If you have children and you want to ensure that they receive their inheritance in the event of some tragedy, there are several legal vehicles available under Maryland and D.C. law. The issue is important if the children are under the age of 18, because, under Maryland law and the laws of D.C., persons under the age of 18 cannot receive an inheritance in their own name. The issue may also be important if there is a desire to only provide the inheritance once the child reaches a certain age – like the age of 25. Essentially, the legal vehicles are some form of trust, either created directly or created through a Last Will & Testament. Creating a trust vehicle in advance of a death is important both to ensure the inheritance is received properly and also to save money. In the absence of a trust, if there is a death, Maryland courts will have to establish a guardianship for minor children receiving an inheritance. This takes time, involves costly proceedings and the court’s will be involved until the child reaches the age of 18. Here are some basics.
Establishing a trust
A trust is established by drafting and executing trust documents under Maryland law. The trust documents will establish the purpose of the trust, designate beneficiaries and appoint trustees for managing the trust. Generally, the trust will need to obtain a tax identification number, establish a financial account and file annual tax returns. When children are the beneficiaries of a trust, the trust documents will state how money in the trust can be spent (such as “for the child’s education”) and the conditions under which the trust assets are to be distributed to the children (such as “upon reaching the age of 25”). The trustee – often the creator of the trust – is tasked with distributing the trust assets as allowed and required by the trust documents.
As noted, trusts can also be created through language inserted in a Last Will & Testament. As indicated, such a trust would not be created until a death has occurred. The general term “pour-over” is used since, most often, it is the remainder of a decedent’s post-death assets that are put into the trust after debts are paid and specific bequests are distributed.
Uniform Transfers to Minors Act accounts
Another method of ensuring a child’s inheritance is to use the Uniform Transfers to Minors Act (“UTMA”). Both Maryland and the District of Columbia have passed a version of the UTMA. UTMA accounts are not technically trusts (although they have “trust-like” attributes). A “custodian” is named, rather than a “trustee.” A UTMA account must be distributed before or on the child’s 21st birthday, but can be distributed as early as the 18th birthday. One advantage of using the UTMA is its simplicity. The Last Will & Testament simply needs to state that a gift or bequest – money or property – is made to a person named as “custodian” for the benefit of a named child coupled with the following language: “… under the Maryland [or D.C.] Uniform Transfers to Minors Act.” The only other requirement is that an age (between 18 and 21) must be specified for when the account assets will be turned over to the child.
Maryland and D.C. Estate Planning Attorneys
If you are concerned about ensuring a child’s inheritance or are thinking about establishing a trust or need estate planning documents drafted, contact the seasoned and experienced Maryland and D.C. estate planning and family law attorneys at The Law Offices of Thomas Stahl. We have the experience and expertise you need. Schedule a consultation today or call us at (410) 696-4326 or (202) 964-7280.