Upon first blush, you might think that dividing your estate into equal shares for each of your children is the best way to achieve equality and fairness. After all, what could be more reasonable than giving every child an equal amount? In general, this might be true. But for some children, particularly minor children and young adults, equal shares do not mean equal treatment.
When children are minors or young adults, they have different needs at different points in their lives. A 10-year-old might need braces, a 15-year-old might need money for soccer camp, and an 18-year-old might need college tuition or textbooks. The 23-year-old eldest sibling might have already have benefited from your entire estate for all of these needs. Would it really be fair to divide the estate into four equal shares should you die while your four kids are these ages?
In this example, the eldest child’s 1/4 of the estate would be too large because he already benefited from 100% of your estate for many of his childhood needs whereas the youngest child’s 1/4 share would be too small because she still has additional needs that were already addressed for the other children.
The solution is to create a “common pot trust.” The idea is to keep the entire estate in one share that is available to any of the children for their needs. The trustee is given discretion to distribute the estate unequally to any of the children for their needs. This way, the older children who have already benefited from the entire estate won’t receive a specified share until the younger children have the opportunity to benefit from the entire estate for their needs that are unique to their young ages.
Eventually, when all of the children have reached an age where basic needs of adolescence are addressed, the common pot trust extinguishes and the balance of the trust divides into equal shares. The trigger for extinguishing the common pot trust is usually when the youngest child reaches a specified age.
Although the common pot trust is not for everyone, it is often worth considering when you have multiple children who are minors or young adults.