Which Kind of Trust Will Benefit Your Young Family Members the Most?
How can you make your estate plan benefit your youngest relatives when minors cannot directly inherit money? The parents of minor children confront this question when they are trying to build an estate plan to ensure the children’s financial security in the event that the parents die while the children are minors. Grandparents may also wish to designate some of their assets to go directly to their grandchildren, aside from the money they bequeath to their children, who may or may not use it for the grandchildren’s expenses. Trusts with minor children as beneficiaries are a reliable way to protect your children’s financial interests in the short term and the long term, as well as to help your grandchildren pay for college tuition and other expenses of young adulthood. Several categories of trusts are designed to dispense money to beneficiaries who were minors at the time that the trust was established. A Bronx estate planning lawyer can help you establish a trust for the benefit of your children or grandchildren.
Differences Between a 2503(b) and 2503(c) Trust
2503 is a section of the tax code that deals with trusts. It gives its name to two popular trust structures for minor beneficiaries. With a 2503(b) trust, the trust must dispense its income to the beneficiary each year. Once the beneficiary reaches age 18, he or she may withdraw money from the trust at his or her discretion, as long as the amount withdrawn in a year does not exceed the annual gift tax exclusion amount. When the beneficiary turns 21, the distributions begin to invade the principal of the trust, if they have not already started to do this.
With a 2503(c) trust, the main difference is that, when the beneficiary turns 21, the trust dissolves. If the beneficiary takes no action, the assets of the trust will pay out to the beneficiary as a lump sum. If the beneficiary wishes to continue receiving trust payments, the best option is to set up a Crummey trust and fund it with the payout from the 2503 (c) trust.
Family Trust, Also Known as a Pot Trust
It is possible to establish a single trust for multiple beneficiaries, especially if some or all of them are minors. This type of trust is called a family trust or pot trust. Until the youngest beneficiary turns 21, all of the beneficiaries get annual distributions from the trust. Once the youngest beneficiary turns 21, the trust liquidates its assets and pays out lump sums to all of the beneficiaries. It is a good way to ensure that all of your children or grandchildren get equal amounts of money, even if they vary widely in age.
Schedule a Confidential Consultation With a Bronx Estate Planning Attorney
An estate planning lawyer can help you set up a trust for beneficiaries who are still too young to appreciate the value of money. Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.
Source:
taxnotes.com/research/federal/usc26/2503/cp0t-0000003
