A child’s trust is a legal entity that is established to protect a minor child’s assets. It works by entrusting the inherited assets to a pre-selected trustee or managing custodian who is charged with managing the assets in the child’s interest. The assets in a child’s trust are not subject to claims by creditors, because the child is considered to be an incapacitated person and the trust assets are not legally owned by the child.
The trustee of a child’s trust is responsible for investing the assets in a safe and sound manner, making prudent investments and decisions for the minor’s benefit. This often includes setting limits or restrictions on how the funds can be used and providing guidance on the best use of the funds. This may include certain investments, purchasing insurance, paying for college, providing for an inheritance, or for providing medical treatment, if needed.
The arrangement of a child’s trust is foewarded-looking, enabling the succession of the assets after the death of the minor child. At the appointed age, (usually 18-25) the governing body of the trust assigns the assets to the intended beneficiary. If the trust is not structured to transfer assets to another beneficiary, the trust will terminate at that time and the assets become the property of the child.
Why Set Up a Child’s Trust?
Setting up a child’s trust is essential for protecting a child’s assets, including gifts, inheritance, life insurance proceeds, and other income. A trust also allows parents, guardians, or caretakers to ensure that a child will receive the appropriate support and financial guidance while they are still under the guardianship of another. By creating a child’s trust you can ensure that a minor will be taken care of in the future and that their inherited assets will be managed in an optimal manner.