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Gifting to Minors

Gifting to Minors

Question: I plan to make large gifts to my children and grandchildren before the year is over. I have two daughters, and they each have two children. All of my grandchildren are under the age of 18. One daughter has some creditor issues and I am afraid that gifting her money will just result in more money going to her creditors. Is there any planning I should do before gifting?

Answer: With regard to gifting money to your daughter who has creditor issues, you should create a trust for her benefit and gift the money to the trust, rather than her directly. This trust, commonly referred to as an Inheritor’s Trust, will protect this gift from outside invaders, including creditors. 

Most Inheritor’s Trusts provide that any income generated from the trust shall be paid to the beneficiary and principal distributions can be made for any reason if there is an independent trustee or for health, education, maintenance and support if your daughter is her own Trustee. However, your lawyer can customize the language to provide anything you desire.

While beneficiaries can be trustee of their own trust, if you are concerned about your daughter’s spending habits you may consider naming someone else to be trustee for her or naming a Co-Trustee to act with her. 

Similarly, with regard to your minor grandchildren, you should consider creating Inheritor’s Trusts for each of them and gift the money to their trust. This will give your grandchildren creditor protection and will avoid a guardianship proceeding. Because minors are considered unable to own property in the eyes of the law, gifting them large sums of money may force their parent to become their property management guardian to gain access to the funds. 

Another option is to create a custodian account under the Uniform Transfers to Minors Act (“UTMA”). UTMA allows funds to be held by an adult custodian until that grandchild reaches 21 years old at which point the beneficiary is entitled to do anything he or she wishes with the account. The custodian can access the funds prior to the child’s age of majority for limited purposes. 

Depending of the size of the gift and whether or not you want your grandchildren to have unfettered accessed to the funds at age 21, a trust or an UTMA account is the wisest choice when giving money to minors. 

Lastly, whenever making gifts to family members recall that any gifts over $15,000 must be reported on a gift tax return in the year following the gift. Any amount of the $15,000 will come off of your estate and gift tax exemption, which will be $11.58 million as of 2020. To the extent that you have gifted more than your allotted exemption, a gift tax will be imposed.


- Kimberly Trueman, Esq. and Nancy Burner, Esq. 

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