Planning for the Next Generation

Parents have a variety of reasons for being concerned with estate planning as it relates to their children or grandchildren. Many clients have questions regarding the best way to ensure the financial security, stability and responsibility of the next generation. Whether parents’ worries stem from their children’s lack of financial maturity, the unstable economic times, or a simple concern for having control over their finances, there are a variety of planning methods that should be discussed with a qualified Estate Planning attorney. The legal team at Garg & Associates is available to assist you in determining the best planning method to address your unique concerns.

Probably the most common topic that parents or grandparents wish to discuss is the use of trusts in estate planning for future generations. Trusts for descendents come in a variety of forms, and are instituted for a variety of reasons—from control over an inheritance, to tax planning. A qualified attorney should always be consulted regarding the myriad of options for trust planning; a few general topics are as follows.

You may have heard the term “2503(c)” trust. This type of trust is a very common method of planning for children, and is named for the section of the Internal Revenue Code that outlines its use. It is also very often simply called a “Minor’s Trust.” When these trusts are properly utilized and funded, they can be highly beneficial tax-planning vehicles, since contributions will be treated as “present interest” gifts for gift tax purposes. As a general matter, the funds in a 2503(c) trust can be held in trust until the child reaches the age of 21. Under some circumstances, this time period can even be extended. Therefore, these are often attractive options for parents who do not believe their children have the financial responsibility to manage funds at age 18, or who want to ensure a great deal control and insulation of trust funds (for example, by selecting trust investments and the trustee).
Another trust term very often heard in the planning for future generations is a “Crummey trust” (named after the case outlining its use). This type of trust can hold assets well beyond the point a child reaches the age of 21, and is therefore likewise a very attractive planning option for parents. Crummey trusts are likewise also effective gift-tax planning vehicles, since when properly used, their contributions will avoid gift-tax consequences. The caveat to this planning vehicle is the mandate for annual “Crummey notices” to the trust beneficiaries each year that a gift is made to the trust, and the ramification of these notices (sometimes referred to as “Crummey withdrawal rights”) should be understood before implementation.

A variety of other topics—from tax-planned trusts to simple Uniform Transfer to Minors Act arrangements—should be discussed with your estate planning attorney before selecting or implementing the estate plan that best suits your needs. We invite you to contact the Houston Estate Planning attorneys at Garg & Associates with your questions and concerns about providing for future generations of your family.

We invite you to contact us for a consultation. Call Garg & Associates, PC at 281-362-2865 or complete our contact form.

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Garg & Associates, PC | 21 Waterway Avenue, Suite 300 | The Woodlands, Texas 77380 Please call 281-362-2865 | Fax: 866-743-4506
Serving The Woodlands, Spring, Houston, Conroe, Kingwood, Tomball, Cypress, Huntsville, Cleveland, Stafford, Montgomery County, Harris County, West Oaks, Memorial, Sugar
Land, River Oaks, Alief, Stafford, Missouri City, and Southwest Houston Texas.