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Estate Planning for Minors in Charleston

 

Estate Planning for Minors - Wiles Law

Estate Planning for Minors

We all want what’s best for our children and it makes sense to have a plan for when we are unable to care for them or not around to do so. Whether you only need a will-based estate plan or wish to establish trusts for minors as well, our team can help you plan for your children’s future.

At a minimum, if you have children they should be protected with guardianship and listed as designated beneficiaries in your will. A will allows you to name beneficiaries and is the only way to designate a personal guardian for your minor children. If you do not have a will or do not name a guardian, the court will intervene to make decisions that it considers to be in your children’s best interests.

It is important to remember, however, that children cannot inherit property in their own name until they reach the age of 18. Therefore, you can also name a property guardian in your will to manage the children’s assets according to the terms of the document. Since South Carolina follows the Uniform Gifts to Minors Act, the children’s money will be placed in a custodial account for their benefit until the age of 21.

Often, the personal guardian is also the property guardian, unless the designated individual is not financially savvy, in which case it may be wise to separate the roles. Nonetheless, using a property guardian means the property must go through probate. Moreover, the guardian is subject to court review, reporting requirements and strict rules for how the funds can spent. Therefore, a well-conceived estate plan will also include establishing trusts for minors.

Trust for Children

Plan for your children’s future through a number of trusts for minors and other mechanisms especially designed to protect the welfare of children. Whether you have minor children whose future assets need to be managed, a child with special needs, or any other issues concerning your estate plan, we will provide you with careful guidance.

Types of Trusts for Children Include:

Section 2503(b) Trust

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Requires income to be distributed to the beneficiary annually, unless the child is under the age of 18 in which case the income is transferred to a custodial account and managed by the trustee. The child also has the right to withdraw money from the trust that is, at a minimum, equal to the gift tax exclusion. Finally, the trust can continue past the age of 21 and the principal held in the trust until the beneficiary reaches a specific age.

Section 2503(c) Trust

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Principal and income can be used for the child until he reaches the age of 21, unlike the 2503(b) Trust. The trustee can pay the child’s college expenses from the trust proceeds. When the child turns 21, however, the remaining trust proceeds are paid out, unless the beneficiary decides to extend the trust. A key factor in choosing a Section 2503(c) Trust is whether the child would be mature enough at 21 to handle the money responsibly.

  • Generally, an irrevocable Section 2503 Trust (b) or (c) qualifies a minor for the annual gift tax exclusion (the names are derived from the applicable sections of the Internal Revenue Code). The proceeds of a Section 2503 Trust are to be distributed for the child’s health, education, maintenance and support. The trustee manages and distributes the money until the trust terminates and is required to file an annual fiduciary tax return. The trustee must also maintain an accounting that details how the money is spent and ensures that the beneficiary is spending the money according to its intended purposes.

Special Needs Trust

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Also referred to as a Supplemental Needs Trust, this arrangement sets funds aside to be used for an individual with a disability or special needs while preserving that person’s eligibility to receive public health and disability benefits (e.g. Medicaid and Social Security disability). Because such programs require a recipient be both medically and financially eligible, a special needs individual or disabled person who receives a direct inheritance might lose his or her government benefits. The assets of an SNT are used to supplement day-to-day expenses.

SpendthriftTrust

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Set up to protect the beneficiary from frivolous spending and prohibit him or her from pledging the trust interest as collateral for a loan or debt. A trustee is appointed to manage the trust assets on behalf of the beneficiary and has full authority to make decisions about how the trust funds are spent. While a spendthrift trust can protect a child from creditors’ claims, it will not withstand a court order or judgment for child support or tax liens.

Family Trust 

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Families with young children may set up just one trust for all of them in an arrangement that is often called a pot or family trust. This type of trust can be set up in a will or living trust, and the trustee is authorized to distribute money from the trust to each of the children. The trustee is not required to spend the same amount on each child and has the discretion to determine what each child needs. When the youngest child reaches a certain age, usually 18, the trust ends. The main caveat to a family trust is that the older children cannot receive their shares of the trust property until the youngest child turns 18. This means that they may not acquire control over their inheritance until well into adulthood.

Other Considerations

In addition to ensuring that the money you intend your children to receive is well-managed and spent, there are other considerations such as planning for children. Whether you know you are pregnant with a special needs child or about to adopt one, or conditions arise, you must begin the planning necessary to prepare for your child’s future as early as possible. 

Even if your child’s condition doesn’t become apparent for several years (such as with many cases of autism spectrum disorders), or your child becomes disabled by an injury or disease that occurs later on, once you are aware of the problem, much serious planning is required as soon as the permanence of the disability becomes known.

Other ways Wiles Law will assist you in planning…

  • Assure you have the necessary medical and life insurance to design the trust
  • Enable your child to maintain a low enough income (since the trust is not “owned” by its beneficiary) to qualify for government assistance. Assure the trustee will be able to pay for extras like restaurant meals, entertainment costs, and vacations, not sustenance.
  • Establishing a conservatorship and/or guardianship for your child. This means you will assign a person or entity to take over responsibility for your adult child’s finances as conservator, or to care for her personal and healthcare needs as guardian, if you become incapacitated or die.
  • Protecting inheritance from public benefit status such as Social Security Disability Income (SSDI), Supplemental Security Income (SSI) or Medicare.

 

How does an SNT work?

A (SNT) holds assets for an individual with a physical or mental disability or chronic illness. A properly structured SNT will ensure that the trust assets are not counted as resources for purposes of obtaining government benefits. Such assets include:

  • A home — Owning a primary residence does not disqualify a loved one from receiving SSI, although the property’s value may be limited if the beneficiary only receives Medicaid.
  • A motor vehicle — The beneficiary of an SNT is permitted to own one motor vehicle of any value and still receive SSI.
  • Home furnishings and personal effects — Unlimited definition of personal effects. Any possessions the special needs beneficiary retains in the home are not counted as an asset.
  • Property essential for self-support — Property that is used for work, either as an employee or for running a business. The value of these items is limited, however, based on a number of factors.
  • Assets to attain an occupational goal — Recipients of SSI can use certain assets under the SSI PASS Program to assist with attaining an occupational goal, such as college, vocational training, or starting a business.
  • Burial and life insurance policies — Cash surrender values less than $1,500 and burial insurance policies of any value.

A properly structured SNT must be irrevocable. This means that it cannot be changed or modified during the lifetime of the person making the trust. Additionally, an SNT must include a provision stating that the trust assets are not intended to provide basic levels of support and will only be used for permissible supplemental benefits and services, including:

  • Personal care attendants
  • Educational and recreational activities
  • Out-of-pocket medical and dental expenses
  • Physical rehabilitation
  • Medications not covered by benefits
  • Insurance
  • Special dietary needs
  • Vacations 

Types of Special Needs Trusts

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3rd Party Trust- This is the most common trust as the assets are owned by someone other than the beneficiary, such as a parent. The assets are also managed by a trustee who is charged with fulfilling the terms of the trust. It is crucial for the individual named as trustee to be capable and reliable. Ultimately, a trustee has a fiduciary duty to always act in beneficiary’s best interest. Therefore, a trustee can be held liable for any mistakes or misconduct.

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1st Party Trust- Typically utilized when a disabled individual receives money through a legal settlement, retirement funds, life insurance proceeds or an inheritance. A properly structured first party SNT will hold these assets while preserving the special needs person’s eligibility for benefits.

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