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How To Leave Assets to a Minor

May 21, 2013

Under state laws, children cannot own financial assets until they reach majority – usually on their 18th birthday.  Also, many times people do not want to leave assets outright to children or others until they attain a more mature age… when they feel the children could better handle the funds.  To delay the transfer of funds to a child, a trust needs to be established.  As in this and all legal matters, an attorney should be consulted to draw up the documents.

 

Following, is an illustration of how funds could be left in a trust to a child or any other young beneficiary that will inherit funds.

 

  • A separate trust should be established for each child. In lieu of separate trusts, there could possibly be one trust that is “subdivided” into sub-trusts for each beneficiary.

 

  • At age 21, the child will get distributions equivalent to the trust income.  Upon reaching their 25th birthday, they will receive 1/3 of the total accumulated funds set aside for that child.  The full income on the remaining funds will accumulate and be added to the undistributed principal.  At age 30, half of the remaining funds will be distributed to that child.  The income on the remaining funds will be added to principal with the full remaining amount distributed to the child at age 35.

 

  • To the extent, individual income taxes will have to be paid by a child on any income accumulated but not paid or distributed, there will be a distribution to cover the taxes.  The amount distributed will be at the highest effective tax bracket the child is in for the year the income is taxed.

 

  • The trustee will have the right to invade principal for ascertainable standards of health, education, and general well-being of the beneficiary.

 

  • The trustee will have discretionary powers to make distributions for anything that the trustee believes will be in the child’s best interest.

 

The above is an example of the available choices.  It does not consider special needs of the child such as medical, custodial care or special schooling.

Reprinted from Getting Your Affairs in Order by Edward Mendlowitz, CPA ©2012.  Available for sale at www.Amazon.com and www.BN.com .

One Comment leave one →
  1. May 31, 2013 8:30 am

    It’s perfect time to make some plans for the future and it’s time
    to be happy. I have read this post and if I could I desire to suggest you few interesting things or tips.
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