Minor's Assets - How To Protect

This page tells you about:

1. What can I do to protect money my child inherited?
2. If my child inherits more than $5,000, do I have to go to Court?
3. How do I petition the Court?
4. What if I want to make a gift to a child?
5. What if I do not appoint a custodian?
6. What happens when the child turns 18?
7. Can the custodian give the property to the child or use it for the child’s benefit?
8. What if the child wants to know how the custodian has handled his/her assets in a custodian account?
9. Can I put $10,000 a year in an irrevocable trust for a child?
10. What is an irrevocable trust?
11. Can I use a trust to save money for my child’s college expenses?

1. What can I do to protect money my child inherited?

   If your child inherits $5,000 or less, you can hold the money in trust until your child turns 18. The law says there are some things you must do:
    

   • Give a receipt to the person who gives you the money.
   • Give a written promise that the total value of the property your child owns is not worth more than $5,000, including this money.
   • When your child turns 18, give your child an accounting of the money you have held in trust.

   For more information, see Probate Code Section 3300 to Section 3402.

2. If my child inherits more than $5,000, do I have to go to Court?

   Yes, unless the person who left the money to your child arranged for the money to go into a trust.

   If there is a guardianship of the estate set up for your child, the money can be held in the guardianship. If there is no trust or guardianship, you (or the person holding the money for the child) can file a petition in Superior Court.

   Sometimes the Court will allow you to invest the money to pay for the child’s education, or some other specific purpose. If your child inherits $20,000 or less, the Court can order the money be held in whatever way the Court decides is best for the child.

   If your child inherits more than $20,000, the Court can order that:
    

   • A guardianship be created and the money turned over to the guardian;
   • The money be invested with the County Treasurer;
   • The money be deposited in a blocked account, or a single premium deferred annuity, with withdrawal only by a Court order;
   • All or part of the money be turned over to a custodian under the California Uniform Transfers to Minors Act.

   For more information, see Probate Code Sections 3410 to 3413.

3. How do I petition the Court?
    

   Step 1	Prepare your Petition Write a document that says: Who you are (parent, guardian, the person holding the money, etc.) Exactly how much money the child will receive What you want the court to do (put the funds in a blocked account, annuity, etc.) Why you think this is best for the child You are asking the Court to make an order allowing you to do these things At the bottom of your petition, write: “I declare under penalty of perjury under the laws of the State of California that the information above is true and correct.” Then sign and date it.
   Step 2	Give Notice Fill out Judicial Council form GC-020, entitled “Notice of Hearing, Guardianships and Conservatorships.” This form tells other people about the hearing, usually the guardian, the child and anyone who asks for notice. There are special rules for giving notice. You must follow them carefully. Read about how to give notice in Probate Code Section 1460. To learn more about filing petitions in Probate Court, read: the Local Probate Rules of Court.
   Step 3	File your court papers at the Probate Clerk’s Office File your Petition and Form GC-020 (Notice of Hearing) and one copy of each document for each person you give notice to. If you already prepared your proposed Order (see Step 4, below), you can give it to the Probate Clerk, along with a copy of your proposed Order. Please make a copy of everything you file. Give your copies to the Clerk. He or she will stamp them all “Filed” and give them back to you for your records. (Exception: The Clerk cannot stamp the Order until the judge approves it.) You will pay a filing fee. Then, the clerk will give you a case number and a hearing date. If you have questions, call the clerk at: 408-882-2100 .
   Step 4	Prepare an Order and take it to the Clerk You must prepare an Order for the judge to sign. The Order looks a lot like your Petition. It has the same case name, case number, and your name, address, and phone number. But, call it “Order: instead of “Petition.” Your Order has the same information as your petition. But, you must write your requests as commands. If your Petition says: I ask the Court to request authority to sell the real property located at 123 Elm Street, San Jose, California… Your Order will say: The Court orders guardian is authorized to sell the real property located at 123 Elm Street, San Jose, California,… Be sure to leave a place for the judge to date and sign it. Take your proposed Order and a copy to the Court Clerk’s office when you file your petition, or at least one week before your hearing.
   Step 5	File your Order with the Probate Clerk’s Office If the judge grants your request at the hearing, s/he will sign and date the Order. The court clerk will give you back the signed order and your copy. Take your signed Order to the Probate Clerk’s Office and file it. Ask the clerk to stamp your copy of the Order, too.

