Leaving Your Inheritance To Minors
Legally, minors cannot own property or make contracts, and that may be the best reason to partner with an experienced trust attorney regarding such vehicles for minor inheritance. There are some other reasons as well, because settlors (people who make trusts) may want to create incentive for a certain event, such as graduating from college, or they may have concerns that younger heirs are less able to make sound financial decisions. Michigan law recognizes several different kinds of trusts that meet all these objectives, and each kind of trust has other benefits as well.
The Wolverine State has also enacted the Uniform Transfers to Minors Act, which can transfer money and other property directly to minors without the need for a trust.
Michigan has very few laws regarding trust formation. In fact, parole (verbal) trusts are even recognized, in some cases. Other than the intent to create a trust, the only requirements are:
- Settlor: The person who sets up the trust is sometimes called the grantor as well; settlors must have the proper mental capacity.
- Corpus: Paper trusts are invalid; only trusts that contain property are legally binding.
- Trustee: In many trusts, the settlor and trustee is the same person. The trustee has a fiduciary duty to manage the corpus in a way that helps the beneficiary.
- Beneficiary: This person has equitable title to the corpus and receives a direct or indirect benefit from the corpus; there can be more than one beneficiary.
Because the settlor no longer has legal title to the corpus in the property, but controls it nonetheless as the trustee, minor trusts have significant advantages. The reason there are different kinds of trusts is that there are different needs in different situations.
- Minor Trust: If the beneficiary is a minor, the trust usually provides that title reverts to the beneficiary upon a certain age, like 25, or a certain event, like college graduation. Most trusts also contain alternate provisions, in the event that the child does not reach the milestone.
- Spendthrift Trusts: In these arrangements, the beneficiary cannot spend the principal or borrow against it; some spendthrift trusts also contain provisions for “cutting off” the beneficiary entirely in some situations.
In addition to the duty to the beneficiary, a trustee has a duty to the settlor to account for the property in the corpus; the trustee must also file tax returns.
These transfers have almost no formal requirement whatsoever, except that the donor or transferor (person giving a gift or transferring property) must explicitly state that the transfer is subject to the Uniform Transfer to Minors Act; moreover, the transfer must occur before the child turns 18. In a UTMA transaction, the donor gives a gift to an adult custodian to hold until the child turns 18 or whatever age the donor specifies.
The money must be used for the benefit of the minor and the minor automatically assumes full legal title at the designated age. That latter provision is the one serious downside to UTMA transfers, so if the donor want to retain control over the money or property, a trust is preferable.
Reach Out to Dedicated Family Trust Attorneys in Grand Rapids
Persons wishing to make gifts to minors have several legal options. For a free consultation with an experienced Grand Rapids family trust attorney, contact the Law Offices of David L. Carrier, P.C. We have four offices in Western Michigan.