When leaving money in trust for multiple beneficiaries, you can choose between creating separate trusts or a pooled trust.
Determining whether separate trusts or a pooled trust is best depends on a review of your circumstance and estate planning goals.
As a generalization, many young families tend to prefer the greater flexibility of pooled trusts, whereas families with all adult children may lean more to creating multiple separate trusts.
What is a separate trust?
A separate trust is a trust established for the benefit of a single beneficiary. That individual beneficiary is entitled to receive all the assets and income from the trust, provided that the beneficiary meets the relevant requirements for gift distributions (if any).
Many parents creating trusts for adult children create the trusts as separate trusts to make specific dollar or percent allocations to each child.
What is a pooled trust?
A pooled trust, sometimes called a pot trust, is a trust that has multiple beneficiaries sharing from a single pool of assets and income.
Rather than specifying a dollar value or percentage to go to each beneficiary like in a separate trust, a pooled trust allocates the trust assets and income based on other guidelines and the discretion of the Trustee. This may result in equal or unequal amounts provided to each beneficiary.
For example, a pooled family trust may list a person’s surviving spouse and children as the beneficiaries of the trust and provide for allocations based on what the Trustee deems advisable for the “health, support, maintenance, and education” of the beneficiaries, taking into account their age, education, and station of life. Under these guidelines, a 12-year-old child might receive or use more of the trust assets than a 24-year-old child, because (presumably) the 24-year-old child already received higher contributions and benefits in his or her lifetime.
Comparison of separate and pooled trusts
| Separate Trust | Pooled Trust | |
|---|---|---|
| No. of Beneficiaries | 1 | 2+ |
| $ Allocations | Specific to each individual | Gift to each beneficiary based on general guidelines |
| Gift conditions | Customizable to individual | Customizable to group |
| Generally best for | Adult beneficiaries | Young families |
Both separate trusts and pooled trusts can result in equal or unequal amounts to beneficiaries, as well as specify specific eligibility requirements for when and under what circumstances beneficiaries receive assets or income.
The primary difference between separate trusts and pooled trusts is that the pooled trust does not specify an exact amount or percent to go to each beneficiary. Since most people do not know exactly when they are going to pass away, this flexibility of pooled trusts essentially allows the Trustee to calibrate distributions at and following the death of the Trustmaker as opposed to planning all distributions in advance.
Should I create a separate or pooled trust?
Separate trusts are not inherently better than pooled trusts, and vice versa. If you have a revocable living trust, are leaving assets to a surviving spouse and adult children, and want each to receive a set amount, setting up separate trusts is the more straightforward approach. If you have minor children or value flexibility and trust your Trustee to make allocation decisions as you would make them, a pooled trust may be the better option.
Regardless of which trust you choose, clearly communicating your preferences and guidelines with your Trustee is critical to the successful management of your Trust. The Just In Case Estates platform can help not only create your trust document and share it with your successor Trustees, but also facilitate conversations with your successor Trustees so that your preferences and guidelines are known and respected.
Get started with your Revocable Living Trust today for a fraction of the cost of preparing with an attorney.
