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Estate planning can seem overwhelming and confusing, especially when it comes to leaving assets to minors. Often, parents or grandparents want to include children in their estate plan and leave an inheritance for them. Yet, how can you give a gift to a minor and ensure that they will get it? Can you be sure that your gift won’t be subject to taxes or interference from other family members?
Before you finalize your will or estate plan, consider these tips for protecting your gift to a minor.
Leaving a Gift to a Minor – The Basics
Unfortunately, leaving a gift directly to a minor can sometimes be challenging. In many jurisdictions, you cannot gift a child an asset or inheritance. In most places, an adult must oversee managing significant sums of money or property on behalf of a minor. When an adult is in charge of managing the finances or assets, you may not always feel confident that the gift you provided is being used appropriately or in your intended manner.
However, that doesn’t mean that you can’t provide for a minor. There are ways to structure gifts so you feel confident that the recipient will benefit from your generosity.
Set Up a Trust
One option for leaving a gift to a minor is establishing a trust fund. A trust gives you flexibility regarding how your gifted funds are used and when a minor can gain access. Trusts can be revocable or irrevocable. Depending on the form of trust you choose, while you are living, you can manage the trust yourself and make changes as you see fit. A Prince William County estate attorney can help you decide which type of trust is right for your situation.
Another viable option for making gifts to minors is to establish a custodial account. A custodial account needs to be set up under the Uniform Transfers to Minors Act or the Uniform Gifts to Minors Act. These laws allow a person to donate gifts to a minor, which will remain under the control of a custodian until the child reaches adulthood. The person listed as the custodian will decide how the money is invested on behalf of the minor. Typically, a parent will serve as the custodian of the account, but the assets in the account must be turned over to the minor when they turn 18 or in some cases, 25.
Would you prefer your gift to be used for educational purposes? Then you may want to consider a 529 account for a minor. A 529 account is a tax-favored education savings plan. These plans are not subject to state or federal income taxation. As long as all account withdrawals pay for qualified educational expenses, those withdrawals will be tax-free. A 529 account can be maintained by a beneficiary or the donor to the account. Some 529 programs even allow friends and family members to contribute gifts to the 529 plan electronically.
A Prince William County Estate Attorney Can Help
Have more questions about how you can ensure that your gift is properly and securely left behind to a minor child? Talk with our experienced estate attorneys about your options. We can address your concerns and advise you of all your choices, allowing you to make informed decisions about your finances and family’s future. To schedule a consultation at our Prince William County law firm, simply call 703-492-9955 and mention this blog post.