Protecting Children’s Financial Resources
Whether you are a new parent, have a growing family, or are a grandparent, now is a good time
to consider how to protect children’s present and future financial resources and their welfare.
Family protection includes investing in our children’s financial future. This investment should be
adequately funded and structured to avoid risk. Family protection also includes ensuring our
children are financially supported, no matter what the future brings.
Educational Financial Resources
With education costs rising every year, it is wise to take advantage of available resources to help
cover them.
The best way to save for a child’s education is a 529 Plan, and Illinois offers one of the least
expensive in the country: Bright Start.
There is no minimum balance required, and contributing to the account now provides “triple tax
benefits” with tax-deferred growth, tax-free withdrawals, and an Illinois tax deduction on
contributions. A 529 bonus is that other family members and friends can contribute to your
account.
One caveat: I advise all my clients to name a successor custodian for the Bright Start 529
account, whether it is the other parent or another trusted person. If the custodian dies without a
successor named, even the parent must petition the probate court to be named guardian of the
child and custodian of the account.
UTMA Accounts
A Uniform Transfers to Minors Account (UTMA) allows adults to transfer cash, stock, real
estate, art, and other assets to an account controlled by a custodian, until the child reaches age 21
in Illinois.
There are no contribution limits, the assets are taxed at the child’s tax rate, and the gift is
irrevocable. The assets are protected from the parents’ creditors.
A word of caution: While a UTMA account can help teach children the value of long-term
saving, you must prepare them to receive the account responsibly at a young age. Also, as a 529
custodian, be sure to name a successor custodian.
Supplemental Needs Trusts
If you plan to support a child or adult with a disability financially, the contribution must be made
to a Supplemental Needs Trust (SNT) to protect that person’s current and future government
benefits, such as SSI and Medicaid.
The funds held in an SNT are controlled and invested by your chosen trustee, who can support
the SNT beneficiary with a wide range of allowable expenses.
I frequently advise all clients to ensure that their estate plan, preferably a Living Trust, includes
an SNT for each beneficiary. Anyone can acquire a disability through accident or illness, and if
they do and your estate plan does not include SNT protections, they may lose their benefits or be
required to reimburse the government.
Early Planning is Essential
There are many other ways to invest in a child’s future, such as using popular savings apps like
Acorns and Greenlight, a Roth IRA, or a Fidelity Youth Account. The best way is to work with
your financial planner to create a plan that includes your children’s plan.
However you choose to invest financially in your children, remember to start your planning early and protect what you have earned in an updated estate plan, such as a Living Trust.
Your Living Trust
At the end of your life or if you become incapacitated, your real estate, financial accounts, firearms, and other assets held in your name may need to go through probate.
- A Will is filed in probate. The rule is that no one can legally sign on your behalf. Therefore, all assets in your name are subject to the probate process, which averages 18 months and is costly.
- A Living Trust completely avoids probate. An AB Living Trust protects up to $8 million of an Illinois estate tax-free.
- Your financial accounts, life insurance policies, and deferred compensation accounts can name your Living Trust as the beneficiary, subject to essential tax considerations.
- A Living Trust estate plan includes Health Care and Financial Power of Attorney documents. It also includes a Last Will and Testament. A Will is necessary for the guardianship of minor children and for transferring assets in your name out of Probate.
Contact us today for further information or visit Tuohy Law Offices now.
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TomTuohy.com
312-559-8400
17W220 22nd Street
Oakbrook Terrace, Illinois, 60181
This blog entry is for information and planning purposes. Therefore, it is not legal advice. Please do not use this blog as a substitute for legal advice, which depends on specific facts and laws in a particular jurisdiction. No reader of this blog should act or refrain from acting based on any information included in, or accessible through, this blog without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the reader’s state, country, or other appropriate licensing jurisdiction.
How Much Does a Living Trust Cost?
