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Friday, April 17, 2020

Using Trusts for Minors in Estate Planning

Minors cannot receive inheritances or property. Therefore, it is important to include provisions with an estate plan for a minor’s interest. Trusts are excellent tools for managing a minor’s interest in an estate until the minor is an adult. A Texas wills and trusts attorney can help you determine which type of trust meets your needs and goals for providing for minors in your estate plan.

A Testamentary Trust for Minors

One of the most common trusts for minors used in estate planning is the testamentary trust. A testamentary trust is included in your will. It is a simple clause within the will that leaves a minor’s inheritance in the care and custody of a trustee.

In most cases, the testamentary trust names a trustee who manages the minor’s inheritance for the minor’s care, upkeep, and education until the minor reaches a specific age. The person creating the will chooses the age at which the minor receives his or her inheritance.

Many parents use testamentary trusts for their children. They may choose to distribute all or a portion of the inheritance to their children at 18 years of age or allow the trustee to continue managing the assets until their child is older, so the child can complete college and may be a bit more mature.

Special Needs Trust

If a minor has a disability or impairment, a special needs trust might be appropriate. A special needs trust permits the trustee to use trust property and assets the benefit of a minor without jeopardizing any government benefits the minor might be entitled to receive. A special needs trust can continue once the child becomes an adult.

There are several types of special needs trusts, and each trust requires specific language and terms to avoid issues related to government benefits. An estate planning attorney can help draft a special needs trust that does not interfere with eligibility requirements for government benefits and aid.

Avoiding Gift Taxes

A 2053(c) trust can help avoid gift taxes by allowing parents or other individuals to contribute amounts to the trust that qualify for the annual gift tax exemption. However, to qualify for the gift tax exemption, the trust’s beneficiary must be a minor, and the minor must be given the income and assets in the trust when the person reaches 21 years of age.

Complex Minor Trust Agreement

Depending on your financial situation and needs, you may require a more complex minor trust agreement. These trusts are typically stand-alone trust agreements not included in your will. The trust agreement may provide very specific instructions about how the trustee can use the trust assets for the care and education of the child. The trust terms may limit distributions for certain purposes. For example, the trust may specify the types of higher education that qualify for the use of the trust funds.

These types of trusts are usually funded during a person’s lifetime with the intent of providing for a child if the person dies, but also provide for the child when the child becomes an adult. High-net-worth families often use a variety of trusts as part of their estate plan to provide for children and future generations.

Contact a Texas Estate Planning Attorney for Help

Minor trusts can be simple or complex. Your goals and financial situation determine the type of trust you need for a minor. Contact the Law Office of Carey Thompson for more information about setting up a trust for a minor child.


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