Spencer Fane LLP Logo

Leaving Property for Young Children

One of the primary objectives of many clients is to protect and provide for their minor children should something happen to the parents. The first step in this process is to name Guardians under a Last Will and Testament. Guardians are the individuals who will have the care, custody and control of your children. The guardian is the person who makes the decision as to where a child would live or attend school. However, structuring a sound method for the control and management of your assets for the benefi t of minor children is an equally important aspect of an estate plan.OPTION 1 – CUSTODIAL ACCOUNTS: A frequent method of holding assets for minor children is through the use of custodial accounts. These accounts are frequently referred to as “Uniform Transfers to Minor Accounts” (“UTMA”) or Uniform Gifts to Minor Accounts “UGMA”. Once made, the transfer of assets to a custodial account is irrevocable. The primary benefit to these accounts are that they are easy to establish and administer. The funds in the accounts are held for and can be used for the benefit of a minor beneficiary. The person responsible for the administration of the account is usually the parent or person establishing the account, who is referred to as the “custodian”. The primary drawback of custodianship accounts is that when the minor attains the age of majority under state law (usually 21 in most states), the assets must be distributed outright to the child.OPTION 2 – IRREVOCABLE TRUSTS: An Irrevocable Trust for a minor is one alternative to a custodial account. Irrevocable trusts are especially desirable when the grantor anticipates that there will be funds remaining in the account after the child attains the age of majority. An irrevocable trust can be established with terms as flexible as the person establishing the account (the “Grantor”) desires. The Grantor can establish an irrevocable trust with terms that will allow the assets in the trust to continue to exist for the benefit of the child (the “Beneficiary”) well beyond the age the Beneficiary attains majority. The trust can be designed to contain terms that will protect the assets held in the trust from the creditors of the Beneficiary, including a spouse in the event of a divorce. In addition, an irrevocable trust can be designed to include flexibility by including the names of successor trustees to be responsible for the management and distribution of the trust assets should the initial trustee be unable to do so.An irrevocable trust is a good way to plan for financial protection of a minor beneficiary. If you have any questions regarding irrevocable trusts or planning for minors, please do not hesitate to contact us.