What provision can be made to hold and manage assets for minor children and grandchildren?
Private Client (2nd edition)
A minor can inherit and own assets. However, most of the legal actions of a minor (other than actions that minors of their age usually do or legal actions between a minor and another party who did not know that their co-party is a minor) should be authorised by their legal representative (normally their parents), while certain actions should be authorised by the court, and parental authorisation would not suffice (such as, among other things, the transfer of an apartment, an action, which requires legal registration, the provision of guarantee and certain legal actions between a minor and their parents).
Assets can be held in a bare trust, an interest-in-possession trust, or a discretionary trust for the benefit of minor children of the settlor or minor children of a pre-deceased child of the settlor. A discretionary trust will defer a CAT charge from arising, and CAT will only become due when assets are appointed out of trust to the beneficiaries.
A charge to discretionary trust tax will arise after the death of the settlor, when all the principal objects (being the children of the settlor or the children of a pre-deceased child of the settlor) have reached the age of 21.
A civil/family partnership (cf. question 18) or a private foundation (cf. question 24) can be used as structures to hold and manage assets for (grand)children.
When assets are donated to (grand)children, an administrator can be appointed to protect the children and administer the assets, e.g. until they reach a certain age. The same goes for bequests made in a will.
Assets can be held and managed for minor children and/or grandchildren by a custodian or a Trustee.
Under the Uniform Transfers to Minors Act (UTMA), a person can open a custodial bank account for the benefit of a minor child. The assets in an UTMA account are managed by a designated custodian and distributed to the child when he or she attains the age of 18 or 21, depending on the state and the donor’s preference. A UTMA account for a child that is under the age of 19 or a full-time student under the age of 24 and holds unearned income that is in excess of $2,100 is taxed at the ordinary and capital gains rates applicable to trusts and estates.
Another option is to transfer assets in trust for the benefit of a minor child or grandchild. Most standard trust arrangements will work, but some are more tax advantaged than others. For example, certain trusts allow the donor to make gifts that qualify for the annual exclusion. One type of trust that qualifies for the annual exclusion requires that each beneficiary receive (a) notification of any contribution made to the trust, and (b) is given the opportunity to withdraw his or her share of the contribution. Another type of trust gives the minor child the right to withdraw the assets of the trust upon attaining the age of 21. Under either trust structure, if the child chooses not to exercise his or her right to withdraw the assets within a specified period of time, the assets can remain in trust until some later date (designated by the settlor of the trust). Yet another type of tax-advantaged trust can make use of the settlor’s GST exemption thereby sheltering assets from transfer tax for multiple generations. The taxation of income generated by assets held in trust varies based on the type of trust and the way in which it is structured.
Domestic trusts under the Trustee Law of 1955 or Cyprus International Trusts can be used to hold and manage assets for minor children and grandchildren. There is no limit on the period for which a Cyprus International Trust may continue to be valid and enforceable, and no rule against perpetuities or remoteness of vesting or any analogous rule will apply to a trust or to any advancement, appointment, payment or application of property from a trust.
Minors (children or grandchildren) can be appointed as beneficiaries of a private foundation. Orders to pay dividends to beneficiaries are subject to the control of the guardianship court until they reach the age of majority (normally 18 years). With regard to tax assessment there are no exceptions for minors.
Normally, parents are responsible for the management of the property of minors with certain activities being regulated by the regional courts (for example the sale of real estate properties). However, a private benefit foundation could be created to hold and manage assets for minor children and grandchildren (see questions 19,20,21 above).
Foreign Trusts are appropriate structures to hold and manage assets for minor children and grandchildren.
The management of a minor’s property is generally entrusted by law to his or her parents. This is known as the legal administration of a minor’s assets.
There is, however, an important exception to this principle. The Monegasque law allows any person to exclude from the legal administration by the parents the assets that he or she donates or bequests to a minor, provided that they are administered by a third party designated by Will or deed of donation.
Minors can own assets under Italian law. However, in such a case the law generally provides that the parents have the right of usufruct over such assets and that the income of the usufruct holder must be used for the maintenance of the family and for the education of the minor.
Trusts are commonly used as succession vehicles to hold and manage assets for minor children and grandchildren, and accumulation and maintenance trusts can be set up for this purpose. There is no perpetuity period in Bermuda so trusts can run indefinitely as dynastic trusts for future generations. There is also no tax payable in Bermuda on the assets held in trust.
25.1 The age of majority in the UK is 18 years. However, it is common for trusts and Wills to be drafted so that a child or grandchild's interest depends upon him reaching a greater age, for example, 21 or 25 years.
