Setting Up a Trust For a Minor
At some point in your life, you’re bound to start thinking about estate planning. It’s never too early to get your affairs in order and make provisions for how you’d like to care for your loved ones should you die or become incapacitated. Often those who are exploring estate options will look to a trust as a way of setting aside money for their heirs.
Trusts are commonly used in conjunction with other estate tools. It’s an especially excellent idea if you are setting aside money for a young child with a minor trust.
Federal law allows you to set aside money for a minor that will be held in a trust for them until they are older. The idea behind the wait is that minors are often not capable of managing large sums of money and should not be given control of their trust until they are more mature.
There are a few restrictions on a minor’s trust. For starters, the trust can be set up gift tax free if the parent does not exceed an annual payment of $14,000. If the trust exceeds this amount, it is only eligible for a gift tax exemption up to $14,000. You could also establish a children’s trust as a testamentary trust. It would not be effective until you die. There are no gift tax limitations on a trust set up that way, although your estate might be subject to estate taxes. Additionally, any income made by the trust that is not distributed that year is taxed to the trust. However, there is no additional tax once the trust ends and the assets are distributed to the beneficiary.
A minor trust is a great option if you have young children and would like to make provisions for them. However, there are a number of estate and tax law concerns you should be aware of before setting up such a trust. To learn more or for assistance in arranging for a minor trust, contact the Florida estate planning attorneys at BaumannKangas Estate Law.