Trusts for Minors
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What are “Trusts for Minors”?
Trusts for minors, or minor’s trusts, are specific types of trusts that are used to hold and distribute assets to minors. They usually dictate that the money or property assets will be held in trust until the minor reaches the age of majority, which is usually 21 years old in most cases.
The person creating the trust may also place conditions on the trust, which must be met before the child or minor can claim the assets. For example, the asset may be distributed “when the minor is at least 21 years old and has graduated from college”.
Knowing the various terms associated with trusts is helpful in understanding how a trust works. The person creating the trust is called the “settlor” or grantor”. The settlor will transfer the assets to a third party, known as a “trustee”, who will hold the assets in trust according to the settlor’s instructions. At the specified time, the trustee will then transfer the assets to the recipient who is called the “beneficiary”. In minor’s trusts, the beneficiary is the named child or minor.
What are the Benefits of a Trust for a Minor?
The main benefit of minor’s trusts are the tax exemptions that may be available. Generally, a parent can make a gift to a minor up to a certain amount, without any tax consequences. This is known as the “gift tax exemption”. However, in order to qualify for the exemption, the child must have “immediate access” to the gift and “control” over it.
Thus, normal trusts usually wouldn’t qualify under the gift tax exemption, since the recipient won’t have immediate access to it (they usually only claim the trust assets several years later). However, a valid trust for a minor is an exception to this rule- the gift tax exemption will apply, even if the child won’t actually have immediate access to the gift.
What are the Requirements of a Minor’s Trust to be Valid?
In order to be valid, a trust for a minor needs to meet all the basic requirements for a trust, and several others including:
- The minor is the only stated beneficiary of the trust
- All income that the trust generates, as well as the original assets, must be transferred to the child when they reach a certain age (usually age 21)
- The minor is given the right to distribute their trust assets in the event that they become deceased before age 21. I.e., the minor can state how the trust is to be distributed in their will or other legal document. In some states, the age of majority may be 18 and not 21. However, the time that the minor is to receive the trust assets depends on the settlor’s intent and preferences. In some cases, the settlor may state an even later time, such as age 25.
What if the Trust Assets are not claimed at the specified time?
What usually happens is that the beneficiary will be given notice that the trust assets are now available. After they receive notice, they usually have about 30 to 60 days to claim the asset (the “notice window”).
If the 30-60 days expires without the beneficiary claiming the assets, the funds will remain in the trust account, but outside of the beneficiary’s control. Depending on the trust instructions or the jurisdictional rules, the beneficiary may not regain access for a specified period of time, which can be anywhere from 5-10 years.
Do I need a Lawyer for Trusts for Minors?
Creating a trust for a minor can be a somewhat complex undertaking. There may be several considerations that you need to make, since the assets might not be distributed for many years, even decades. Also, the rules governing trusts may vary by region. However, an experienced trusts-wills attorney can help you draft, review, and implement the trust so that it is valid. Also, a lawyer can help represent you in court if a dispute arises over the minor’s trust.
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Last Modified: 02-04-2015 02:09 PM PST
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