A well-conceived estate plan is one that will not only protect your assets, but also help to plan for your children. While a will allows you to designate guardians for your children and establish testamentary trusts for their benefit, there are also irrevocable trusts you can establish for minors. When it comes to planning for your children, it is wise to consult an experienced trusts and estates lawyer.
At the Law Office of Carey Thompson, we routinely advise clients on creating trusts for minors. Whether you intend to leave assets to a child who needs to be managed, or you wish to provide for a child with special needs, we will provide you with informed representation that allows you to make the best decisions for your children. Located in Fort Worth, we provide advice and guidance to individuals, couples and families throughout greater Tarrant County.
Planning for Children With a Will
As mentioned above, a will is the only way to name a guardian to care for your minor children. Because children under the age of 18 cannot inherit property directly, it is also necessary to designate a custodian in your will to manage assets for their benefit. Under the Texas Uniform Gifts to Minors Act (UTMA), children’s future assets will be held in a custodial account until they reach the age of 21.
Although the person you name as a guardian may also act as the custodian, it may be preferable to separate the roles. In any event, the custodian must adhere to strict rules for managing the assets and is subject to court review. Finally, gifts made to UTMA accounts are subject to federal tax rules. While transfers under the UTMA may help to set aside funds for your children, another option is to establish a trust.
Establishing Trusts for Minors in Texas
A number of trusts can be established for the benefit of children, including a “Section 2503 Trust” under the Internal Revenue Code. In this arrangement, proceeds are set aside for a child’s health, education, maintenance and support. The trust manages and distributes the proceeds until the trust terminates. In addition, the trustee is required to maintain an accounting, ensure that the beneficiary is using the proceeds for the intended purposes, and file an annual fiduciary tax return.
There are two types of Section 2503 trusts that can be established:
- A Section 2503(b) Trust is one in which income is distributed to the beneficiary annually. If the child is under the age of 18, the assets must be transferred to a custodial account and managed by the designated trustee. The beneficiary can be provided with proceeds from the trust equal to the gift tax exclusion (currently $15,000 per year). Finally, the trust can continue after the beneficiary reaches age 21 and the principal held in the the trust until he or she reaches a specific age.
- A Section 2503(c) Trust is one in which principal and income can be provided to the beneficiary until he or she reaches the age of 21; trust proceeds can be applied to the child’s college expenses. Once the child turns 21, the remaining trust proceeds must be paid out. The beneficiary can elect to extend the trust, however. A key determinant in establishing a Section 2503(c) Trust is whether the beneficiary will be responsible enough at 21 to manage the money.
At the Law Office of Carey Thompson, we are well-versed in the applicable rules under the Internal Revenue Code and can help you determine whether a Section 2503 trust suits your needs and objectives.
What is a Pot Trust?
Another option for families with minor children is to establish a single trust for their benefit, commonly referred to as a pot trust, which can be set up in a will or as a stand-alone trust. The designated trustee has the power to distribute proceeds to the beneficiaries and the discretion to determine what each child needs. The trustee is not required to spend the same amount on each child, however. Generally, a pot trust terminates when the youngest beneficiary reaches the age of 18, at which time the remaining shares are distributed to each beneficiary.
Other Options of Trusts for Minors
In addition to ensuring that your children’s future assets are well-managed and carefully spent, you may also be concerned about providing for a child with special needs or one who is not financially responsible. Our trusts and estates attorneys can address those concerns by establishing the following estate planning tools:
- Special Needs Trust (SNT) — In this arrangement, funds are set aside to provide for a child with a disability or special needs while preserving his or her eligibility for public benefits such as Social Security disability or Medicaid. The trust proceeds are to be used for the child’s supplemental day-to-day expenses.
- Spendthrift Trust — This type of trust is designed to protect the beneficiary from frivolous spending. The designated trustee is responsible for managing the trust assets and is allowed to make decisions about how the proceeds are spent.
Contact Our Experienced Trusts and Estates Attorneys
At the Law Office of Carey Thompson, our practice is dedicated to helping clients protect their assets and their children. When you become our client, we will advise you of all your options.
By establishing a trust for your children, you will have peace of mind knowing that they will be provided for when you are no longer around to care for them. Please contact our office today to speak with our team about all your estate planning needs.