TRUST FOR YOUNGER BENEFICIARIES

You may have younger children, or maybe younger grandchildren. More specifically on grandchildren later.

In the United States, a child does not have the legal capacity to own anything until their eighteenth birthday. Until then, if they inherit money, that money has to be held in trust for them until their eighteenth birthday. A trust is an abstract concept, but think of it as a bank account for now. Someone needs to manage that money until it is legally turned over to the child. For example, should it be put in a savings account, a money market account, a Certificate of Deposit, or should it be used to buy oil futures? This same person also has to make decisions about how to use the money. Do I need to buy food, clothing, a car? What kind of car? Should the money be used to buy a brand new Corvette, or a twelve year old Ford Focus? Is there enough money for the beneficiary to go to an Ivy League school, or should we start out with a two year community college, and take it from there? The person in charge of the money or property, and in charge of making these decisions is called the Trustee. It is a very important job!

In the Trust for Younger Beneficiaries that we would prepare for you, we would state who you want to be the trustee. When it comes to a grandchild being a potential beneficiary, we often name “the surviving parent of the recipient grandchild” to serve as trustee.

Is this trustee the same as the guardian? No. It is a different job, but it could be the same person. Typically, the guardian is good at packing lunches and making sure the homework is done. Whereas, the trustee is better with finances, etc. As stated above, they could be the same person. It certainly would be convenient if they were the same person, but many clients like them to be separate people to create a little bit of checks and balances system.

I started out by saying that the child’s inheritance has to be held in trust for the beneficiary until his or her eighteenth birthday. The trouble is, the law requires that the funds remaining in the trust be released to the eighteen year old, to do with as he or she pleases. In most cases, I don’t think that is such a great idea.

Since most of my clients agree with me, we include a provision in the trust requiring the funds to remain in trust for the beneficiary until they are a few years older. Most often, we use the age of 23 since he or she should have finished undergraduate school by then, and should be able to handle money by then. Sometimes we use an older age.

There are other uses for trusts. If you want to learn more, click on this LINK.