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Yes, this is possible, however a person who is not an adult in the eyes of the law cannot handle their own finances. If you were to use a will to leave an inheritance to a child, it would include provisions for a testamentary trust for the minor child and trustee to manage the trust assets until they reach the age of majority. This person or another individual that you designate would also act as the guardian of the minor child. When the court appoints a guardian to assure the personal well-being of someone, the person being cared for is referred to as a ward. It is not unusual to appoint different people to handle the money as trustee and another to serve as the caretaker of the ward. The probate court would be forced name a guardian if you do not designate one in a simple will
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You can establish a revocable living trust to serve as the centerpiece of a comprehensive estate plan that is not strictly focused on minor children. While you are living, you would be the trustee, so you would maintain complete control of the assets in the trust. When you are drawing up the trust, you would name a successor trustee to act as the manager of trust assets after your passing. The trustee would also be responsible to seeing that the terms of you trust are carried out. Those you name in your trust would be the beneficiaries. A minor child could be the beneficiary of a living trust. After you are gone, the trustee would distribute assets to the adult beneficiaries in accordance with your wishes. They would manage assets on behalf of the child beneficiary until the child is old enough to directly own property. Another possibility is creating a testamentary trust as we discussed earlier. This is a trust that would be embedded within a simple will, and it would go into effect after your death.
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Yes, you can make a living trust or a testamentary trust the beneficiary of a life insurance policy. In fact, life insurance is the ideal income replacement vehicle to protect your loved ones if you were to pass away before your time.
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The custodial account for minor children became possible when the Uniform Gifts to Minors Act (UGMA) was created in 1956. It allows a parent or another adult to put money into an account for the benefit of a child. The child will become the owner of the assets when they reach the age of majority. In 1966, the UGMA was revised to reflect then-current circumstances, and the Uniform Transfers to Minors Act (UTMA) replaced it to a large extent 20 years later. What’s the difference between the two types of accounts? The UGMA account can hold financial products like stocks and bonds, but the UTMA account can contain other types of property, including real estate, collectibles, vehicles, etc. All states in the union are now using the Uniform Transfers to Minors Act with two exceptions. Vermont and South Carolina have failed to adopt the UTMA, so people in these states are restricted to UGMA accounts.
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The answer to this question is not necessarily. When the child reaches the age of majority, they can use the assets for any purpose, including college expenses. However, there is another option that would probably be preferable if this is the objective. There are 529 accounts that are strictly used for educational expenses. They were traditionally designed to allow account holders pay higher education costs, but the rules have been revised. Now, up to $10,000 per year can be used to cover K-12 expenses. You cannot change your mind and take back assets that you convey into a UTMA custodial account, but you can do this if you have a 529 account. Plus, you can change the beneficiary if the initial beneficiary does not use all of the funds. From a tax perspective, the earnings are not taxed if you have a 529 account, but custodial account earnings above $1100 are subject to taxation. As long as withdrawals are spent to cover approved educational expenses, 529 account distributions are not taxed. There is also a student aid advantage if you use a 529 account. The aid reduction would be less than six percent, and it would be between 20 and 25 percent if you establish a custodial account.
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We Are Here to Help!
If you are ready to work with an Oklahoma City estate planning attorney to develop a plan that is ideal for you and your family, we are here to help. You can send us a message to request a consultation appointment, and we can be reached by phone at 405-843-6100.
