Times flies and before you know it, your children are graduating from high school and college and maturing into young adults. Once children reach the age of 18, the state considers them adults, regardless of whether they remain living at home, go away to attend college, or begin working full-time.
One issue for many families is how to handle the transfer of valuable assets to their children when they reach the age of majority, usually 18 years in most states. Although the children may have matured considerably over the years and the state considers them adults, it may not be wise to transfer valuable assets to them without any restrictions or oversight. A solution to this dilemma is the Young Adult Trust – a revocable living trust created by your child.
A trust is a legal arrangement through which a person (or an institution, such as a bank or law firm), called a “trustee,” holds legal title to property for another person, called the “beneficiary.” In the Young Adult Trust, your child may be named as one of the co-trustees, while also being designated as the beneficiary.
The rules or instructions under which the trustee operates are set out in the trust instrument and can be tailored to meet your family’s individual needs. Unlike wills, trusts are private documents and only those individuals with a direct interest in the trust need know of trust assets and distribution. Provided they are well-drafted, another advantage of trusts is their continuing effectiveness even if the donor dies or becomes incapacitated. A revocable living trust, such as the Young Adult Trust, may be modified or revoked at any time.
Transfers under the California Uniform Transfers to Minors Act (CUTMA) provide a useful ownership form for minors, but are designed to terminate once the beneficiary reaches age 18. The revocable living trust allows a young adult to delegate oversight of assets to a parent until a later date, such as when the beneficiary reaches age 25 or 30.
The Young Adult Trust, a sort of beginner’s trust, provides the following features:
Determination of trustees by the young adult (usually a parent and the young adult acting as co-trustees)
A pour-over will, so that any assets left in the young adult’s name would be transferred to the trust upon his or her death
Healthcare documents appointing an agent and providing direction for health and medical decisions in the case of disability
A durable power of attorney for finances
Named beneficiaries, including charities, if desired
In addition to the features described above, the trust provides many other benefits. The Young Adult Trust allows your child to have a voice in the management of the trust assets within certain limitations and with responsible guidance.
Additionally, the trust creates a vehicle into which gifts can continue to be given and remain shielded from irresponsible use. The trust provides a mechanism with which to keep assets under family control, and also functions as a sort of pre-nuptial agreement, indicating an intent to keep the assets separate prior to marriage.
Perhaps most important, the Young Adult Trust allows a parent to teach their children proper financial management and discipline. As the child continues to age, responsibility can be shifted to the young adult.