February 11, 2026
19 min read
What to know before setting up a trust for your child
A children’s trust can be a powerful way to protect your child’s future and express what matters most to your family. This guide walks you through how these trusts work, the choices you’ll face, and pitfalls to avoid along the way.
Credit: Becka Kottke
The Love & Money Series
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Key takeaways
- Trusts for children can help protect their financial future and lay the foundation for generational wealth.
- Beware of releasing funds too early.
- Know what assets will be controlled by your trust.
- Choose your trustee carefully. They’ll manage and distribute your assets.
- Review the trust every few years to keep it aligned with changes in your family, your finances, or the law.
- Consider discussing the goals of your trust with your family, and the reasoning behind your decisions. Doing so can result in a more harmonious execution and help your children become financially literate before being thrust into the role of beneficiary.
Creating a children’s trust is both a practical step and an emotional one. You’re making choices today that reflect your hopes for your child consistent with your values, and the kind of support you want them to have long after you’re gone. A well‑designed trust can help protect your child’s inheritance, guide how it’s used, and give you confidence that you’re setting them up for long‑term stability.
While trusts are often associated with high-net-worth families, parents at many financial levels can benefit from them. Whether you’ve built a modest nest egg or are managing substantial wealth, understanding how to set up a trust for your child can help you protect what matters most. The decisions you make now can have lasting consequences, so it’s important to get them right.
Melissa Sidor, a senior wealth strategist, and Nikki McCain, a senior fiduciary strategist — both with Wealth & Investment Management (WIM) — share the most common estate planning missteps they see and how parents can avoid them.
Why parents choose to set up a trust for their child
While some parents leave their children’s inheritances to them outright, others leave assets to their children in a trust. A trust is commonly used in the following situations:
- When the child is a minor
- When the child has a disability
- When the child is not yet financially mature
- To help protect the assets in case of a child’s divorce, lawsuit, or creditors
- When the client wants to be sure assets remain in their bloodline (ultimately passing to their grandchildren, and not to a spouse or other third party)
The latter two situations are more common when the parent’s estate is more substantial. “A small inheritance may not warrant a children’s trust, unless the child is a minor or has a disability,” said Sidor.
A children’s trust can be set up to support your child’s financial well-being throughout their lives and can even provide for assets to be passed on to their heirs. “Some people think of trusts as handcuffs, because they don’t trust their child or don’t want them to have unfettered access,” said Sidor. “It’s really not. It’s more commonly about putting a protective wrapper around your assets to help protect your child in case of divorce, lawsuits, or creditors, and to help keep assets in your bloodline.”
What that protective wrapper does
A well-designed trust can help shield assets from potential risks:
- Divorce settlements, remarriage, and blended family complications: Helps ensure that your children and grandchildren remain the intended beneficiaries of your estate
- Business losses, personal liability, or bankruptcy: Adds a layer of protection from creditors
- Government assistance: Helps ensure the inheritance for a disabled child does not disqualify them from receiving continuing government benefits
- Mental health or substance abuse issues: Helps ensure that the inheritance supports their well-being without unintentionally enabling harmful behavior
- Poor financial decisions: Can limit access and provide oversight to help prevent impulsive spending or mismanagement
- Early death or incapacity: Specifies what happens to the remaining assets, ensuring they’re redirected according to your wishes
How trusts are created for children
Most parents create a children’s trust as part of the estate plan that goes into effect when they pass away. This typically happens in one of two ways:
- Using a will: The children’s trust is created in the will and upon your death, the assets pass first through probate and then fund the children’s trust.
- Using a revocable trust: The children’s trust is created in the revocable trust, and if you fund your revocable trust before your death, the children’s trust is funded at your death, without the need for probate. Revocable trusts are often used to help families bypass probate, which can be time‑consuming and costly. To do this effectively, once the revocable trust is created, assets such as a home, bank accounts, and investment accounts must be retitled in the name of the revocable trust during the parent’s lifetime. However, tax deferred retirement accounts would not be retitled.
While some parents establish a family trust during their lifetime for estate tax planning or special‑needs purposes, most other children’s trusts are created within the parent’s estate plan and do not come into effect until the parent’s death.
Choosing how and when your child receives their inheritance
Once you’ve decided if a trust is right for your family, the next step is choosing how to structure it. You can customize the trust to meet your goals, including when a trust will terminate and the permitted reasons for distributions to the child during the trust term. These choices are central to setting up a trust, because they determine when and how your child can access the trust fund and how long asset protections will last.
Here are some options for releasing funds:
- A single-age release, such as at age 25.
- Tiered releases, such as one‑third at 25, half the balance at 30, and the remainder at 35.
- A lifetime trust, which is more common when inheritances are substantial or a child has special needs.
Giving children too much access too soon can undermine the protections a trust is designed to provide. “If funds are released outright to a child, and then the child gets divorced, develops a drug or alcohol problem, or is just not ready from a maturity level, those funds are fair game,” said Sidor. A trust allows needed distributions while keeping the remaining assets safeguarded.
