Most younger adults do not have estate plans in place, and many of them are the parents of minor children. Some people are simply remiss, but there are those that are unprepared because they don’t know how they would leave an inheritance to a child that cannot handle money.
In this post, we will share some information on the subject so you can go forward in a fully informed manner.
Testamentary Trust and Life Insurance
If you are a young adult with a minor child and you don’t have a significant store of resources, you can still protect your family. Life insurance is the ideal income replacement vehicle, and term life is inexpensive for people in this age group.
One way to approach a situation like this would be to establish a testamentary trust, which is a trust contained within a will.
When you draw up the will, you name an executor as the administrator. They would be compelled to establish the trust for the benefit of the child after your passing. The executor can also act be the trustee, but this is not required.
You could take out a life insurance policy and make the trustee the beneficiary. If you pass away while the child is still a minor, the insurance proceeds would be transferred to the trust. The trustee would administer the trust until the child becomes an adult.
These trusts are frequently used in tandem with life insurance, but there can be other sources of funding. We should also point out the fact that you should nominate a guardian to care for your dependent child in your will.
Obviously, the arrangement would be different if you are married. However, a testamentary trust could be used as a safeguard in the unlikely event that you and your spouse pass away together at the same time.
Living Trust with a Subtrust
The revocable living trust is a very commonly used estate planning tool that is ideal for a wide range of people. You maintain control of the assets while you are living, because you function as the trustee.
Let’s say that you have a living trust, and you have one child that is a minor. You can create a subtrust within a living trust, and your child would be the beneficiary.
If you pass away while the child is still a minor, the trustee that you designate in the document would administrator the subtrust. They would use the assets to provide for the child in accordance with your wishes until the child is old enough to manage their own resources.
You would determine when the child can assume control when you establish the terms.
To be clear, the subtrust would not be active until and unless the triggering event (in this case, your death while the beneficiary is a minor) occurs.
Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts can be used to set aside assets for a minor. These are the names of two different legislative measures that carved out niches for custodial accounts for children.
The arrangement is similar to that of a trust. You contribute into the account, and a custodian administered it on behalf of the minor beneficiary.
These two different designations are the same with one deviation. A UGMA account will hold the securitized instruments that you would find in an individual retirement account. The UTMA account can hold these assets along with tangible property, including real estate.
Schedule a Consultation!
If you would like to work with a Hilton Head, SC estate planning alerts but a plan in place, call us at 843-815-8580 schedule a consultation. There is also contact form on the site you can fill out if you would rather sign of the message.