25.2 Property given to a child or grandchild who is under the age of 18 is generally held on trust (§19.2) for that individual, and the trustees (§19.2) may have wide powers under the terms of the gift or under the general law to invest and manage the property and to use it for his benefit before he reaches that age.
25.3 UK tax rules make it generally quite efficient for grandparents to set up bare trusts (§19.3) for their grandchildren, but not for parents to set up such trusts for their children. Where a grandparent makes a gift into bare trust for the exclusive benefit of a grandchild, that gift will not suffer any inheritance tax (§5) on the grandparent's death if the grandparent survives seven years from the date of the gift, and the income and capital gains arising to the trustees (§19.2) are treated as the grandchild's for tax purposes and so may fall within the grandchild's personal allowance (§2.3) and annual exempt amount (§2.10).
- Foreign tools
Foreign entities such as trusts and private foundations may be used to hold and manage assets for minor children and grandchildren that may be transferred once a specific condition is met.
- Domestic tools
- Typical arrangements under Colombian law
Colombian family law grants the parents of a child usufruct over the property of the child, save for some exceptions, such as the assets acquired by the child because of his or her work, or received by the child as a result of an inheritance, legacy or gifts. In addition, Colombian family law grants the parents a right to manage the property of their children, except for the assets acquired by the child because of his or her work.
Once a child becomes of legal age, and the parental powers over a child terminate, the parents are required to give full account of and hand over the property to the child. Parents are liable for any damage or reduction in the property of the child administered by them resulting from their negligence or wilful misconduct. They must therefore act in a careful and faithful manner. The administration of the child’s prop¬erty by the parents can be subject to review by the authorities. Apart from establishing specific regulations regarding the administration of the property, authorities may, as an ultimate measure, appoint a legal guardian for the administration of the child’s property.
Local trusts may also be used to hold and manage assets for minor children and grandchildren that may be transferred once a specific condition is met (e.g. legal age).
Such provision is usually made by the establishment of a Cayman Islands trust which includes appropriately drafted terms.
According to German law minors can hold assets regardless of their age. However, it is their parents who manage their assets on their behalf. Though, in certain cases a legal guardian needs to be appointed, for example when at least one parent or a close relative is a party of a contract that does not only provide legal benefits for the minor. Furthermore, if a contract establishes an economically considerable obligation of the minor (e.g. sale or purchase of real property, of business or shares) it has to be approved by the family court.
In case of inheritance the testator can name in his Will a person other than the minor’s parents to administer those assets that the minor will receive by way of succession. Instead the testator may appoint an executor for his estate who would manage the assets for minors until they reach a certain age.
Typically, discretionary trusts are used to hold and manage assets for minor children / grandchildren – the children may be set up as discretionary beneficiaries or a class of beneficiaries under the trust. There is no special tax treatment for trusts set up for minors.
Private foundations and personal legacies are available in specific conditions.
As already explained, because minors (children and grandchildren) are protected by the Civil Code, there is no standard provisions allowing holding and managing assets for them.
The trust remains a very efficient tool to achieve the protection of minors despite the caveat already explained in § 22.
In the context of a trust/foundation the settlor/founder has complete freedom regarding whom he wants to appoint as the beneficiary of the structure. Subject to limitations which might arise out of forced heirship rules, he is also free to shape the respective beneficial interests.
Thus it is possible to appoint minor children and grandchildren as beneficiaries of a trust/foundation and to determine the amount and timing of distributions and to set terms and conditions. For example, it is possible to make distributions dependent on the beneficiaries' reaching a certain age.
In case of inheritance, the testator may appoint an executor (which can be a person other than the minor's parents) for his estate who shall manage the assets for minors until they reach a certain age.
Other than a Tutor, that is the person in charge of a minor, the typical structure regulated by Mexican law to be able to maintain and manage the assets of minor children and grandchildren is the fideicomiso, which, as noted, is a structure that can have any purpose as long as it is licit and determined.
Based on the foregoing, nothing would prevent a person from establishing a fideicomiso for a fiduciary institution to administer the assets of their minor children and grandchildren, provided that said assets are lawful and determined. This would have the tax consequences that were explained in previous answers.
In order to manage minor assets, in the absence of the parents, it is possible for the parents to nominate a guardian by will or any other authentic document. The guardian shall manage the assets of the minor, however any act of disposal affecting the assets must be authorized by the court which will require in the process, the consent of a public prosecutor.