy a Lamborghini.

Most often clients are happy to set the age when Children receive their inheritance at around twenty-five. At this point, they are likely to be started along in their career path, and likely have some experience handling finances and understanding of how to responsibly manage their money. But that doesn’t mean they are without support in the meantime!

What Can the Trust Be Spent On?

When you set the terms of the Trust, you get to decide how the Trust assets can be spent.


Usually, the Trust will be set up to allow distributions to be made for Health, Education, Maintenance, and Support (HEMS). The reason to use HEMS is because the IRS recognizes it as an “ascertainable standard.” This means that distributions made for HEMS will still be considered as part of the Trust, and will not open the Trust up to the beneficiaries creditors. (More details in the Trust Protections section.)

The HEMS standard is broad, which still allows for a great deal of flexibility in allowable distributions. For example, Health isn’t just medical expenses; it may also include things like elective procedures (like LASIK), alternative medicine, or gym memberships, for example. Education can include private school tuition, college, graduate school, professional school, trade school, study abroad programs, and others.

Finally, Maintenance and Support is the least well defined, but it is usually understood as distributions that help maintain the beneficiaries standard of living. It can include expenses like insurance premiums, mortgage payments, and property taxes. It may even include things like travel and vacation expenses, if those are understood to be maintaining the beneficiaries standard of living.

You can always limit what is included within the HEMS standard, if you choose to. Some clients may wish to define Education to allow for distributions only for an undergraduate degree. Others may wish to construe it as broadly as possible, and allow distributions for private schools, vocational schools, professional education, and more. Ultimately it is up to you to decide what are acceptable distributions.

Other Distributions

You may also wish to allow distributions for other expenses, particularly as the Child gets older. Some common allowances are for wedding expenses, purchasing a vehicle or a house, or starting a business. In order to preserve any creditor protections, these distributions should still be left up to the Trustee’s discretion. By making sure the beneficiary does not have control of the Trust assets, the Trust is not likely to be considered the beneficiaries property, and therefore is not reachable by third parties.

Who Do I Choose as Trustee?

Deciding on who to serve as Trustee may be simple for you – or it may be quite difficult. It depends on whether you have friends or family who you trust to handle your children’s money.

Guardian of my Children

I have found that most often client’s have some idea of who they would like to be the Guardian of their Children if they pass, and are more than happy to allow the Guardian to also act as Trustee. If you are lucky enough to have someone you both trust to raise your children and to manage their their assets, there’s a great benefit to naming the same person. The Guardian would still have to account for the assets in the Trust, and make sure that the money is only spent according to the terms of the Trust. However, they do not need to continually go to a third-party to request disbursements from the trust.

Family or Close Friends

However, there are many situations where naming the Guardian as Trustee is not the right move. This may be because there is another family member who is more comfortable with finances (like a father serving as Trustee, while a sibling serves as Guardian). Or you may simply want to remove the temptation to improperly access the Trust funds, which is easier when the Trustee is also the Guardian. These situations are easy to handle because there are still trusted individuals to serve in these roles, and you expect that the parties will all work together.

It can be much harder to choose a Trustee when you do not trust the other parent to have access your Children’s inheritance (divorce, a child born out-of-wedlock, etc.). In these cases, not only do you need to choose someone who you trust to handle the finances, but also someone who can interact with the other parent to make sure the Children are being well taken care of and the trust funds are being used properly. Close friends or family are still usually the go-to choices, if possible. However, if you don’t have someone who can adequately serve in the role, there is always the possibility of hiring a corporate Trustee.

Corporate Trustees

The downsides of using a corporate Trustee are what you would expect – there is an annual fee associated with maintaining the Trust, the Guardian will only be able to get in contact with the Trustee during working hours, and a corporate Trustee may be more inclined to disagree with the Guardian on what are considered allowable expenses. However, a corporate Trustee will have experience in managing Trust assets, and will make sure the terms of the Trust are followed and the trust is properly maintained (including accounting, filing taxes, investment management, etc.)

What are the Responsibilities of the Trustee?

Fiduciary Standard

First off, it is important to know that Trustees are held to a “fiduciary” standard. A fiduciary is legally required to put the client’s best interests (in the case of Trusts, the client is the beneficiary of the Trust) ahead of their own. A fiduciary must act both legally and ethically in their role, and are liable if they abuse their role to benefit someone other than the beneficiary.

