pot trust

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Pot trusts (also called family pot trusts, discretionary trusts, or sprinkling trusts) are a type of trust where the trustee is allowed to give funds to the beneficiaries according to their relative needs. Pot trusts are created by parents for their children, usually in case something were to happen to them before the children make it through college. Unlike many trusts where the trustee must follow strict instructions from the creator of the trust, pot trusts allow parents to grant almost unlimited flexibility for the trustee to give funds to their children as needed, sometimes only to one beneficiary. Parents may want their children to receive different amounts from the trust as expenses arise such as medical bills or college tuition.  Pot trusts have great advantages for flexibly allocating trust assets, but they come with the disadvantage of possibly allowing a trustee to manage the trust against the interests of the trust creator. Given the level of discretion given to the trustee, it is extremely important to choose the right trustee and define the intentions of the parents. Also, the trust typically does not end until the youngest child reaches the age of 18 or another age set by the trust. So, older children who might need the money in the trust might not be able to access it until late in life unless the trust specifically allows for older children to receive a portion of their share for expenses like buying a home. 

[Last updated in March of 2022 by the Wex Definitions Team]