If you leave property to your minor children at death, the minor children will not be able to manage it themselves. The minor children will generally either need a trustee or custodian to watch over the property until that minor reaches a certain age. Very often the person watching the property - a custodian or trustee - is also the guardian of the children, and commonly this is the other living spouse. If the other spouse is deceased, in jail, or ruled unfit for some reason, the guardian, and custodian or trustee, would have to be some other person. The following covers a few common options for managing this property while the children reach adulthood.
One option uses the Uniform Transfers to Minors Act - adopted by most states. The Uniform Transfers to Minors Act allows you to designate a custodian in your will, or living trust, that watches over the minor's property until the minor reaches a certain age specified by the state. Essentially, you have to identify in the will or trust: the minor; the property; the custodian; and state that the custodian must act under the Uniform Transfers to Minors Act for your state. Under the Uniform Transfers to Minors Act, the custodian has wide latitude to manage this property and can take reasonable fees for their efforts.
Two other common methods involve trusts. They are named Child Trusts and Family Pot Trusts. Similar to a Uniform Transfers to Minors Act transfer, they are also created in wills or living trust. Generally, a Child Trust allows more flexibility than the Uniform Transfers to Minors Act because you can specify certain duties for the guardian and you can specify an age other than the state's specified Uniform Transfers to Minors Act age - for example, you could pick 25 or 30 as an age when the child can gain control of the property. The Family Pot Trust is similar to a Child Trust but it combines the funds for multiple children. It also tends to work better when the children are close in age, otherwise you would want a Child Trust for each individual child.
There are some things to keep in mind when deciding between Uniform Transfers to Minors Act and a Child Trust or Family Pot Trust. The fees a Child Trust or Family Pot Trustee may charge can be higher than the Uniform Transfers to Minors Act custodian fees since there may be more customized instructions in the trust. The differences in tax rates between Uniform Transfers to Minors Act property and Child Trust or Family Pot Trust property varies. The age at which you want the property to become available to the child noteworthy because while trusts allow you to pick an age, the Uniform Transfers to Minors Act age is set by the state. The amount you are leaving can play a role as well. Of course, the most common reasons for choosing a trust over a will are that a trust remains private and seamless after death, while wills are public and may last months or years, and result in many thousands of dollars in probate costs. So, the benefits of the specification and privacy of these trusts come with a cost that you have to decide whether you are willing to pay.
Finally, although not the preferred method, you should at least name a property guardian in your will for the kids in case they receive any property that falls outside of the Uniform Transfers to Minors Act guardian or trust. There is a lot of court supervision with this method, requiring frequent filings by the guardian. The other methods mentioned prior to this are preferable to this option.
To find out which methods best fit your particular situation talk to an estate planning attorney in your state.
Windy City Esquire is an estate planning law firm in Chicago. Nick Wroblewski is the owner of Windy City Esquire, Ltd. They provide estate planning and business planning services. If you have questions, visit http://www.windycityesquire.com/.
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