Creating a children’s trust fund is one of the most practical estate planning strategies. This type of trust can be used to provide educational funds and cover the cost of living and medical care, as well as to protect inheritance gifts.
Due to the fact that there are different types of children’s trust funds, it is advisable to speak with an estate planning law firm. Lawyers can offer guidance on the most appropriate strategies for overall goals, as well as help individuals achieve tax savings.
For the most part, parents make use of college trust funds or probate trusts. Both offer tax advantages to minor children and are administered by a designated Trustee.
College Trust Funds
Those who establish college trust funds should inquire about the gift tax exclusions. A crucial factor is that tuition must transfer from the fund to the school in order to receive the exclusion.
Another factor is that the university must be a qualified institution to provide formal education. Qualified educational institutions include accredited public and private universities, career schools, and high schools.
Currently, the IRS gift tax limit is $ 14,000 per person per year. However, the IRS does not limit the amount of financial gifts provided for educational tuition and health care expenses as long as the recipients meet the criteria in the guide.
Anyone providing financial donations for college funds should speak with a tax attorney to ensure they meet IRS requirements. Otherwise, they could face tax consequences.
Although college savings trusts are the most widely used, there are other ways to protect the money and assets of minor children. Some of the most popular include probate trusts, Section 2503 (b) trusts, and Section 2503 (c).
Testamentary trusts are a little different than most others. People prepare a last will and testament to establish trust at the time of death. Inheritance cash gifts are managed by a trustee until the beneficiaries become adults.
Probate trusts are one of the best ways to ensure that children are financially secure if their parents pass away. The downside to using this method is that the trust is not exempt from probate, as it does not take effect until after death.
That said, will creators can use estate planning strategies to avoid probate or simplify the process. These include things like designating beneficiaries to receive financial investments, real estate, and other types of titled property.
Mandatory income trusts for minors
Section 2503 (b) is an irrevocable trust that provides annual income for the care of minor children. The funds are held in a custodial bank account and are managed by a trustee until the beneficiaries reach adulthood. Once established, the terms cannot be modified without judicial authorization. Therefore, it is important to work with a probate attorney to ensure compliance and avoid future problems.
Section 2504 (c) is another type of children’s trust fund that protects inheritance gifts and meets the gift tax exclusion until beneficiaries turn 21. The distributions are subsequently taxed at fiduciary rates.
Additionally, a Crummey Trust can be established for those who need to obtain the gift tax exclusion after age 21. This is beneficial for students who attend law or medical school or those who enroll a few years after graduating from high school.
There is no question that creating a children’s trust fund can provide financial security. That said, trusts must adhere to the guidelines to avoid tax consequences. Getting help from an estate planning expert ensures that assets are fully protected and qualify for the gift tax exclusion.