Can I Leave Money, Property or Possessions to Minor Children in a Will or Trust?

Leaving Assets to Minor Children

One of the more frequent, unintended consequences of  a poorly drafted will or passing away without as will is leaving a portion of your property or possessions to a minor child.  While the individual may wish for the child to have or own the property, Georgia law does not allow a minor child to own property directly.  Minor child is a defined as a child who is under 18 years of age and who has not been legally emancipated or married. This begs the question of how to leave property for to children if you should not leave it to them directly under your will or by operation of law when passing away without a will.

Generally, property left to minor children should be in the form of a guardianship or trust.  These arrangements appoint a competent adult to hold and manage the property or possessions for the benefit of the child.  The terms of the guardianship or trust are established by you in a formal document.  Similarly, you can establish a guardianship or trust in your will.

Guardianships and trusts are control by two sets of law: the Uniform Gift to Minors Act (UGMA) and the Uniform Trust for Minors Act (UTMA)

The UGMA 

The UGMA was enacted to provide a simple way to transfer property to a minor without the formality and complications of  establishing a trust. In other words, the UGMA allows an adult to hold property for the benefit of minor children without the restrictions applicable to a trust. Further, under Georgia law, a UGMA guardianship arises by operation of law when you inadvertently leave property to a minor child under your will or by passing away without a will.  Another characteristic is that gifts under the UGMA can be made both by lifetime gift as well as under your will.

The custodial property must be turned over to the minor when the minor attains the age specified in the UGMA law of the state in which the gift is made. In Georgia, you can choose any age between 18 and 21 years of age.  The default age is 18 years old.  An important point to remember is that, when you do not specifically provide for who will be the custodian of the property that you gift of leave to a child, the court decides who will be the custodian.  Typically, the court chooses the legal or physical guardian of the child. It is also a good idea to name a back-up custodian in your will in the event the original custodian passes away prior to the child reaching the age eligible to receive the property.

The UTMA

All 50 states also enacted a uniform transfer to minors act (UTMA).  The UTMA provides for the formation of a trust to hold the money, property, or possessions for the child’s benefit.  The UTMA is different from the UGMA is several aspects, the most important of which are the level of formality and lack of need for an appointed guardian for the minor child.  A trust under the UTMA is established by a formal trust document.  This document can be a stand-alone document or it can be done under your will.

Creating a trust for a minor under your will allows you to create and fund that trust at the time of your death.  This is commonly known as a testamentary trust.  Under the UTMA you transfer title to a custodian, similar to the role of the child’s guardian under the UGMA, who will hold and manage the property until the minor reaches a certain age, 18 to 21.  Like under the UGMA, the custodian can also make payments for the benefit of the minor out of the property or funds.  A good example is using the funds to provide for the needs of the child, such as food, shelter, medical care, braces, etc.

Decision:  The UGMA vs. the UTMA

The Trust is a more formal arrangement that a simple custodianship or guardianship of property under the UGMA.  In the legal document that establishes the trust, you can provide for requirements of the Trustee (person holding the property).  You can require reports at any frequency to an independent person or, in some cases, to be filed with the probate court.  The downside is that there is typically expense involved in a trust.  The Trustee may wish to be compensated in order to serve as trustee.  This cost, along with any accounting or legal costs, can drain funds from the trust.  For this reason, many people choose to leave the property under the UGMA, rather than forming a trust under the UTMA.

Custodial Accounts with Financial Instituations

You can choose to leave funds for a child via and arrangement with a financial institution.  This a commonly referred to as custodial accounts.  By definition, a custodial account is an account for the benefit of a minor child and managed by a parent or another designated custodian.

The custodial account is established under a particular state’s Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). The custodian controls the account until the child reaches the age of termination-18 or 21. When the child reaches the age of termination they take control of the account.  These accounts are usually a good way of providing for minor as they take advantage of many relevant tax and holding provisions, such as:

  • No contribution or income limitations
  • The first $950 of the child’s earnings are not subject to federal taxes (Note: Assets saved in the child’s name can reduce educational aid eligibility)
  • Withdrawals can be used for any purpose without penalty
  • Account qualifies for the annual $13,000 federal gift tax exclusion
Within Georgia, these accounts typically terminate when the child reaches 21 years of age.
Conclusion
Understanding the UTMA is very important when planning your will or other estate documents.  Many people belief the trusts and other holding arrangements are just for the very wealthy.  As you can read in the information above, a custodianship or trust can be beneficial to anyone with minor children.
Visit  www.GAWillsOnline.com today to begin planning your estate.
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