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6 Trusts That Will Help Your Minor Children

Jun 27, 2024 | Estate Planning

They say that children are our future. When you have a child you love in your life, you can help them prepare for their future by creating a trust that will allow them to access the resources they need to achieve success. You have options for setting up a variety of trusts while your children, grandchildren, godchildren, nieces, and nephews are still young that can benefit them as they grow up and well into their adulthood.

The lawyers at Elder Law, P.A.have set up countless trusts that have helped families leave behind their legacies and bolster their loved ones, especially their children. We are here to walk you through some of the types of trusts that will best benefit the kids in your life.

What To Consider When Establishing Trusts For Minor Children

With any trust, you want to do your research and speak with your estate planning attorney to decide what options are best for your specific needs and circumstances. When you are creating trusts for your minor children, you should take into account aspects such as the needs of the child you are trying to benefit.

For example, will your beneficiary need specialized medical care for the rest of their life? Or, perhaps, is your beneficiary a teen who is already exhibiting extreme irresponsibility or an addictive personality? There are trusts that can help!

You also want to consider the level of control that you, personally, want to have over the trusts. There are trusts you can alter and some you can’t, and other trusts where you can create and alter certain conditions.

Finally, you will want to speak with your estate planning attorney about the tax implications of the trusts that you choose. In some cases, you can get ahead of the taxes on your trust or avoid them altogether.

2503(c) Trust

Also known as a minor’s trust, this type of trust will hold assets for your child until they reach 21. A 2503(c) trust is a great option for minimizing taxes because, under certain circumstances, it allows you to avoid the required gift tax on gifts of $18,000 or more provided that the trust is distributed to your beneficiary at the correct time. The principal on this trust can be used by the child or for their benefit with the remainder being paid out when they turn 21.

Educational Trust

This is a great type of trust to ensure that your beneficiary will have the money they need to pay their tuition. Educational trusts hold money or property with the specific goal of funding your loved one’s education. They can go into effect immediately while you are still alive or they can go into effect after your death.

If you are invested in the kind of education your beneficiary chooses to pursue, you can set up stipulations about how the funds can be used. For example, can the trust be used to fund a part-time education? What about if your beneficiary chooses to go to law school or culinary school or medical school? Will the trust pay exclusively for higher education or can it also fund grade school and beyond?

You will also want to take into account what happens to the money if your beneficiary chooses not to pursue higher education, gets a scholarship that makes the money redundant, or simply does not use all of the funds before their graduation. It’s important to keep in mind that these kinds of trusts may incur a gift tax if they are gifting more than $18,000 a year.

Incentive Trusts

An incentive trust is set up with specific conditions that must be met in order for your beneficiary to inherit the contents of the trust. Do you want your beneficiary to go to college? Get married? Earn money in their career? Stop doing drugs? You can set up an incentive trust with certain stipulations that must be reached in order for your beneficiary to inherit the wealth. Ideally, this trust will give them the motivation to continue to strive for certain goals and be rewarded when they reach them.

Generation Skipping Trusts

If you are a grandparent who wants to leave money to your grandchild, you can opt for a generation skipping trust. This type of trust can have positive tax implications as it allows you to avoid certain estate taxes that would be required if you were to pass these assets directly down to your children. Though this trust is most commonly used by grandparents in order to benefit their grandchildren, you can use this trust and its tax benefits to pass down an inheritance to anyone who is 37 ½ years younger than you.

Spendthrift Trusts

With a spendthrift trust, you can benefit your loved one who is not the best with money (if you suspect minor children will not be). This type of trust allows you to distribute assets to your beneficiary in increments so that they cannot spend it all at once. You can specify at what rate the funds will be distributed, help your beneficiary take advantage of the lack of taxation this type of trust affords, and even regain control of your assets while you are still alive if you change your mind about this kind of trust.

Special Needs Trust

If you have a minor child who is disabled or requires specialized care, you can set up a special needs trust so that they have access to money for their healthcare or other needs. This type of trust allows your loved one to retain access to any state-sponsored healthcare they might rely on while still having funds that they can turn to.

Medicaid, for example, only allows its users to hold a certain amount of assets at a time; a special needs trust does not count toward this limit and can give your loved one access to resources they might not have otherwise.

Elder Law, P.A. Can Help You Establish Trusts That Are Right For You

If you need to set up a trust for your minor children or make legal accommodations for your future, Elder Law, P.A. has years of experience creating estate plans that are particular to the needs of our clients. We can advise you on how to get the most out of your wills, trusts, and other estate planning tools based on the goals that you share with us. Reach out to schedule a free initial consultation and learn how we can help guide you in decisions regarding your trust.

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