A minor child is one under 18 years of age. By law, any child under 18 cannot inherit property bequeathed to him or her whether or not there is a will in place, and such property will hence be put into a trust for minors or invested in the Guardian’s Fund by the court until the minor child attains the legal adult age of 18. If a decedent, by reason of his or her will, leaves property for minor children, then they would not have access to the property. Also, the guardian appointed by the court may not be the most preferred choice of the decedent for the kids, and for this reason, most parents now create trusts for minor children and name whoever they deem best fit to look after the trust and the kids until they reach 18. These trusts for minor children must be created with the assistance of an experienced trusts attorney.
As every family and child is unique, parents are faced with tough decisions in creating trusts for minors, and the following will throw light on some general issues.
Pot trusts and individual trusts
As a parent drawing an estate plan, you may have several youngsters — children, grandchildren, nieces, etc, — below the age of 18 who you may want to provide for.
You could either leave assets in “individual trusts” for each child, or put all the money in a “pot trust” or family trust for more than one child. An individual trust is beneficial due to its equitable approach as each minor beneficiary would get funds from his or her own share, without the others having to pay for it from the family trust. A family or pot trust is mostly created for siblings. As one child may end up having more needs and expenses than others, the trustee has to be prudent in determining how best to utilize the money fairly enough.
Handling trust assets
As a trustee of a trust for minor children, you may need to make important decisions on how best to manage these assets. Any decision made should be purposeful to further aid the goals of the trust. Before making any decision, you should go back to the terms of the trust laid down by the grantor and consider what exactly he would have intended. Would he have wanted a luxurious childhood for the minors? Or would he have wanted most of the funds to be used for the child’s education? You may even better display financial prudence by investing some trust assets in order to yield more for the child in the future. Create an investment plan and check from time to time if you’re progressing towards your financial goals.
Taxes and record-keeping
As a trustee, the beneficiaries possess the legal right to request from you a breakdown of how you are managing and spending their money. You would need to file an annual income tax return on behalf of the trust and to make filing this return easier for you, you have to keep a very good and transparent record all year round.
Special Needs Trust
A Special Needs Trust (SNT) may be created during estate planning to cater for a child with permanent disability. The trustee managing this trust has to follow the terms of the trust and the state laws while making expenditures in order not to jeopardize the child’s eligibility for receiving other government benefits such as Medicaid and Supplemental Security Income (SSI).
Trusts for problematic minors
What happens when you leave funds to a child with a substance abuse problem like drug addiction. Giving such a child the opportunity to easily demand money from the trust would prove heavily detrimental. The best way to protect such a child is by creating a lifetime trust.
With a lifetime trust, the child has no right to demand for cash regardless of his/her age but it is left to the discretion of the trustee to distribute funds when necessary and thus, the child has a better liability protection with a lifetime trust. The importance of creating a lifetime is heightened when you have concerns that your problem child may run into huge debts or divorce in the future. With a normal trust for minors, once the child attains 18, he/she could simply withdraw funds from the trust and squander it out of youthful lusts, but this is avoided when a lifetime trust is established.
It is worthy of note that trusts for minors will be effective until the child attains 18 or the funds get exhausted. All in all, to get the best tailored estate planning should there be minors in your family, contact an experienced estate planning lawyer or a trust attorney today.