4. What if I want to make a gift to a child?

   You can make a gift to a child while you are alive or when you die (in your Will or trust). You can give a child cash, stocks, real property, or any other property. To make a gift while you are alive, you may transfer it to a custodian. You can use a form like this:

   I, _____________________________, hereby transfer to ____________________ (name of custodian), as custodian for _____________________________ (name of child) [until age _____] under the California Uniform Transfers to Minors Act, the following: ___________________________ (describe your gift). If ____________________ (name of custodian) is not able to serve as custodian, I appoint ____________________ (name of alternate custodian) to serve in his/her place. For more information on The California Uniform Transfers to Minors Act, read Probate Code Sections 3900 to 3925 .

5. What if I do not appoint a custodian?

   Your personal representative or your trustee may be able to distribute your bequest to a custodian for the child, but only if:

   • S/he believes the transfer is best for the child;
   • The transfer does not go against any terms of the Will or trust; and
   • The amount is $10,000 or less or authorized by the Court. If it is over $10,000, you must ask the Court for permission if the custodian is a trust company or the trustee of a trust that does not require the trustee to post a bond.

6. What happens when the child turns 18?

   When the child turns 18, the custodianship usually ends. If you make the gift during your lifetime, you can specify any age up to age 21. If you make the gift in a Will or trust you can specify any age up to age 25.

7. Can the custodian give the property to the child or use it for the child’s benefit?

   Yes. But, the law says it must be for the benefit of the child. (Probate Code Section 3914) But, you cannot spend money from a custodianship to pay for the child’s food, clothing, or shelter.

8. What if the child wants to know how the custodian has handled his/her assets in a custodian account?

   Any child, 14 or older, can ask the custodian to account for assets held in his or her name. Other people can ask for an accounting, too:

   • The child’s adult relatives
   • The child’s guardian or legal representative
   • The person who made the gift, or his/her representative

9. Can I put $10,000 a year in an irrevocable trust for a child?

   Yes. The law says you can contribute up to $10,000 per year for each child (donee) without using any of your unified credit amount (now $1,000,000). You must follow IRS requirements.

10. What is an irrevocable trust?

    An irrevocable trust is similar to a revocable trust: it has a settlor (the person who creates the trust and puts the property in it), a trustee (the person who manages the property in the trust), and a beneficiary. It also has special rules that say what a trustee can do.

    The IRS recognizes three different kinds of irrevocable trusts for children:
     

    Section 2503(c) Trust	The trustee can spend income and principal for the child’s benefit and must distribute all assets in the trust to the child by the time he or she turns 21. You can contribute up to $10,000 per year to a Section 2503(c) trust without using up any of your unified credit.
    Section 2503(b) Trust	The trustee can give income to the child or spend income for the child’s benefit. The principal must stay in the trust until the child reaches the age specified by the person who gave the money (settlor). You can exclude up to $10,000 of trust income from taxes. But, because the principal is not available for the child, it counts against your unified credit amount immediately.
    Crummey Trust	The child can withdraw money from the trust for a “reasonable period of time.” The law does not say exactly how much time is “reasonable.” But, the IRS has accepted 30 days as a “reasonable period of time.” When you put money into a Crummey trust, you usually intend for the money to stay there, even though the child can make a withdrawal.

11. Can I use a trust to save money for my child’s college expenses?

    Yes. You can use a trust to save money for your child’s or the child of your brother or sister’s college expenses. There are many ways to do this. Talk to a financial advisor you trust.

    Most states have tax-deferred savings plans with no annual limits. But, in most cases the money in the trust is your property. So, when the child withdraws the money, you will have to pay taxes at your tax rate.

    California has a special deferred savings plan for college called the California Golden State Scholarshare College Savings Trust. See more information at www.scholarshare.org/.