Creating a 2503(c) Minor's Trust for Your Clients: Tips and Tricks

Mar 7, 2017 3:57:15 PM

Learn more about how a 2503(c) minor's trust can help particular clients create bright futures for your client's children or grandchildren.

Student debt is the bane of the millennial generation. Huge educational loans are preventing many millennials from buying homes, marrying and having children – even moving out of their parents’ house. Your client wants to ensure that his or her children or grandchildren will have sufficient funds to pay for college when the time comes.A 2503(c) minor’s trust serves as a tax-efficient higher education savings instrument. While the 2503(c) trust has many advantages, there are some aspects that may not suit a particular client. If that’s the case, alternatives for college funding may be more appropriate for that individual. Here are a few considerations:

  • Make sure the client fully understands that gifts to the trust are irrevocable. While the trust is intended for college expenses, some young people may decide to forego college or any type of secondary education. They will still receive any property and income in the trust at age 21. The money intended for college tuition may then be spent any way they want …and most likely not in the way your client intended!
  • Before the child turns 21, any income earned from the trust is taxed at lower trust rates. Even if the beneficiary decides to leave the money in the trust after turning 21, they will become responsible for paying taxes on the income at their rate.
  • Crummey trust conversion. Despite its unfortunate name, an automatic conversion of a 2503(c) trust to a Crummey trust allows annual gifts to the trust to continue to benefit from the gift tax exclusion even after the child’s 21st birthday.
  • Your client may want to act as the trustee of a Crummey trust, but that is not necessarily a good idea. If the trust still exists at the time of the client’s death, it is included as part of the taxable estate. Have someone other than the client or his or her spouse serve as trustee.

Wealth Docx® Irrevocable Trust System

Things should always be made as simple as possible, but no simpler. Creating a minor’s trust or any variety of trusts is made much simpler with Wealth Docx irrevocable trust system software. These documents, written in “plain English” ensure your client understands the nature and limitations of any trust. Call us today or visit us online to find out how Wealth Docx can enhance every aspect of your trust and estate planning law firm.

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