Leaving Gifts to Minors in Your Will
Your estate planning will can be used to address two major concerns if you have young children—who will raise them if you die, and who will supervise property you leave for them. For information on appointing a caretaker for your children, see Naming a Guardian for My Children. The supervision of property left for your children will be covered here.
While you want to provide the best financial support possible for your children, minors cannot legally inherit and own property without supervision beyond a minimal amount, usually less than $5000, depending on the state.
By law, an adult must manage any significant amount of property owned by a minor child, so you must arrange in your will for responsible supervision of any property your minor child might inherit. This includes all the property you leave and any other property they might acquire by gift or any other source.
The three commonly used methods for providing adult supervision for gifts to your children are easily put into place:
- Naming a custodian to manage the property, as authorized by the Uniform Transfers to Minors Act.
- Creating a family pot trust that will hold property left to all your children.
- Creating an individual child’s trust for each child.
The Uniform Transfers to Minors Act
The Uniform Transfers to Minors Act (UTMA) has been adopted in all states but South Carolina and Vermont. The UTMA authorizes you to name in your will an adult custodian and successor custodian to supervise property you leave to your children or other minors. The custodianship ends, and any remaining property must be turned over to the child outright at the age, of either 18 or 21, specified by your state’s UTMA law. In a few states you can choose 18 or 21, and in some, you can extend the age to 25. The custodian has broad authority to supervise the property with discretion to control the property in the best interest of the children.
You can decide if UTMA makes sense, depending on the age your state ends the custodianship, the value of the property, and the number of children. Another vehicle may be preferable if you want to keep the property together to benefit all of your children.
The Family Pot Trust
In every state, you can create a trust as part of your will to benefit all of your children. A trust is an instrument that creates a legal relationship between one person, the trustee, who owns or manages the property, and another person, the beneficiary, who holds the legal title to that property. With a family pot trust, all the property left to the trust beneficiaries, your children, is placed in the trust. One adult you name as the trustee manages the property. The trustee is not required to spend the same amount of the funds for each child. For example, if one of three children needs an expensive medical procedure, most, or even all, of the trust property could be spent on that child, leaving the others with little or nothing. This might seem unfair, but in real life, money rarely is divided equally among the children. The point of the pot trust is that the property that is left to the children is available for any child’s needs as the trustee determines. This cannot be done with gifts left under the UTMA or (as you’ll see below) with a child’s trust.
Another advantage of a pot trust is that the property placed in trust does not have to be divided. A separate trust for each child might require that a home or business be sold, which might not be in the best interests of all the children. A pot trust makes sense when your kids are young and fairly close in age. When the youngest child reaches 18, the trustee divides up the remaining property equally, with no option for the trustee to continue supervision until they are older. If you want your children to reach the age of 25 before getting the funds, a pot trust will not work.
The Child’s Trust
A child’s trust is valid in every state. This type of trust, like a family pot trust, can be created as part of your will but, unlike the family pot trust, allows you to specify the age each child must reach before receiving outright the property bequeathed in your will. You can provide that the property is supervised until an age when your child can sensibly manage the money. It can also be used to leave money to young adult children, although it is not intended for the lifetime property management. Most of these trusts end by age 35, and will do so if no other age is specified. Until your child reaches either the specified age or the age of 35, the trustee manages the property and can use it for the health, support, maintenance and education of the beneficiaries. The trustee has broad discretion to interpret these terms.
A child’s trust makes sense if you are leaving valuable property and you don’t want your children to receive it at 18 or 21. Also, if your children vary widely in age, the older children must wait until the youngest turns 18 for trust property to be distributed under a pot trust.
No court supervision is required with any of these vehicles.
Other Types of Trusts for Children
Other types of trusts can benefit children if none of these is suitable for what you have in mind. An estate attorney can help you find one that suits your needs.