One of the important aspects of estate planning in Minnesota is planning for children. Unfortunately, new parents often put off estate planning thinking either that they have time to create a plan or they haven’t acquired significant assets. But children are your most precious asset, which makes planning for them crucial.
At Guttman Law, PLLC, we advise parents from all walks of life, including single adults and same-sex couples, on planning for children. Whether you have minor children you wish to provide for, a child with special needs, or any other concerns about your children’s future, trust our experienced estate planning attorneys to provide you with reliable advice and guidance.
Contact our Edina office today to schedule your initial consultation.
How a Will Protects Your Children in Minnesota
A will is the most basic estate planning document that establishes how your assets will be managed and distributed upon your death. It is important to remember that minors cannot receive an inheritance until they reach the age of 18. Therefore, it is necessary to appoint a guardian to manage the property according to the Uniform Transfers to Minors Act (UTMA) whereby the children’s money is placed in a custodial act until they reach the age of 21.
In addition to establishing a UTMA trust, a will allows you to name a personal guardian to care for your minor children in the event you and the other parent pass simultaneously. Often, the personal guardian is also the property guardian, but it is possible to separate the roles. Without a will, the court will intervene to appoint a guardian who may not share your beliefs about raising children.
Minnesota Trusts for Children
At Guttman Law, we advise parents on how to establish trusts for their children under Section 2503 of the Internal Revenue Code. The proceeds of the trust are to be distributed for the child’s health, education, maintenance and support by the trustee until the trust terminates. There are two types of trusts available for this purpose:
- Section 2503(b) Trust –In this arrangement, income is distributed to the beneficiary on an annual basis, unless the child is under the age of 18. As mentioned above, the income is held in a custodial account and managed by the trustee. Children who are of age are allowed to withdraw money, up to the annual gift tax exclusion, which is currently $15,000. Finally, you can set up the trust to continue past the age of 21 and require the principle to be held in the trust until your children reach a specific age.
- Section 2503(c) Trust — Unlike a 2503(b) trust, this planning tool allows principal and income to be used for the children until they reach the age of 21. For example, the trustee can pay the children’s college expenses from the trust proceeds. The remaining proceeds are paid to the children when they reach the age of 21, unless the beneficiaries decide to extend the trust.
The trustee has a number of responsibilities, which include maintaining an accounting of how the money is spent, filing an annual fiduciary tax return, and ensuring that the beneficiary is spending the money for its intended purposes.
Planning for Children in Minnesota: Other Considerations
In addition to naming guardians and establishing 2503 Trusts for your children, you may have other concerns, such as providing for a child with special needs or one who is not capable of managing money. At Guttman Law, we regularly assist parents with establishing the following types of trusts specifically for such circumstances.
Special Needs Trust (SNT) or a supplemental needs trust allows you to set aside funds for a child with a disability or special needs while preserving his or her eligibility for public health and disability benefits (e.g. Medicaid and Social Security disability). Because such programs require a recipient to be both medically and financially eligible, a child who receives a direct inheritance could lose his or her eligibility for these vital benefits. The proceeds of the trust are to be used for supplemental day-to-day expenses, such as:
- Uncovered medical expenses
- Therapy and rehabilitation services
- Education and training
- Recreation and entertainment
- A car
- A home (up to a certain value)
- Burial and life insurance policies
If you have children who may not be capable of managing money, a spendthrift trust allows you to appoint a trustee to manage the assets on their behalf. The trustee is authorized to make decisions about how the proceeds are disbursed and spent. The trustee can make direct payments to a child over the age of 18 or pay his or her expenses instead.
Contact Guttman Law for Advice on Planning for Children in Minnesota
Our firm is dedicated to helping individuals and families protect their financial futures. Knowing that planning for children is an important component of estate planning, we will work with you to establish a will-based plan or establish trusts that will provide for your children when you are no longer around to do so. Trust our experienced attorneys to help you with all your estate planning needs. Contact us today to learn how we can help.