A pot trust is a type of trust used to provide for minor children. Rather than set up a separate trust for more than one child in a family, this arrangement involves a single trust. The person appointed to administer the trust can use the money in the trust for the children's benefit, according to their needs.
The trustee chosen to administer a pot trust is not obligated to divide the trust's assets equally between the children. If circumstances dictate that one child requires most or all the funds in the trust to pay for a certain expense, the trustee can authorize that transaction. This level of flexibility makes this type of trust an attractive option for parents who want to ensure that their children's needs will be met.
Rather than have to sell assets to fund several trusts, putting all of them into a pot trust may make more sense. When the children are very young and it will be several years before they reach the age of majority, they will be provided for from the assets in the trust. The trust will stay in force until the youngest child turns 18. At that point, any remaining property in the trust is divided between them equally.
Another reason that a pot trust makes more sense than setting up individual trusts for all minor children in a family is the fact that a single one is much easier for the trustee to administer. When a trust is being administered for minor children, the trustee is required to keep detailed records of the income generated by the assets held in trust, as well as how the funds are distributed for the children's needs. The trustee will be required to report this information to the court at regular intervals, and having a single trust cuts down on paperwork.
The assets held in a pot trust can be used to pay for health expenses or for post-secondary education. In a situation where one child becomes ill or has special needs, the assets held in the trust can be used to ensure that he or she is cared for properly. This way of managing assets is a better way of ensuring that a child's needs are met than simply dividing the parent's estate in equal shares and distributing them. An attorney can advise the parents about whether a pot trust is the best way to provide for their children.
