If you’re a parent — or grandparent — of one or more young children, you may want to consider setting up a minor trust for them. A minor trust allocates money or property to an established beneficiary once they reach adulthood.
You can create any kind of trust for your child(ren). Here are five common types of minor trusts:
An education trust funds a beneficiary’s school expenses. It covers university or vocational school tuition as well as living expenses and books.
Special Needs Trusts
A special needs trust lets an individual with a chronic illness or disability receive funds to supplement their SSI (Supplement Security Income) or Medicaid benefits.
Parents who create a Crummey trust want to provide their children lifetime monetary gifts while guarding the funds against taxes. This trust is the namesake of Clifford Crummey, a taxpayer who invented it. From 1962 to 1968, he fought to have his annual gifts exempt from taxes.
Generation-skipping trusts are popular with grandparents since assets are transferred to their grandchildren instead of their children. That way, the grantor’s children wouldn’t have to carry the burden of estate taxes.
As its name suggests, a spendthrift trust prevents a beneficiary from adopting unhealthy spending habits. For example, a parent sets it up so that their child receives funds on a monthly basis instead of in one lump sum. In addition, a spendthrift trust can be revocable or irrevocable.
It’s essential for you to ensure your child(ren)’s or grandchild(ren)’s financial well-being. And one of the best ways to do so is by establishing a trust for them. Reach out to experienced legal guidance to get your questions about minor trusts addressed.