Many parents, grandparents or other family members wish to provide gifts to minor children, while retaining some control over the use of those funds. Perhaps dog-earing a monetary gift for educational or professional purposes, a family member desires to give a gift to a child, but is reluctant to do so without some formal designation or restriction on its use. Such giving raises some significant tax concerns. In order to qualify for an annual exclusion from gift tax, the gift must be of a “present interest,” and a standard transfer in trust would not qualify for such tax treatment. If not planned for properly, the donor could end up with an unexpected tax bill, presently or as part of their ultimate estate tax liability.
As every parent of a minor child has surely asked themselves, “Who will take care of the kids if something was to happen to me (or us)?” If this issue is not addressed directly, a court will determine the most appropriate individual to assume guardianship of children. As might be expected, this can result in difficult disputes among surviving family members and an emotionally traumatic experience for children, and ultimately it may result in guardianship granted to an individual or couple whom the parents would not have selected or approved.
Maintenance and Needs Associated with Child Rearing
As every parent understands, the cost and effort to raise children is tremendous. To state the obvious, children are not self-reliant or self-supportive. Accordingly, in the event of a parent’s death (or incapacity) there must be in place a means of providing for the needs of their children. These needs often include daily maintenance, health care, educational and recreational expenses, and college tuition). Appropriate planning often involved a revocable living trust or a testamentary trust—each of which place a designated trustee in charge of making important financial decisions.
Legal Minority: Inability to Own and Control Property.
Individuals under the age of eighteen cannot own property and cannot undertake many of the tasks associated with property ownership. Regardless of the very obvious concerns of actual maturity and experience, this legal limitation of minority creates very apparent hurdles for families with younger children.
In the event that property is transferred to children as part of an estate plan, without further clarification or planning, a court-appointed conservator would be designated to hold the property. While this indeed offers some actual protection to the child’s eventual legal right to the property, it creates some very difficult and problematic issues with respect to control and desired use of the relevant property.
Immaturity: Sometimes the Bigger Issue
In addition to the legal incapacity of a minor child to own and control property, there are very practical concerns with a young person’s lack of experience and their likely financial, emotional and social immaturity.
Where proper planning has not occurred, a probate conservatorship would be created, as discussed above. However, once the youngster reaches the ripe age of eighteen years, they will actually get the property—perhaps an even worse outcome than the conservatorship. This generates numerous concerns due to the child’s general immaturity, their likely susceptibility to undue influences and their station on life. Many children of this age are yet to even graduate from high school, much less prepared to prudently use any amount of significant money or property.