Trusts for Minor Children

Monday, August 13, 2007
Contributed by: Sharon E. White

I have a client who is a single parent with three minor children. She recently obtained a divorce. As a result, she came to me to revise her Will. During the course of our conversation, she said, "The value of my estate is over the amount that I can pass free of the estate tax (for 2007-08 that amount is $2,000,000), and so I guess I need the Will to create a trust for my boys." Whoa. Wait a minute.

If you have minor children, married or single, (a) you need a Will and (b) you need that Will to create a trust for minor children NO MATTER THE SIZE OF YOUR ESTATE. This trust is truly the best thing you can do for your children if something should happen to you.

A minor cannot hold property. If a minor inherits property, typically a guardian is appointed to hold that property until the child reaches age eighteen. Guardianships are expensive and time consuming. Furthermore, many parents would prefer that their children not receive a lump sum of money at age eighteen. The most common way to handle this situation is to provide in your Will that any assets that would otherwise go to a person under the age of eighteen will instead be held in trust for the benefit of that person.

There are two common ways to structure a trust for minors. One way is to provide that your assets will be divided into as many shares as you have children. So, my client could provide that, upon her death, her assets will be divided into three shares, one for each of her three children. Each trust would terminate when its beneficiary reaches an age over eighteen specified by my client. The other way is to provide that, upon my client's death, all of her assets will remain in trust for the benefit of her children until the youngest reaches an age over eighteen specified by my client. Although the second way will delay when her oldest child receives his or her share outright, it will assure that all of the assets are available until her youngest child reaches at least the age of majority.

Additionally, although a guardianship ends at age eighteen, the trust does not have to terminate at age eighteen. The trust can provide that it does not terminate until age twenty-one, or twenty-five, or forty, or whenever.

If you create a trust for minor children in your Will, you need to be certain that your life insurance beneficiary and the beneficiary of your retirement plans or individual retirement plans are "the Trustee named under the Last Will of you." It does little good to create a trust for minors if a guardianship has to be taken out to manage life insurance proceeds or retirement benefits.

Trusts are not just for the rich. They are effective tools that can, among other things, put you in control of who will manage the assets for the benefit of your children and when your children will receive their inheritance.

This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.