The "Estate Planner's Arsenal" series highlights specific estate planning tools and their uses.

The Situation.  The Pot Trust is a useful tool when you have children and it may not be desirable for them to receive their full inheritance immediately upon your death.  Generally, upon the first spouse's death, the surviving spouse inherits all of Spouse 1's property, with the children being contingent beneficiaries.  However, what if both spouses (parents) are now deceased, or what if you are a single parent?  In that situation, your property would pass directly to your children.

Yet, as I stated, it may not be desirable for your children to receive their inheritance right away.  They may be minors (under 18) and therefore unable to manage the property for themselves by law.  There could also be a large age gap between children, say 16 and 25.  The older child has had the benefit of the use of your property for 9 more years and has probably had your help with college tuition and maybe grad school or a house down payment.  You may not feel that it is fair that they both receive equal shares upon your death in this situation.

The Pot Trust.  This is where a Pot Trust can be useful.  With a pot trust, both children's shares of their inheritance are held in a single trust (The Pot) until the younger child reaches a certain age that you decide.  During that time, the trustee can distribute money from the trust for the benefit of either child, but you can set parameters for distribution that perhaps give preferential treatment to the younger child during the duration of the pot trust, i.e. for educational expenses.  Once the younger child reaches the desired age (the Division Date), then the remaining trust property can be distributed in equal shares to the children - either outright or in separate trusts. 

Potential Drawbacks.  There are a few potential drawbacks in using pot trusts.  Since the older child has to wait for his/her inheritance, there could be resentment towards the younger child.  The older child might also disagree with the amount and types of distributions made to the younger child by the trustee - feeling that their inheritance is being squandered.  You need to assess your family situation and your children's relationships with one another.  Talk to them if necessary.  If you feel that using a pot trust would create animosity or even litigation, then perhaps you should consider other alternatives.  

If all of your children are older and more self-sufficient, you can forego the pot trust and either distribute each child's share directly right away upon your death, or create separate trusts for each child if you do not want them to inherit it all right after your death.  Talk to an estate planning attorney if you have concerns about distributing property to your children.  A pot trust is just one of many options that may be appropriate.