Trust Maintenance

The other role of the Trustee can be generally described as “trust maintenance.” This includes all the administrative tasks the Trustee must do to comply with the law, as well as to appropriately manage the Trust assets.


Generally, the Trustee must keep an account of all transactions related to the Trust, and must produce an official accounting to the beneficiaries each year. This allows the beneficiaries to make sure that the Trust assets are being appropriately managed, and to make sure that the Trustee is not misappropriating Trust funds.

Tax Filing

Trusts must file taxes every year, same as individuals. For trusts (and estates), they must file a Form 1041. If there are multiple trusts, then a separate return must be filed for each trust. Of course, Trustees can hire professionals to help them to prepare the tax returns. This is usually a good idea, as taxes for trusts can be quite complicated depending on what is included in the Trust assets, how many beneficiaries there are, what distributions were made, and so on.

Asset Management

There is no reason to simply put the trust assets into a bank account and call it a day. Instead, the Trustee should be managing the trust assets in order to produce additional income. Often this will involve hiring an investment professional of some type to manage investments. However, it may also mean managing inherited IRAs, rental properties, small business – whatever was left to the Children.


Actually making the distributions is probably the most important duty of the Trustee. In making distributions, the Trustee needs to make sure they are following the terms of the Trust, and only making allowable distributions. If the Trustee does not carefully follow the terms of the Trust, it won’t only frustrate your intentions. It may also  open the trust assets to claims from potential creditors.

The Trustee will also likely have discretion on what are appropriate distributions. If distributions are discretionary (rather than mandatory), then the Trustee must use their judgement as to whether making any particular distribution is a good idea or not.

How is the Trust Structured?

There are many ways that the Trust can be structured, and what is going to work best depends on your situation and your goals.

A Pot Trust

A Pot Trust is where you have a single trust that supports all of your Children. Rather than accounting for the distributions made to each child, distributions are made as each child needs them. The reasoning behind this is that it mirrors the way a family usually operates. Typically, while families may have a separate college fund for each Child, they aren’t tracking Children’s expenses otherwise. For example, you don’t take medical expenses out of a child’s inheritance. Having one fund keeps in one Trust simplifies the Trustee’s job as well, as they don’t need to keep multiple accounts, and only have to file taxes for the one Trust.

However, there are also drawbacks to this structure. Depending on how many children you have, and how far apart they are spread, the eldest may not get access to their inheritance until the youngest ages out. If you have a ten year difference between the eldest and the youngest, the eldest may not receive an inheritance until they are thirty-five. This may prevent them from making the best use of the funds, such as putting a down payment on a house rather than renting. Also, if for some reason a Child’s creditor is allowed access to the Trust, all the Children’s inheritances are at risk.

Separate Trust

By creating a separate Trust for each Child, the expenses of one Child won’t eat into the inheritance of another. This can be seen as more fair, as each Child will receive the exact same amount of inheritance.

There are also drawbacks to this option. For one, older children actually come out ahead. Any expenses they incurred before the parent’s passing, such as medical expenses, or perhaps even college, do not affect their inheritance. On the other hand, a younger child is likely to incur more expenses which would normally be paid for by the family, but now get paid directly out of their inheritance. This is also more complicated for the Trustee, as they have to keep multiple accounts, and file taxes for multiple trusts.

Hybrid Trust Structures

The solution is usually some sort of hybrid trust structure that makes use of both of the above. One common structure is to have a Pot Trust until the youngest child reaches a certain age (usually eighteen), and then to split it into separate trusts for each child, or straight distributions to any children over a certain age (like twenty-five). This allows for the Pot Trust benefit of mirroring the family structure while there are still minor Children, and the benefits of Separate Trusts in equalizing inheritances.

Another method is to have a Pot Trust for any Children who are still minors, and to spin off each Child’s share into their own Trust as they turn eighteen. This prevents big expenses like college from eating into the inheritances of other Children, but can be more complicated for the Trustee to maintain.

No matter which structure you choose, there terms of the Trust must always be customized in order to ensure that your wishes are maintained even as unlikely or unforeseen circumstances arise.

What if the Trustee is a Bad Actor?

No matter how much you Trust the person you are designating as Trustee, there should always be a mechanism to deal with bad actors – just in case.

