Setting Up a Trust for a Minor

When minors or young people inherit property before they can manage it on their own, it’s wise to have someone look after those assets for them. Creating a child’s trust is a good way to do this. You can create a child’s trust in your will or living trust to name a responsible person to manage a child’s property and use it for their health, education, and other needs. You also get to decide when the trust ends. At that point, any remaining assets go directly to the child.

There are four main types of trusts for minors and other young people: testamentary trusts, children’s subtrusts within a living trust, pot trusts, and special needs trusts. This article covers the first three. If you want to leave property to a young person with disabilities, see What Is a Special Needs Trust?

Why Set Up a Child’s Trust?

If you leave a large amount of property to a child without naming someone to manage it, a probate court will have to appoint a property guardian. Usually, this is the child’s other parent, but not always. Court-appointed guardians often have limited authority and must file regular reports with the court, which can be a hassle.

Setting up a trust for a minor lets you protect your child’s future by choosing someone you trust to follow your instructions. You can decide how and when the trust assets are used, and at what age or under what conditions your child will get any remaining funds. If you want, you can also give your trustee the flexibility to handle unexpected situations, so the child’s needs are covered if circumstances change.

What Is a Testamentary Trust?

A testamentary trust is a type of trust that you make in your will. It takes effect when you die, and the terms of the trust are set out in the will itself. You are free to change the testamentary trust at any time during your life, but you will have to update your will to do so. Most testamentary trusts are established to provide for minor children or young adults.

How to Set Up a Testamentary Trust for a Minor

When you write your will, you can set up a testamentary trust for young beneficiaries who aren’t ready to receive assets directly. This lets you name a trustee to manage and use the property for the child’s benefit until they reach the age you choose.

To set up a testamentary trust, you’ll decide which assets you want in the trust and who the beneficiaries are. In your will, you’ll also describe what the trustee can do, such as using trust assets for the child’s education, healthcare, and daily needs. Two of the most important choices you’ll make are picking the trustee and deciding when they should stop managing the trust.

Choosing a Trustee and an Alternate

Pick a trustee who is reliable, honest, and good at managing resources. It helps if they live near your child. To keep things simple, you might choose the same person who would care for your child if you pass away, like the other parent or the person you’ve named as guardian.

If that person isn’t the best choice to manage your child’s inheritance, pick another trustworthy adult who can handle the assets and cooperate with the child’s guardian. Always talk to your chosen trustee and make sure they consent to take the job before you finalize the arrangement.

You don’t have to name an alternate trustee, but it’s a good idea. If your first choice isn’t available and you haven’t named an alternate, a judge will pick the trustee. This can be expensive and means you lose control over who manages your child’s property. Use the same care in choosing your alternate as you do your first choice.

Choosing the Age When Management Ends

When you set up a child’s testamentary trust, you decide the age when the beneficiary will get the assets outright. Think about the size of the inheritance, how mature your child will likely be as a young adult, and whether the property will need ongoing management. If the inheritance is small, you might not need to make a long-term trust.

It’s important to honestly consider your child’s ability to manage money, since many young adults aren’t ready for a sudden large sum and may have trouble spending or investing wisely. Some parents wait until their children are older to give them access, but making the trust too restrictive can cause resentment and higher trustee fees. In the end, you’ll need to balance protecting the child with eventually giving them control.

How to Create a Trust for a Minor in Your Living Trust

You can also set up a child’s subtrust, as part of your living trust. In this arrangement, your successor trustee manages the property you leave to your child and uses it as needed for education, health, and other expenses. The subtrust ends at the age you choose, and any remaining assets go directly to your child.

How a Child's Subtrust Works

In your living trust, you state that assets left to a young beneficiary will be put in a separate trust if the child is under a certain age. If the child is younger than this age when you die, a subtrust is created for them. If they are already older, they get the property directly.

Usually, your successor trustee will manage any subtrusts for your children. If you want different people to handle each child’s inheritance, a UTMA custodianship might be a better fit. If you want to name someone other than your successor trustee for a child’s subtrust, it’s best to get a lawyer’s help.

The trustee manages these assets and uses them for the child’s needs as the trust directs. After you die, the subtrust can’t be changed, but you can update or cancel it while you’re alive. The trust ends when the child reaches the age you set in your trust document--at that age, any remaining assets go directly to them.

The Trustee's Duties

The child’s trust trustee is responsible for:

• managing and investing the subtrust assets for the beneficiary
• keeping the beneficiary or their guardian informed about investments
• using trust funds for the purposes set out in the trust, and
• filing income tax returns for the subtrust.

The trust document explains the trustee's duties and responsibilities. They can use subtrust assets to pay for professional help if needed. You can also choose to pay the trustee for their work.

What Is a Children’s Pot Trust?

If you plan to leave inheritances to young siblings, you might want to set up one trust for all of them, called a pot or family trust. In your will or living trust, you create the trust and name a trustee, who can decide how to distribute funds based on each child’s needs instead of dividing everything equally. The trust usually ends when the youngest child reaches a certain age, often 18.

A pot trust gives the trustee a lot of flexibility, but it also means older children have to wait until the youngest reaches the set age to get their shares. This can be a long wait for older siblings, especially if there’s a big age gap. For example, if your youngest is five and your oldest is 17, and the trust ends when the youngest turns 18, the 17-year-old would have to wait until age 30 to get their share.

If you’d rather have individual trusts for each child, you can leave property in separate shares and set up a trust for each child.

Learn More About Wills and Estate Planning for Children

Setting up a trust for a minor is a good way to protect their inheritance and make sure their assets are managed well until they’re adults. By choosing the right trust and trustee, you give your child security for the future and peace of mind for yourself and your family.

The following articles will help you learn more about wills and estate planning for children:

• Property Management for Minors in Estate Planning
• Property Managers for Children's Inheritance
• Naming a Child's Guardian in Your Will
• Digital Assets and Estate Planning

You can find out more about making WillMaker’s will and living trust in WillMaker’s Legal Manual.