If you are the parent of a young child, your child’s financial security is probably a primary goal within your estate plan. Knowing that your child will be well cared for if something happens to you provides invaluable peace of mind to a parent. As a minor though, your child will need someone to guard and manage that inheritance for him/her. This kind of planning is a big part of what we do at Clarity Legal Group®. Our Raleigh, Durham, Chapel Hill area estate planning attorneys work with our clients to define asset protection and management tools to ensure the protection of your child’s inheritance.
Including Your Minor Child in Your Estate Plan
A minor child cannot inherit outright in North Carolina. This is true regarding of how you plan. For very modest estates, a Will might specify that an inheritance be directed to a custodial account arrangement under the North Carolina Uniform Trust for Minors Act (UTMA) for your minor child. However, such an arrangement gives little guidance as to how the money is to be used and is inappropriate if there is a chance that there will be a significant portion remaining when the child turns twenty-one (or 18 if there are not adequate instructions in the Will). Furthermore, if there is not a clear direction in the Will, this transfer will have to be approved by the Court if more than $10,000 is included.
A better option is to create a trust which allows you to decide who will manage your child’s inheritance. A Living Trust will ensure that what you have left is divided and managed according to your wishes as defined in a Trust Agreement prepared by your estate planning lawyer. Most people with minor child or children who take the time and effort to plan, do so with a specific and thoughtfully crafted trust arrangement for their child, identifying a person to serve as Trustee to manage the inheritance and use the money for the children. A Revocable Living Trust should serve as the centerpiece of your estate plan in this case because the Living Trust will host and serve as the foundation of the trust arrangements under which you child or children will inherit.
A trust offers you the option to use the trust terms to retain a significant amount of control over how the trust assets are used even after you are gone.
How Does a Trust Work?
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. For the parents of a young child, the most important aspect of a trust is the ability to choose the Trustee who will manage, invest, and distribute the assets held in the trust.
Managing Your Child’s Inheritance
If you do decide to create a trust to guard your minor child’s inheritance, you will need to choose a Trustee for that trust. A Trustee has numerous duties and responsibilities during the administration of a trust; however, the primary job of a Trustee is to manage the trust assets and distribute those assets according to the terms you create. If you are creating a trust to hold the inheritance you plan to pass down to your minor child, some questions to ask yourself include:
- Will this person honor your wishes without question? The law requires a Trustee to abide by the trust terms as written by the Settlor without regard to how the Trustee feels about those terms. Nevertheless, a Trustee can insert his/her disagreement with those terms in many ways. One way is through the discretionary decisions a Trustee almost inevitably must make. Choose someone who will honor your wishes and further the trust purpose as stated by you, even if they don’t agree.
- Does the individual have legal and/or financial experience/skills? Your Trustee will need to understand the applicable laws and financial concepts required to successfully administer the trust. If you do not have someone in mind that fits that description, appointing a professional Trustee may be a better option.
- Will appointing the individual create conflicts? Try to appoint someone who is not likely to have a conflict of interest with the trust beneficiaries.
- Is your proposed Trustee willing and able to serve? All too often a Settlor appoints a Trustee without ever sitting down with that individual and asking if he/she is willing to serve in the position. There are a number of legitimate reasons why someone might not feel comfortable serving, including the possibility that they might be grieving your loss and emotionally unable to handle the job or that they do not feel comfortable accepting the role because they lack the requisite skills.
Contact a Clarity Legal Group® Estate Planning Attorney
At Clarity Legal Group®, coaching you through issues such as how to leave an inheritance for a child is what we do. If you have additional questions or concerns about choosing the right person to manage the inheritance you leave behind for your minor child, please contact a Raleigh, Durham, Chapel Hill area estate planning attorney at Clarity Legal Group® by calling us at 919-484-0012 or contact us online.
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