Next, consider how the trust will distribute assets, based on your values and goals. Some examples of distribution standards for children during the term of the trust include:
- Mandatory income
- Health, education, maintenance, and support (often referred to as HEMS)
- Down payment on a home
- Starting a business
- Wedding expenses
Another option is to permit distributions to your children for any reason at the sole discretion of your trustee. If using this standard, you might want to write a separate letter to your trustee with guidance on your wishes and the values they might keep in mind while making distributions to your children. This type of letter would not be legally binding but can let your trustee know your general wishes so they can act accordingly. In the letter, you can provide detail to what types of expenses you feel would be appropriate. For example, educational expenses, healthcare, a down payment on a home, starting a business, wedding expenses, distributions for meaningful life goals, or even matching your child’s savings to help them buy a car, rather than covering the full cost.
Including the broad distribution standard of “for any reason” along with a letter to your trustee provides the greatest flexibility to help ensure that the assets are available when needed in accordance with your wishes, while providing strong creditor protections and protections against divorce for assets remaining in the trust.
Choosing the right trustee for your child’s trust
Selecting a trustee is one of the most important steps in setting up a trust for a child, especially if you’re creating a family trust that may last for years. A trustee is the person or institution (such as a bank or trust company) you appoint to manage assets held in a trust. They are responsible for carrying out the instructions you outlined in the trust document, managing or distributing assets for the benefit of your children, and upholding their fiduciary duty to follow the terms of the trust and act in the beneficiaries’ best interests.
“If you choose the wrong trustee, you might end up with someone who might not be able to manage the trust’s assets long term,” said McCain.
“A trustee is such an important position. You really need to make sure you’re naming someone who has the time, first and foremost,” said Sidor.
Here are some considerations for choosing a trustee:
Family member or friend
- Pros: A family member or close friend may have a personal connection with your child, which can make their decisions feel more thoughtful and tailored. They may also serve for little or no cost, which helps preserve more of the trust’s assets. Plus, they can be more flexible and understanding when it comes to the child’s unique needs or life circumstances.
- Cons: They may not have the financial or legal expertise needed (or capacity to learn) to manage a trust properly, which can lead to mistakes or delays. Being emotionally involved can also make it hard for them to say “no” or enforce boundaries, especially if the beneficiary is struggling. Family dynamics can add tension or conflict, potentially damaging family relationships. “You want to make sure you are not setting up any tension between the beneficiary and the trustee. Those family relationships can really break down if you don’t name the right person,” said Sidor. There’s also the risk that the person may become unavailable due to illness, relocation, or passing away. An individual serving as trustee may be liable for adverse consequences if they unwittingly breach a fiduciary duty, such as a conflict of interest.
Institutional or professional trustee
- Pros: A professional trustee brings experience and knowledge in handling investments, following legal and tax rules, and keeping things running smoothly over time. They offer consistency and long-term stability. Their neutral position helps avoid family conflicts, and because they’re regulated, there’s a level of accountability and oversight.
- Cons: On the downside, professional trustees charge fees, often a percentage of the trust’s value, which can reduce the amount available to the beneficiary, but individuals are also entitled to fees. To some, a professional trustee may feel more distant or impersonal, lacking insight into the family’s values or the beneficiary’s personality (particularly if the relationship with the bank or trust company is not established prior to your death). And while they follow the trust terms closely, they can sometimes be less flexible in adapting to changing needs or special requests.
Wells Fargo Bank offers corporate trustee services for personal trusts. Learn more.
It’s also a good idea to revisit your trustee choice every few years to help ensure the one you selected is still the best fit for your family.
“Some people think of a trust as handcuffs ... It’s really not ... It’s more commonly about putting a protective wrapper around your assets.”
Common mistakes parents make when setting up a trust
Even when parents understand how to set up a trust for a child, missteps can still occur that undermine the trust’s protections.
Child with a disability
If you have a child with special needs, leaving assets to them outright or in a trust without proper special needs provisions can put them at risk of losing essential government benefits, such as Medicaid or Supplemental Security Income (SSI). A children’s trust that includes special needs provisions allows you to set aside money for their care without jeopardizing access to these programs. This is the major exception where a trust is recommended regardless of estate size. Learn more about special needs trusts.
Releasing assets too early
Giving children too much access too soon can undermine the protections a trust is designed to provide. “If funds are released outright to a child, and then the child gets divorced, develops a drug or alcohol problem, or is just not ready from a maturity level, those funds are fair game,” said Sidor. A trust allows for distributions while keeping the remaining assets safeguarded.
Keeping your wishes a secret
Talking with your children and trustees about your children’s trust isn’t just about sharing financial details. Think of it as building a shared understanding of your goals and values, and it gives you the ability to explain why you’ve decided to utilize a children’s trust, so there are no hard feelings later that can come with not knowing why something was done. Discussing the trust’s purpose and parameters also helps prevent confusion down the road, helps ensure everyone knows their role, and creates a sense of collective responsibility for your child’s future. This can be particularly helpful if you are planning to treat beneficiaries differently. By being upfront, you can explain your reasoning and foster trust and cooperation, making it more likely that the trust will be managed smoothly and in line with your intentions.
