15.5 Minor's or Educational Trust

• Library: A Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner (ABA) (2018 Ed.)

15.5 Minor's or Educational Trust

A parent desires to establish a college fund for his or her children who are presently ages 4 and 6. The fund will be used for the children's education when each reaches college age and will continue thereafter if the funds are not entirely used for education. For a discussion of the federal gift tax considerations, see Chapter 3, at 3.5, and Chapter 5, at 5.29. Two helpful ABA publications are N. Shurtz, Education Planning: Taxes, Trusts and Techniques, (ABA, 2007) and C. D'Aversa, Tax, Estate and Lifetime Planning for Minors (ABA, 2006).

TRUST AGREEMENT

THIS TRUST AGREEMENT is entered into between the Settlor, RICHARD HENRY ROE, Madisonville, Kentucky, and the Trustee, MARY JANE ROE, Madisonville, Kentucky.

? Comment: The settlor should not act as trustee, because this could result in the trust being included in his or her estate if he or she dies before termination of the trust. If the property transferred to the trust is the settlor's property and the settlor's spouse joins in the transfer only for purposes of gift-splitting, she or he should still be able to serve as trustee without the trust estate being taxed to her or his estate in the event she or he dies before termination of the trust. However, if the settlor's spouse dies while the child is under age 18, it is possible the trust will be treated as an asset of the spouse's estate, because she or he will have the ability to discharge his or her parental duty of support from the trust, which could be considered to be tantamount to a general power of appointment. Treas. Reg. § 20.2041-1(c). After the child reaches age 18, there is no further problem. The other alternative is to name a trusted friend or relative, or a financial institution, to serve as trustee.

WITNESSETH

The Settlor has delivered or will deliver to the Trustee the property described in Schedule A. Upon receipt of this property, the Trustee agrees to hold it in trust and to manage and dispose of it according to the provisions of this Trust Agreement.

ARTICLE I

A. The Trustee shall divide the trust property into three equal trusts, one for the benefit of each of the Settlor's children, Delores Lynn Roe, Carol Rae Roe, and Kent Allen Roe. Each of the Settlor's children will be referred to in this Trust Agreement as a "beneficiary."

? Comment: The trust must be separated into separate trust funds for each child rather than one "pot" trust for all the children. This can be accomplished with one trust instrument. In the administration of the trust, separate taxpayer identification numbers are necessary for each child's trust, and separate fiduciary income tax returns are required. If preferred, a separate trust can be created for each child.

B. Until the beneficiary reaches twenty-one years of age, the Trustee may pay to the beneficiary, or pay for the benefit of the beneficiary, as much of the net income and principal of the...