Minor’s Trusts Simplified

grandparent childAre any of the loved ones that you want to include in your Will, such as children or grandchildren, still minors or young adults? If so, you may have concerns that they will use their inheritance unwisely because they are too young to make mature financial decisions. Luckily, there’s an estate planning tool that exists just for this reason! With a minor’s trust, you can charge a trusted adult with managing a young person’s inheritance until they are of age. In this blog post, we’re answering some of the biggest questions our clients have about minor’s trusts.

What Is a Minor’s Trust?

A “minor’s trust” is a trust that leaves property to a young person, but in the care of a trustee, until the young person reaches a designated age—often age 18, 21, or 25. This type of trust is often created through a will and called a “testamentary trust” because it takes effect on the death of the will-maker. 

How old will my child or teen need to be before they gain control of their inheritance?

This is completely up to you. You get to designate the age they need to be before they gain control of their inheritance. The minimum age, of course, is 18, because, before that, a person cannot legally control their own property. Some people choose 21 or 25. There’s no hard rule for a maximum age. However, a minor’s trust cannot be indefinite.

Who should I designate trustee?

The trustee is the adult who controls the inheritance until the minor reaches the designated age. This can be any adult that you trust. Many people choose a parent or a sibling of the beneficiary. It is also possible to appoint a trustee company.

Will the trustee be able to take out any of the funds on behalf of the minor before they reach the designated age?

The trustee is not allowed to withdraw any money for personal usage. However, under some circumstances, it may be possible for them to withdraw money to fund the child’s education or pay for the child’s medical expenses.

What is a 2053(c) Minor’s trust?

A “2053(c) trust” is a type of minor’s trust that aims to avoid gift taxes. A Section 2503(c) trust allows a parent, grandparent, or other donor to make tax-free gifts to a minor’s trust and use their annual gift tax exclusion to save taxes. But to get the tax benefit, a 2053(c) trust must end, and the young person must receive all trust property, at age 21.

Are there other options to protect my children or grandchildren in lieu of a  Minor’s Trust?

Another option is a revocable living trust, the preferred option for many parents and grandparents. The person(s) you select, as trustee, will be able to manage the inheritance for your minor children or grandchildren until they reach the age(s) you want them to inherit—even if you become incapacitated. Each child’s needs and circumstances can be accommodated, just as you would do.

How do I set up a minor’s trust or revocable living trust as part of my estate plan?

An experienced attorney can help you make a minor’s trust part of your estate plan. At Goodwin Law & Mediation, we have extensive experience with wills and trusts. Give us a call at 919-798-4468 to learn more about how we can help you.