A child support trust is putting up assets in trust for the benefit of a child. Child support will be paid out of the trust.
Being a good and responsible parent includes being able to financially provide for one’s child. Ideally, child support is shouldered by both parents. The cost of raising a child is divided between the parents but the division depends on the income of the parent and the care he provides for the child. Prices of commodities are rising and for some, employment is difficult.
Child support is dependent to a large extent on the stability of a parent’s income. As long as a parent has income then he is capable of supporting his child but what if he loses his income? Child support trusts could be a parent and child’s saviour.
A child support trust can be set up for the benefit of a child. It is a method of putting up assets or capital in a fund that is held in trust. The trust can be set up in such a way that the income from it can be used for child support and paid to the person taking care of the child. Almost anything that produces income can be put into the trust such as shares of stock, real estate, livestock and machinery. This type of trust enjoys the adult tax rate threshold.
There are a number of advantages for setting up a child support trust. Most important of all is that whatever economic hardship might happen to the parent, the child’s fund is fully protected. So when a parent becomes bankrupt, child support can still be paid from the trust.
In fact, the trust operates as a sort of insurance because even in case of emergencies like being laid off from work, sickness or death the trust fund will continue to pay for child support as long as it continues to generate income. Aside from being like an insurance the child support trust is also a form of investment. The capital of the trust fund can increase at an investment rate.
Both of the parents must agree on the child support trust. They can even execute a binding financial agreement (BFA) pertaining to child maintenance. The agreement can stipulate on the terms of the trust like who will be the trustee, the specific amount that will be paid off as child support and to whom.
It is not really difficult to set up a child support trust because there are lawyers and financial advisers who specialize in this area. It is advisable to have a BFA at the same time a child support trust is set up. This way, there is no confusion as to how the trust will be utilized and the responsibilities of the parents are clearly defined.
A trust provides security for the future of a child. Since long ago trusts have been set up for children so that they would at least have a comfortable start when they are already on their own. Trusts enable children to go to university, purchase a house or start a business. Now, trusts are used to pay off child support. This arrangement is encouraged because it assures a young child of financial support no matter what happens to his parents.