A trust offers a legal way to benefit minor children. When setting up a trust for your child, it’s important to understand trust laws and how trusts for minor children work. As a general rule of thumb, you never want to fund a trust with income you cannot afford to donate. Because trusts are almost impossible to contest in court, your child is guaranteed to receive benefits without a legal dispute.
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Create a trust for minors. Federal law allows for two types of trusts for minors: Section 2503(b) trust and Section 2503. Section 2503(b) pays the trust’s annual income to your child every year, which you can then deposit into a custodial account until your child turns 18 years of age. Section 2503 trust pays your child up until the age of 21, at which time your child can extend the trust.
Create the trust in your child’s name, such as "Johnny Smith Trust.” The trust name will appear on all trust documents including the trust deed and any bank accounts that are established in the name of the trust.
Identify yourself as the granter, which is the person who creates the trust. Appoint a trustee, which is a person who manages the trust and distributes the trust’s income and assets according to the instructions of the trust. Select a trusted attorney or financial adviser as your child’s trustee.
Create instructions for the trust. For example, make your child’s first payments conditional on him attending college or limit payments to a specific sum of money on a rolling basis.
Fund the trust with heirloom property and income. Re-title each asset—which clears you of any ownership—over to the trust. Fill out an Agreement for Sale to complete the retitling process. Fill out a Purchase and a Deed of Acknowledgment of Debt document to loan your child’s trust the money needed to pay for your assets.
Tips and warnings
- An attorney or title company can assist you in setting up a trust for your child.
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