While considering beneficiaries for your estate plan, think about one thing—are any of them currently minors?
You might be thinking that by the time you pass away, they’ll be past the age of maturity, especially if your children are fairly young. If you’re an elderly grandparent, that may be true. But as many surprised younger spouses have experienced, sometimes life doesn’t see it that way.
You can leave money or other property to a minor, but they won’t be able to take possession until they are 18. Can your children be trusted to handle a large amount of money at age 18? It may be a safer idea to have that money held in a trust until they are older.
A Minor’s Trust
You may have heard the term “trust fund baby” at least once. You’re probably not happy about the image of a spoiled young person with a lot of money on his or her hands. A minor’s trust is also known as a 2053(c) Trust.
With a minor’s trust, and a trustee to guard they funds against unscrupulous spending, you won’t have to be concerned. It’s also a way to avoid some additional gift taxes when you give your children money in your will and estate plan.
No matter what your age, you can easily set up a minor’s trust to leave funds to one or more of your children or grandchildren to receive. A trustee ensures that they won’t be handed a large sum of money without supervision.
These kinds of trusts set up by parents or other relatives who want to ensure that minor children receive property at the time of the elder’s death. Should the child or children still be minors at that time, the elder will also designate a responsible adult to oversee the trust until they are older and become more financially responsible.
How It Works
Like most trusts, ownership of your property transfers into the trust at the time of death according to instructions left in your will. If the beneficiary is still a minor when you die, the trust is created according to the terms set in the document, and it’s managed by a trustee. The trustee cares for the property until the minor turns the age that you’ve set up to receive the property, and then transfers the property to the beneficiary.
You can specify what age you’d like the minor to receive their monies. Most trusts designate 18, 21, or 25, but in order to receive the tax benefit from the trust, the trust has to end, and the beneficiary must receive everything, at the age of 21.
Other Types Of Trusts For Minors
If a minor’s trust isn’t completely suitable there are two other types to consider:
- Spendthrift trust, limiting the beneficiary’s access to the trust and prevents them from squandering the money or losing it to creditors later. Depending on how the trust is set up, a trustee can either make cash payments on a monthly basis, or buy goods and services for the beneficiary with monies from the trust. However, once a portion of money is paid to the beneficiary, it may be accessible by creditors.
- Special Needs trust, also called a “supplemental needs trust,” allows you to give someone with a disability or other special needs money or property but not jeopardize their eligibility for Social Security Disability and/or Medicaid. The trust ends when all of the funds have been spent, or when the recipient dies.
In both cases, a trustee oversees the monies and distributes it according to the terms of the trust, and oversees the control of the funds.
Chicago’s Attorney For Minor’s Trusts
It’s never too early to begin your estate planning to care for your children or grandchildren. Talk to an estate planning attorney who understands them and is happy to work with you to ensure that your estate plan is exactly as you want it. James C. Provenza is an Illinois estate planning attorney with more than 25 years of estate planning experience. Call our firm today at (847) 729-3939, or use our online contact form.