Many GoGo Estate customers have minor children (generally, kids under 18). Having been teenagers ourselves, we know that if our parents died and left us a chunk of money, we'd blow through it quickly. That is why every GoGo Estate trust plan includes a provision which locks up assets in trust until the children turn an appropriate age.
In this article, we will look at how these trusts for minor children (known generally as "testamentary trust") are created, how they work, and why they are important. But first, let's quickly review what a trust is in the first place.
Overview of Trusts
A trust is an arrangement of property ownership whereby the property owner (the settlor) transfers his or her interest (or their combined joint interests) in property to the trustee for the benefit of the trust beneficiaries. The trustee holds the trust assets in a fiduciary capacity for the benefit of the beneficiaries. This means that the trustee acts as guardian of the trust property and is required to abide by a certain level of due care and loyalty to the trust beneficiaries.
When a trust is created, the settlor relinquishes their ownership rights in the property to the trustee. Since the property is now owned by the trustee, the trustee is responsible for managing, administering, and distributing the trust assets in accordance with the terms of the trust instrument created by the settlor.
Note: if the settlors never transfer their assets into the trust, or if they don't give control over to the trustee, then there is no trust in the first place!
Trusts are used for a number of reasons. First and foremost, by law trusts avoid probate. This means that the assets held in the trust, or the assets to which the trust is a beneficiary, stay out of the court system. And, as a result, when the settlor dies, the trust beneficiaries have almost immediate access to the trust assets.
Second, and because the assets avoid probate, settlors oftentimes feel that it is of value to them to establish trusts within their trust. Why? Because the beneficiaries have no direct control over the assets held in trust. Instead, control and access to trust assets rests solely with the trustee of the trust. It is this feature of trusts that compels families with minor children to create trusts in the first place. So, with that in mind, let's look at how these trusts for minor children work.
Creating the Trust for Minor Children
The trust for minor children found within every GoGo Estate trust plan is funded (created) after the death of the settlor. While the provisions dictating how the trusts operate are found within the settlor's trust instrument, they do not exist until the settlor dies. So, when a customer creates a trust using GoGo Estate, they are not creating a trust for minor children at the outset. Instead, they are creating a trust for themselves with the expectation that a separate trust for minor children will be created after death.
When the settlor dies, if their children are under a predetermined age (i.e., 25 or 30), the assets held in the settlor's trust will be transferred and held in a separate trust for the benefit of the settlor's children under that predetermined age. To create the trust, the trustee of the settlor's trust will need to obtain a Tax Identification Number (an "EIN") by filling out Form SS-4 with the IRS. Once that EIN is obtained, the trustee will want to open a separate bank account for each trust created for the benefit of the settlor's minor children.
After the bank accounts are opened, the trustee will want to either liquidate or transfer assets in kind to the trusts for minor children. This can be done by transferring cash from the settlor's trust accounts into the bank accounts created for each minor child's trust, or the trustee could work with the settlor's financial advisor to establish investment accounts wherein the settlor's preexisting stocks are transferred. In either event, the EIN for each separate trust for minor children will need to be used on these respective accounts to prove ownership.
Once the trusts are created, the trustee can go about investing the trust assets and distributing trust assets to the beneficiaries.
Distributions from Trusts
Each trust purchased through GoGo Estate specifically states that the funds in the trusts for children may be used to provide for their education, health, support, and maintenance. This is the distribution standard that the trustee will follow prior to the beneficiary turning the predetermined age set by the settlor.