Trusts With Minor Beneficiaries
A lot of people like the idea of spoiling their grandchildren. When kids cannot hide their disappointment at the fact that you bought them clothes instead of a toy for Christmas, it does not come across as ingratitude in nearly the same way as when an adult expresses displeasure toward a gift. A child’s future is bright if only because of the child’s age, and your generosity can help protect the child from the worst things the future has to offer. At that same time, it is not hard to see how it is a recipe for trouble when a young person receives a windfall. Setting up a trust for a young family member is a reliable way to ensure that the beneficiary’s material needs are met, more reliable than simply handing a lump sum to a young adult or the guardian of a minor child. A Tampa estate planning lawyer can help you establish a trust for a child in your family.
What Kind of Trust Should You Set Up for the Children in Your Family?
Minors cannot directly inherit money. Therefore, if you leave money to them in your will, the children’s guardian will have to use the money for the children’s benefit and be subject to court oversight in doing so. It makes more sense to establish a trust with the children as beneficiaries, especially if the beneficiary is your grandchild or any other family member besides your own minor child. Setting up a separate trust for your grandchild is a great way to have the best of both worlds. You can provide some money for your children and some other money for your grandchildren, even if there is a noticeable generation gap regarding how each beneficiary chooses to use the money.
2503(b) and 2503(c) trusts are popular options when you want to set up a trust with a minor as a beneficiary. Both types of trusts pay distributions on the trust’s income on an annual basis until the beneficiary turns 21. The difference is in what happens on the beneficiary’s 21st birthday. A 2503(b) trust pays out the principal in annual installments from the time the beneficiary turns 21 until the principal runs out, whereas a 2503(c) trust pays out the principal in a lump sum.
Another option is a pot trust, also known as a family trust. This trust has multiple beneficiaries, and it pays them distributions in annual installments until the youngest beneficiary turns 21. Once the youngest beneficiary turns 21, the trust is dissolved, and each beneficiary receives an equal lump sum. A family trust is a good way of promoting family togetherness and to ensure that at least some of the beneficiaries are mature enough to receive a windfall when they receive it.
Contact David Toback With Questions About Trusts for Young Beneficiaries
A Central Florida estate planning lawyer can help you set up a trust to create generational wealth. Contact David Toback in Tampa, Florida to set up a consultation.