07/20/2018










3 Reasons to Set Up a Minor Trust

A minor trust is a type of trust fund that parents or grandparents set up for their minor children or grandchildren. it is generally used for a variety of reasons when a child earns income of any kind. There are certain benefits that come as a result of setting up a minor trust that should be taken seriously. These aspects can help you to better decide whether to create this type of trust for your child.

Protection Against the Kiddie Tax

There are taxes on any income that is earned, even that which is earned by minor children. There is what is known as “kiddie tax,” which can affect a child well into his or her twenties. The tax can have a major adverse effect on a regular savings technique that parents create for their kids that is typically meant for a college fund. When a minor trust is created, the child’s money is protected because this tax never becomes a factor.

Avoidance of Gift Tax

In addition to the “kiddie tax,” gift taxes can be avoided when a minor trust has been created for a child. What this means is that parents or grandparents can give up to a certain amount of money each year without being responsible for paying a gift tax. Making financial gifts to children, especially earlier in life, can really benefit everyone due to the fact that the money will grow over the course of time.

Builds Up Funds Over Time

Finally, another good reason to create a minor trust is to set aside money for your child that he or she cannot touch until the age of 18, 21 or 25 if you so deem it appropriate. Generally, a minor trust is made for the purpose of saving money for the child so that he or she can attend college. The funds are untouchable until you decide otherwise. You will be able to decide when your child or grandchild is mature enough to handle the responsibility of the money and use it the way it was intended to be used. This also means that the money will have sufficient time to build up over time so that your child will have access to more rather than less.

If you are a parent or grandparent of a young child, consider setting up a minor trust. It will definitely benefit the youngster in the long run.

Sources:
http://www.ustrust.com/publish/ust/capitalacumen/winter2011/features/top-5-reasons-for-creating-trusts.html
http://www.scscourt.org/self_help/probate/minors/minors_assets.shtml
http://www.businessmanagementdaily.com/19937/create-minors-trust-to-avoid-major-problems-kiddie-tax



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