Removal of Trustee

The usual method to deal with a bad actor is to remove the Trustee. The Trust will set the terms for how this can be done. Usually, the beneficiaries (or in the case of minors, their guardians) can agree to remove the Trustee and replace them with someone else. Whether this must be unanimous, a simple majority, or some other standard can be decided by you in the Trust.

Another method is to go to court and seek a judgement to remove the Trustee. This option is always available, but it requires more time and expense, and the Trustee will more than likely fight back. Still, if there are no other options available, going to Court is always an option.

Trust Protector

A better way to remove the Trustee may be to appoint a Trust Protector. A Trust protector is a third party who has a very specific role. They do not control the Trust – they simply have the power to remove the Trustee and appoint another in their place. Appointing a Trust Protector is a good way to ensure the safety of the trust assets with a minimum of difficulty.

Trust do not need to have Trust Protectors, and by default the role is not a part of the Trust. The role must be specifically created by the terms of the Trust. This also means the powers of the Trust Protector are defined by the Trust. The Trust Protector may be limited to removing and replacing the serving Trustee. Or they could be granted further powers, such as modifying the terms of the Trust if necessary to achieve the Settlor’s intent.

Spendthrift Protections

One of the biggest benefits of using a Trust is the protection it provides from creditors. So long as the Trust is properly drafted and administered, the assets aren’t considered the property of the beneficiaries, and can’t be attached by the Children’s creditors. Creditors could mean credit card companies, parties to a broken contract, parties injured in a car accident, and the like.

The terms of the Trust should explicitly disallow the Trustee from making any involuntary distributions to satisfy the debts of the beneficiaries. This is known as a Spendthrift clause. This is also why it is so important that the Trustee follows the terms of the trust. If they make any distributions the Child asks for, a court may find that the trust assets are being treated as if they were simply the beneficiaries assets, and allow the Creditor to recover from the trust assets. Keeping the spendthrift protections in place will prevent a Child from potentially losing their entire inheritance because of one accident.

Alternatives to a Children’s Trust

Recognizing the need to protect minor’s from receiving an inheritance too early, most if not all states have adopted the Uniform Transfer to Minor’s Act (UTMA). Pennsylvania’s Uniform Transfer to Minor’s Act can be found here. So long as someone receiving an inheritance is still considered a minor, the property can instead be held in a custodial account for the benefit of the minor. The UTMA is useful because it still applies even when a will does not specifically make provisions for minor beneficiaries. It even applies when someone dies without a will, and offers some protection to inheriting minors.

While the UTMA does provide some of the benefits of a Children’s Trust, it does not provide the same level of protection or customization that a Trust provides. In Pennsylvania, the absolute latest a UTMA can be disbursed is at twenty-five. And unless otherwise provided for in a will, in Pennsylvania a UTMA will cease when the child turns twenty-one, which may be earlier than you would want. UTMA also may not offer the same level of protection from creditors as a Children’s Trust, even before the assets get disbursed to the child.

A UTMA cannot be customized to limit the use of the assets in the same way that a Children’s Trust can. With a Trust, you can define exactly what are allowable expenses – for example, limiting educational expenses to certain types of schooling. This is not possible with a UTMA, because the terms are already predefined Pennsylvania law.

A UTMA also affects the potential for a child to receive governmental benefits. For example, if a child is applying for Federal Student Aid (FAFSA), any money held in a UTMA account needs to be disclosed as being available to the child. On the other hand, a Trust can be drafted in such a way that the funds are not considered available to the child for FAFSA or other benefits purposes, which can help prevent unnecessary expenditures from your child’s inheritance.


Protecting your children from receiving an inheritance too early is incredibly important. You need to make sure that the money is there when they actually need it, and that they are fiscally responsible before they take control of their inheritance. A customized Children’s Trust is the most effective way to make sure your children are taken care of in the way you want, and it can easily be created as part of your Estate Plan.

If it’s time to create or update your Estate Plan, I am happy to have a free, no obligation, consultation with you. You can call me anytime at 215-360-3139, or click the button below to schedule a time for me to call you.

Schedule a Free Consultation

If you are looking at starting probate, or are already in the midst of it and need help, I am happy to have a free, no obligation, consultation with you. You can call me anytime at 215-360-3139, or click the button below to schedule a time for me to call you.