Trusts for minors are usually set up by parents or relatives who want to leave property to a young person. Thus, naming a trusted adult to care for the property until the child is old enough to be financially responsible. You can specify any age for your child to receive the proceeds, but generally the designated ages are 18, 21, or 25.
A minor’s trust is often created through a Revocable Trust or a Testamentary Trust inside a Will. A Testamentary Trust is a trust which takes effect on the death of the will maker. In either situation, you leave the property to a trustee who cares for it until the child reaches the age you designate. When the time comes, the trustee transfers the property from the minor’s trust to the beneficiary, including any income the trust has produced, according to the directives you’ve detailed in your trust documents. That’s why it’s a good idea to appoint a custodian to financially manage the distributions to spend on your child’s care if he or she is still a minor at the time of your death.
You can name the same person as custodian and trustee. However, you’re putting full trust and authority in one person if you do this. If you choose two separate people, make sure they get along well enough to be able to work together. The custodian will need to pay for your children’s care if they’re still minors and must be able to get this money from your trustee without too much haggling or fuss- especially in an emergency or for unforeseen circumstances.
The decision on when and how your children receive their bequests is key. If your son is a spendthrift and you’re leaving him a great deal of money, your trust can distribute his inheritance in increments as he grows older and more mature, such as when he reaches the ages of 25, 30 and 35. This will prevent him from going through his money all at once. If you anticipate your daughter will want to attend Yale, you can set aside funds especially for use toward her education.
Trusts are built from the transferring of your wealth into them. If you have young children and want the wealth you put into the trust to grow by the time they get it, then consider long-term investments such as stocks or savings bonds. It is also important to include cash in your fund, this was your children’s care can be paid for until they reach the ages you’ve specified to receive their full inheritances.
There are some advantages and disadvantages to having trusts that are important to be aware of. By the time your wealth reaches their hands, it can grow and compound which is always a great thing. It’s also important to think of who your children will become when they’re older and try to plan to accommodate that adult. They could be someone who wastes all the money, or they could be thoughtful and plan for their increase in wealth and what they will do with it.
The trustee for a minor’s trust must file yearly income tax returns for the trust. Trust income tax rates are higher than individual tax rates.
If you have young children and would like to start establishing a trust for them, call the Law Offices of Cheryl David at 336-547-9999 and we will discuss trusts and other options.