How do you set aside an inheritance for a child?
Some people want to build savings that a child can access in the future. Let’s examine solutions for those who want to leave an inheritance to a child. There are no guarantees, and people die at young ages all the time. You would be the trustee of a revocable trust while you were still alive. You and your spouse could potentially establish a shared trust if you are married, and you could act as co-trustees.
When you draw up the trust declaration, you name a successor trustee to administer the trust after your passing. This person or professional fiduciary could manage assets for a minor child, if needed. The trust would be created following the death of the testator. A trust for the benefit of that minor can be the beneficiary of a life insurance policy. Life insurance can provide a solution, and a trust for the benefit of that minor can be the beneficiary of a life insurance policy.
UGMA/UTMA Accounts
There are tax benefits if you utilize a custodial account to accumulate resources for the benefit of a minor. The Uniform Gifts to Minors Act (UGMA) was originally released in 1956, and it was updated in 1966 to reflect changing circumstances.
A UGMA account can be used to hold resources for a minor child, and it is called a custodial account. The custodian, an adult asset manager, has similar responsibilities to a trustee. Contributions are not limited and can be made by different people. UTMA accounts are identical to UGMA accounts with one exception. UTMA accounts are identical to UGMA accounts with one exception.
Any type of property can be held by a UTMA account, so you can transfer real estate or valuable fine art into this type of account.
A 529 college savings plan can be a better choice to save money for a child’s education. The growth of the account is not taxed as long as the assets are used to pay for qualified education costs. After you have funded the account, you can change your mind. You can take possession of the assets. There would be fees and penalties. From a financial aid perspective, the assets are not considered to be the property of the student.
Originally, funds in a 529 savings plan could only be used for college expenses. The Tax Cuts and Jobs Act, which was passed at the end 2017 included a provision that expanded the scope. Up to $10,000 per year can now be used to help cover K-12 education expenses.
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