Testamentary Trust

Testamentary Trust for Minors

A Trust is a contract. It is a document where one person (a trustee) holds property on behalf of another (the creator) for the benefit of somebody (the beneficiary).  Trusts can be structured in different ways and can provide for varying arrangements with respect to the assets contained therein.  A Testamentary Trust for Minors is created with the intention of protecting assets for a child and is done within a Last Will & Testament. This type of Trust takes effect upon your death within the context of a probate proceeding.  Upon your death, after your Will is probated, all the assets that pass by your will (or probate assets) that are designated to your minor beneficiary will be transferred to an account in the name of that minor’s trust and will be managed by your named trustee. The trustee will continue to manage the account until the end date you delineate for the trust.

Why Do I Need a Testamentary Trust for Minors?

When leaving money to a minor, it is important to make sure that there is someone ready, willing and capable of managing the inheritance on behalf of the minor until they reach the age of majority (or older if you so designate)  In New York, once someone attains the age of 18, they are considered an adult.  As such, at the age of 18 they can manage their own money.  

Important: If you leave money for a minor who is under the age of 18, that miner will not be able to collect the money until they are 18 on their own. In order to collect their money, they will need to have an SCPA Article 17 Guardian of the Property appointed to act on their behalf. Once the Guardian is appointed, the Guardian will have to collect and deposit the money into a joint account with the Clerk of the Court. Funds that are jointly deposited with the Clerk of the Court cannot be invested and cannot easily and readily be withdrawn. In fact, they can only be withdrawn with a Court Order. 

You may not want to have a Guardian of the Property appointed. You may also not want to limit the investments or withdrawals for your children until they are 18. If you want to avoid this result, you will need to create a testamentary trust for your minor child. 

You can also use testamentary trusts to delay distributions to your children. Indeed, you may feel that age 18 is too young to manage funds, especially if you are talking about a large sum of money and would prefer a trustee to manage the funds until the minor reaches an older age, such as 21, 25 or even older.  You can set the guidelines in the Testamentary Trust for Minors.  You may want to impose restrictions for what the minor can use the funds for (eg: only for college, or room and board, or education). You may want to make sure your minor beneficiary does not waste away his/her inheritance. For example, the trust can direct that the Trustee can only use the funds for the things such as schooling or healthcare or only make distributions upon the happening of certain events.  

How is the Trust Created?

Testamentary Trusts for Minors can be considered during consultations about your estate plan.  The Testamentary Trusts for Minors, common estate planning strategies for new and young parents, can be established within a Will.  In doing so, the Will establishes how much money is to be set aside upon your death for the minor, who the trustee will be to manage the money, what if any rule or restrictions will be placed on the money in the Trust, and at what age your minor beneficiary will receive his/her money. You can also decide whether the minor can get income during the course of the trust term. The Testamentary Trust actually becomes active after the Testator’s death. 

Can I do Without a Testamentary Trust?

There are ways to avoid the use of a Testamentary Trust for Minors but they may not be as effective.  For example, in New York there is the Uniform Gifts to Minors Act (UTMA) which allows a parent to establish a bank account on behalf of his/her child.  This type of account can be set up at your local bank.  However, as soon as the minor reaches age 18, he can access all of the funds.  In addition, you cannot set any guidelines for use of the funds.  Similarly, if you do not wish to designate any restrictions and do not care if your minor beneficiary inherits at age 18, you can list them as a beneficiary on your account.  Another alternative might be to create a living trust to manage assets for your minor beneficiary.  This type of trust is similar to a testamentary trust .  However it is created during your lifetime and it will not be necessary to wait for court approval through a probate proceeding to manage the funds.  Any assets listed with joint account holders or beneficiary designations will not be governed by the Testamentary Trust provisions.

We can help you determine whether a testamentary trust makes sense for you, or, alternatively, how to do without a testamentary trust.

For more information, please contact Guardianship, probate and estate planning attorney Regina Kiperman:

Phone: 917-261-4514
Fax: 929-556-2089
Email: rkiperman@rklawny.com

Or visit her at:
40 Wall Street
Suite 2508
New York, NY 10005

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