Sep 19, 2010

Giving (and Leaving) Money to Kids

giving kid money.jpgLiza: Is there a rule as to how much money a child can own? And if so, how do I figure out what I can give to a child in my estate? Minors can only own a small amount of money in their own names, it varies from $2,500 to $5,000, depending on your state. But that's just the limit of what a child can own directly. You are free, of course, to leave your children as much of your assets as you want, you just have to make sure that the money is going to be managed for them properly. If you don't make any arrangements, and you die, a judge will have to appoint a property guardian to look after the minor's money until that minor is an adult (18 in most states). This isn't the best solution for several reasons: 1) the property guardian can usually make only limited investment choices; 2) the property guardian will have to report to the court on those investements; and, worst of all from most parent's perspective, 3) the child gets full control over all of the money when they become a legal adult. (I have heard stories about the kid who bought the entire neighborhood motorcycles). A better way to leave money to your children is to make an estate plan. In either your will or living trust, you can leave the money in trust for your children to whatever age you think makes the most sense (maybe 25 or 30), and appoint someone you trust to serve as the trustee (manager of the money) until that time. If that sounds too complicated, you can leave your children money in your estate plan under what's called the Uniform Transfer to Minor's Act (UTMA). This law, which is enacted in every state except for South Carolina and Vermont, makes it easy to leave property to children. You state in your will or trust that the gift to your children is under the Uniform Transfer to Minor's Act in effect in your state, and you name a custodian to manage the money for your kids (a person you trust to take care of the money until your child gets it). State law determines how long this custodial account can last, and it varies from 18 to 25. No separate trust account has to get created, your custodian can open a bank or a brokerage account for your children's benefit,and the money can be used for school, books, bubbles, and whatever else they'll need growing up.