Some parents will say they don’t want their beneficiaries to know the amount of the child’s inheritance because they don’t want it to impact how they live their lives. “We hear parents say, ‘I don’t want them to stop school or not work hard,’” Sidor said. More commonly, she said, others want to make sure their beneficiaries have the financial education or understanding starting at an earlier age, instead of coming into assets as a surprise and not understanding the implications.
“For clients who want their children to be financially literate before coming into trust funds, our teams often work with the next generation to have educational discussions that start with the basics and get more complex over time,” Sidor said. “By the end of those conversations, but only if the client so desires, we talk about the specific plan for the family assets.”
It’s also important that executors and trustees know where to find your documents and important financial information, which should include the name of your financial advisor and lawyer. In many cases, introducing them to your professional advisors during your lifetime can be helpful in ensuring a smooth transition for your children.
Glossary
- Beneficiaries receive money or support from a trust, usually through distributions managed by a trustee.
- Distributions are the money or assets that get paid out from a trust to the beneficiary, like monthly payments, a yearly allowance, or money for specific things like college or buying a house.
- Fiduciary duty means that that person must act in the best interest of the beneficiaries.
- Grantor (also called a settlor or trustor) is the person who creates and funds a trust (in this case, the parent). They decide what assets go into the trust, who will manage the trust (the trustee), who will benefit from it (the beneficiaries, which in this case are your children), and how and when those assets should be distributed.
- Probate is the legal process of settling a person’s estate after they pass away and involves validating a will (if there is one), paying off debts, and distributing assets under court supervision.
- Trust fund refers to the actual assets (money, property, or investments) that are placed into a trust.
- Trustees manage assets that are held in trust for others.
- Trusts can be used to control how and when assets are distributed, often avoiding probate.
Read more
Failing to review the trust every few years
“I see this common oversight a lot,” said McCain “There are many different major life events that can have significant impact on an estate plan: births, deaths, divorce, marriages. So, regularly updating the trust to reflect any changes can help ensure that everything will go much more smoothly for future generations.”
Other instances where a review is important would be changes to the value and composition of your assets, or changes to tax laws (which are constantly in flux). Or you may have different ideas about how to distribute assets or who you previously designated as a trustee. For these reasons, it’s important to revisit your plan every few years or after any major life events.
Read more: Ensuring your will or trust is up to date
Providing structure, protection, and clarity, a children’s trust can play a central role in your long‑term planning. By thinking through your options now, you can help ensure your child’s inheritance is managed responsibly and in line with your intentions.
Not sure where to start? Talking with a financial advisor or an estate planning professional can help you find the right type of trust for your family’s unique goals. They’ll walk you through your options and help you build a plan that truly supports your children’s future. Schedule a free consultation with a Wells Fargo Advisors financial advisor to take the first step.
Keep in mind, Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Any estate plan, including trusts, should be reviewed by an estate planning attorney licensed to practice in your state.
FAQ
A children’s trust is a way to set aside assets for your child. It can help make sure your assets are distributed to your children in accordance with your specific instructions. It can also help shield assets from creditors, divorce, and estate taxes.
Many parents feel confident when setting up a trust, but common mistakes — like releasing assets too early or choosing the wrong trustee — can undermine the benefits of a children’s trust. Working with a professional can help you avoid these issues and keep your children’s financial future on track.
Choosing the right trustee is key. They have a fiduciary duty, which means they are responsible for making sure your trust is carried out properly. A trusted individual might be best if personal connection or special knowledge, like running a family business, is important. A corporate trustee can be a smart choice for complex or long-term multigenerational trusts, or when professional management is needed to avoid tax consequences or conflict of interest.
It is most common for children’s trusts to come into force upon your death, so they would not be funded now. However, there are two main goals that might lead to funding a trust for children during your lifetime. They include when your estate is large enough that a goal is estate tax minimization, and/or if you’re planning for a child with special needs.
That said, setting up a trust does come with costs both in time and money, so it’s important to make sure the benefits outweigh those expenses. For example, there may be legal fees to establish a trust and ongoing professional management fees.
A good first step is to talk with a financial advisor or estate planning attorney. They can help you figure out the best structure and funding amount based on your unique situation.
While it’s possible to learn how to set up a trust on your own using online resources or DIY legal tools, working with professionals can help ensure the trust is structured correctly. This is typically a collaborative process involving an estate planning attorney, a financial advisor, and an accountant or tax professional so your plan aligns with your legal, financial, and personal goals.
A special needs trust allows parents to set aside money for a child with a disability without jeopardizing essential government benefits such as Medicaid or Supplemental Security Income (SSI). If a child with special needs receives an inheritance outright, those assets may exceed eligibility limits and cause benefits to be reduced or lost. By placing funds in a special needs trust instead, parents can support long‑term care, therapies, education, transportation, and quality‑of‑life expenses while preserving critical program eligibility. It’s one of the most important considerations when setting up a trust for a child, and often the preferred way to set up a trust fund for a child with disabilities.
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